Military rumoured to start upgrade company, with Kremlin support , to the consternation of producers

Published: 12/3/1999

According to reports emerging in the Russian newspaper, Segodnya, the Russian military, in combination with the Kremlin, are attempting to create a new company to upgrade military aircraft. Citing informed sources, Segodnya claims that Colonel General Anatoly Sitnov, responsible for armed force"s equipment, has issued an invitation to designers who recently resigned from MAPO, offering them the opportunity to continue to work in the military area by joining the company. There are also rumours in Moscow that Chief Designer Mikhail Simonov from Sukhoi, as well as designers from the Yak design bureau, may join them. The motivation for the Kremlin"s endorsement of such a venture is cynically judged by some to gain two objectives: firstly, support for Prime Minister Putin"s presidential campaign next year from the military, who are concerned about their capability to modernise; secondly to gain access to the potential lucrative flow of money in armaments sales. If the Kremlin is involved in the formation of a new enterprise, it may not necessarily go down well with some government ministers, particularly Ilya Klebanov, Deputy Prime Minister responsible for the aerospace industry, who recently welcomed MAPO"s decision to focus on the development of civilian business. He is unlikely to have thought it might lead to the producer losing potentially lucrative military activity at the same time. For the existing producers, the possibility of having modernisation contracts snatched away by an entity linked to the Ministry of Defence is extremely disturbing, according to Anatoliy Baranov, spokesman for MAPO, who concedes it would be difficult to compete with the potential new entity, if it has the designers who produced the aircraft in the first place, as well as political support. Baranov claims that: “The problem is that there are commercial interests supported by state representatives, which pursue “pirate" modernisation of fighters produced by MAPO such as the MiG-21, MiG–23 and MiG–29". He believes that the policy could potentially result in the bankruptcy of MAPO given that small, aggressive companies can modernise old aircraft, earning " fast " money without incurring the overheads of MAPO and by “pirating" MAPO investment in building the aircraft. Whether or not this is true is debatable, but there is little doubt this development could potentially have a significant impact on the industry"s structure. According to Segodnya, for a new entity to get state orders, besides technical capability, it would have to have strong links with the Kremlin ‘family" of advisers and relatives around President Yeltsin. The family has already established its interest in Rosvooruzheniye, with the appointment of its own man to run the cash generative agency and this potential expansion would be entirely logical on the basis of having access to the considerable funds allocated for modernisation, estimated to be 5 billion rubles. It would also win the gratitude of a military increasingly frustrated by the situation, particularly Col. General Sitanov, who is seen as the military architect of any such venture. Against a broader backdrop, for the Russian aerospace industry, this particular move could be damaging. The potential removal of even part of the industry"s military orders, either domestic or export, would severe reduce the capability of the struggling aerospace companies to fund ongoing civil activities. The government has ceased to be an active participant and a number of initiatives relating to issues such as restructuring and leasing still remain either uncompleted or awaiting clarification.

Article ID: 1165