Tatarstan producer launches attack on new holding structures (980 words)

Published: 9/11/2001

According to reports from the Ministry of Economics and Trade Development, GUP KAPO is to be reorganized as a 100% state-owned joint stock company (JSC) from its current status as a state entity and will privatized at a later date. However, statements made during a recent visit to Tatarstan by the Minister of Economics and Trade Development have suggested that the aerospace industry in the republic, while eager for privatization, is not happy with the proposed new aerospace holding structures. The ministry is to be responsible for preparing a plan for KAPO's privatization, in addition to liaising with other government bodies on measures to improve the financial position of the plant. There are no details as to what exactly these measures might be, but initial reports suggest that a thorough examination of the plant's cost structure and restructuring of its assets may be at the centre of any investigation. The Tatarstan privatization fund has allocated $1m for the task, which looks set to be undertaken by the comprehensively named Tatarstan Agency on State Order, Investments, and Inter-regional Relations. German Gref touched on the broader context of KAPO within the new aerospace industry structure in Russia, after a recent visit to Tatarstan, a week after Mikhail Kasyanov had approved and signed the program “Social and economic development of Tatarstan till 2006”. The total cost of the federal programme, under which Rb68 billion is allocated from the federal budget to Tatarstan, is Rb347 billion. The objective Gref's visit was to deliver the document personally to Kazan. Gref outlined the plan for the reorganization of the industry into two major holdings: a change that is not entirely in line with local opinion, particularly relating to the inclusion of KAPO within the Tupolev grouping, in the second holding SVSK-2. There are rumours circulating that the participation of the Tatarstan aviation plants is a condition on which the state will join the aircraft leasing programme. Gref may have been trying to mollify local opinion, when he was reported as having said that, under the new structure, KAPO would retain its “status as an independent entity” and that this had been agreed with the regional government, while sharing coordinating policy with the holding in technical and financial policy on entering the new holding. But the underlying tension between the various parties involved was highlighted by the response of Nail Khairullin, General Director of KAPO, to a question from Gref during a visit to KAPO about the level of preparedness for entry into the new holding. According to Serguey Kogotin, Minister of Economics and Industry of Tatarstan, quoted in the local press, the delay in answering was a long one and was apparently received by Gref in what was described as a “negative manner”. Media reports also relay that the managers of Tatarstan's aerospace enterprises and the government are unhappy about the way the holding companies have been created. They believe that the consolidation of the industry should involve the weak being taken over by the strong, rather than all the companies involved being simply being corralled under threat of loss of state orders into what Kogotin considers to be artificial companies that do not add to the quality of the industry and preventing the consolidation of capacity. In particular, Kogotin cited the “successful” vertical integration within KVZ, that has given the plant the ability to develop and produce all Mil designed helicopters in addition to its own product for the international market, as being vulnerable to the ill- conceived structures. Alexander Lavrentyev, General Director of KVZ , said that no one asked KVZ whether it felt that there was a need for a holding, or whether it agreed with the rationale for it to report to the struggling Yakolev bureau within the SVSK-1 holding. This has led him to believe that the holding is nothing more than scheme to deprive the well run sections of the industry of valuable resources, in order to keep the inefficient afloat. He therefore re-iterated his intention to remain independent and follow the example of MVZ in declaring its desire to remain so. It seems that the helicopter producers hold a similar view of the restructuring proposal, with Sergey Mikheyev, General Designer of Kamov, declaring that he sees no logic in the plan currently proposed and remains in favour of an earlier plan, pulling together all the entities involved in the design and production of Kamov products into a single independent structure. Mikheyev is against incorporating Kamov with its historical partner MiG at MAPO, arguing that the synergies are insufficient to justify the consolidation in the short term, although he did accept that there were some arguments favouring closer cooperation, in terms of design and supply chain. The view of KAPO's General Director is also that the holding is simply an effort to sustain weaker industry players and that, given the soft Russian market had provided few orders in recent years, KAPO with the Tu-214, the Tu-324 under development and the design documentation for the Tu-330 transport, could have been left as the country's sole producer, suggesting that this may have been a favorable outcome. He added that, given the outlook for orders, there seems little point in supporting plants that would languish with no orders, while depriving stronger entities of resources. Khairullin said that he had made this point to Ilya Klebanov, the minister responsible for the industry, on several occasions given that the plants involved in the mergers are using less than 30% of capacity and so threatening the success of any holding. Interestingly, Khairullin also attacked the stronger of the producers, Aviastar, arguing that the producer's 75% higher energy costs over KAPO and Aviakor did not make sense for a holding company to direct production to it on the basis of producing an internationally competitive product.

Article ID: 2748