Row intensifies over major export contract, as EGM is called (792 words)

Published: 8/19/2001

OAO Tupolev has issued a statement criticising what it calls a lack of experience among the New Community (NC) management team that is currently running Aviastar. State-owned OAO Tupolev, the controlling shareholder in the aircraft producer, recently prevented the granting of a 26% stake in Aviastar to New Community in return for substantial investment in the plant, so prompting NC from withdrawing its financial support. Tupolev said that New Community's inexperience in running an aerospace enterprise, combined with other factors, is likely to lead to failure. Alexander Polyakov, Vice President of Tupolev, claims that the evidence for this lies not so much in the management of the production facilities, but in the plant's major relationship with its primary export customer, Kato Aromatic/Sirocco International. According to Polyakov and confirmed by other sources, the new management informed the company that it wished to renegotiate the current contract of $6m per aircraft under which four aircraft have been supplied, on the grounds that the plant's cost of an aircraft was $12m. Polyakov alleges that this received an "indignant" response from Dr Kamal, the owner of Kato Aromatic, especially given his long association with the plant and programme. Kamal's reaction clearly fuelled the speculation of a transfer of aircraft orders to KAPO and the Tu-214. Polyakov acknowledges that the arrangement was unprofitable, but says that the previous management had been working to resolve it, while the new managements approach has caused a crisis, owing to a lack of tact. He also claims that the Russian Aerospace Agency and the regional government have responded to the reports of the ultimatum to Kato by withdrawing political support, leaving the new management in the lurch and the NC investment deal in limbo. A resolution of the situation will take place on 22nd September at an EGM, when the future of the NC management appointees will be on the agenda. According to reports, however, Tupolev is keen to remove them and will be proposing its own candidates. Polyakov describes the changes as "unfortunate" but, without the support of the region and the aerospace agency, he states that the current management is putting the plant in jeopardy, adding that Tupolev had been "hasty" in originally giving its support to the transfer, although earlier reports had suggested that the decision had not received the approval of the full Tupolev board. The turn of events at Aviastar are largely unexpected and appear to be mainly instigated by Kato which has undoubtedly been ringing alarm bells throughout the Russian hierarchy, with threats of the removal of support to the aerospace industry. The reported letter to Kato has led AO Aviastar and Piosveole, a Cyprus holding company with a reported 10% stake, to call for the EGM. Aviastar SP initially opposed the call, but subsequently complied when the regional government came out in favour of the EGM. According to Vladimir Tsarev, Ulyanovsk Deputy Governor, the region and the city of Ulyanovsk own 11% of Aviastar, allowing them to meet the 20% threshold to call the meeting. New Community, for its part, seems unperturbed by the developments and Oleg Gruzdev insists that, by 22nd September, the company may have received its 26% stake in the enterprise. According to Gruzdev, Valery Maltsev has already met with Vladimir Shamanov, Governor of Ulyanovsk, to discuss the situation and has been promised a decision in a week. NC clearly believes that this decision will be in its favour. Gruzdez also said that, as soon as NC receives its interest, it will restore the funding of the plant and has earmarked Rb700m ($25m) for that purpose. As a result of its commitment, he added that NC has received the support of the plant's trade unions, which have written to the various bodies involved, expressing support for the NC management. Gruzdev said that the letter to Kato was simply prompted by NC's thorough due diligence of the plant and its suppliers, which found that that the current pricing policy was unsustainable. He confirmed that the price in the Kato contract was $6m and the company had expressed interest in 20 aircraft, but he did add that the NC Aviastar management has no plans to build the Tu-204-120 for three years. This statement will surprise many of those who have recently been seeing a future for the aircraft with an RR engine, after JAA certification and interest from other Russian and foreign operators. According to reports, Aviastar currently has 12 Tu-204s at various stages of completion and the new management has started building two additional aircraft from scratch. The plant is projecting to complete three aircraft this year, nine in 2001 and 12 in 2003.

Article ID: 2714