Aviadvigatel and Perm Engine Company discuss merger, but the state could pose obstacle

Published: 1/28/2000

The Aviadvigatel engine design bureau and Perm Engine Company (PMZ) both based in Perm are in the process of merging according to Aviadvigatel. The plan for the bringing together of the design bureau and engine plant will be reviewed and approved by the board of director of both companies in February. For Aviadvigatel the benefits of the merger would be to partially escape the constraint of dwindling government development monies and get closer to the cashflow and potential investment of the PMZ aeroengine overhaul and maintenance business. For PMZ a closer relationship with its main engine designer is seen as a good development for the future, particularly as the Aviadvigatel designed PS-90, built by Perm, and one of its main products, appears to be overcoming its initial design problems and is benefiting for the pickup in demand for the Tu-204-100 in particular. The rather confusing structure of the major shareholder in PMZ, Perm Motors, may mean that the final merger may take several years to complete. The state has a 20% stake in Aviadvigatel and a 14.3% stake in the PMZ holding company Perm Motors. PMZ however, has minority shareholders including Pratt& Whitney and financial holding company Interros. According to Valery Mikheev of Aviadvigatel , the state is unhappy to see any dilution of its Aviadvigatel holding in the newly merged entity and the challenge is to find a suitable method to achieve merger , while answering the state"s concerns about dilution. These type of complaint by the state are however, not infrequent, as was found during the merger of Samara Airlines and AeroVolga, where the state felt that its interests in the two merging partners, one large and one minor, would lead to unacceptable dilution and it was a considerable period of time before the matter was resolved in October of 1999. The decision for the structure of the deal should be made in February following an agreement to look at the terms in December.

Article ID: 1375