Helicopter producer's position strengthened as liquidity improves and production gears up (1,029 words)

Published: 9/17/2001

Mil (MVZ) has announced that it has cleared its debts of Rb173.7m ($6m), including penalties and interest for late payment, to the state investment company, Gosinkor: the company's largest debtor since late 2000, when it provided a loan of Rb148m, initially to pay off the plant's then largest creditor, MIB (Interregional Investment Bank). MIB is reported to be furious at the news. The bank had seen the repayment of the debts that had been acquired from a number of parties as part of a strategy to build an interest in the company through a debt for equity swap. It now views this latest move as an attempt to force it out of the MVZ restructuring, which involves valuable real estate interests in central Moscow, and has since tried to return the repayment and so retain its debts. MIB also argues that Mil's creditors' committee had not approved the acceptance of the loan. It therefore considers the loan to be illegal, given that, under Russian bankruptcy law, the creditors' company is required to decide on major borrowings. Gosinkor's lawyers contend that, as the borrowing did not exceed 20% of the company's debt, it did not require approval. The cash was therefore used to clear other debts at the plant. The involvement in Mil of the state investment company, Gosinkor, is considered by some commentators to be a thinly veiled attempt on the part of the government to take greater control over the plant at the expense of others, assisted by the Temporary Manager, Vladimir Bogocharov, who effectively made the state entity the plant's largest creditor by taking out the three month loan in December 2000. The Arbitrage Court however, took the final decision in February by firing Bogocharov and stopping bankruptcy proceedings. Gosinkor took action against the company at the end of May for non-payment of its three-month loan and was accused by MIB of trying to push the helicopter producer back into bankruptcy. An extension was negotiated after MIB threatened court action. MIB is reported to be strongly supported by the Ministry of Defence through extensive defence industry interests, including a recently acquired 25.5% stake in the Yantar shipyard in Kaliningrad that recently emerged from temporary management. While the bank's apparent modus operandi is to acquire assets on the cheap, the logic behind the purchase of a stake in Yantar is more difficult to interpret, given that the yard currently has no export business and one unfinished frigate for the Russian Navy. The bank's extensive contacts with Rosoboronexport are thought, however, to belie logic. Mil's new found liquidity is in part associated with payments due from the sales of the Mi-8/17s in the last two months. Two VIP layout Mi-8MTV have been sold to the Russian presidential flight for delivery in April 2002, and the sale of six Mi-17s to Columbia by Rosoboronexport was recently announced. The arms export agency is also reported to have secured an order with an unnamed foreign customer for 12 upgrades of Mi-35 to Mi-35M by Rosvertol for delivery in 2001-2002. The Mil's new management team, appointed at a shareholders meeting on 27th April 2001, is led by General Director Yuri Andriyanov, the candidate of the Ministry of State Property, a 31% shareholder in Mil, and Deputy General Director, Aleksei Samusenko. After a period of considerable tension between the design house and the production plants at Ulan Ude, Rostov and Kazan over licence payments for Mil designs, the team has managed to restore some understanding between the two sides, although recent comments from KVZ management in Kazan suggests that it continues to perceive itself as an independent venture, even while it has identified itself with MVZ's efforts to avoid inclusion in the new aerospace holding entities. MVZ itself is currently trying to form a helicopter holding uniting the design house with production plants under the government's restructuring proposals, which suggested that the new holding company would have a 31% government holding. To that end, in August, the company signed a framework agreement with Rosoboronexport giving the agency responsibility for all sales of military variants of Mil helicopters. This resolved some of the historical disputes that have seen producers competing for overseas contracts and granted Mil control of its own market in collaboration with the export agency. Rosoboronexport estimates that the market for military helicopters from Kamov and Mil will reach 400-500 units by 2010. In the case of the sales of the Mi-8/17 series alone, KVZ believes that sales could exceed $3 billion between 2002 and 2010, outstripping the revenues of $1 billion 1995-2001 and supported, according to Alexander Lavrentyev, General Director of KVZ, by the current backlog at Kazan and Ulan-Ude that he believes exceeds $300m. Lavrentyev says that, as part of a programme to develop variants for the market, KVZ next year plans to launch production of the Mi-8MTV-7 with a MTOW of 13,100 kg, featuring FADEC-equipped 2700-hp Klimov VK-2500 engines, the VR141 gearbox, new glass-fiber blades, a new AP and an X-like tail propeller. Tests on four experimental prototypes confirmed 7,300m dynamic ceiling and maximum speed of 320 km/h. Meantime, KZV is also set to roll out the first prototype of the much delayed Mi-38 by the end of this year, with flight tests commencing in the first quarter of 2002. In addition to the sales of new aircraft, Mil has developed several upgrade packages for its products and, at MAKS2001, in conjunction with Kazan Helicopters and Transas avionics specialist, revealed the Mi-17T5, with a glass cockpit. It has also been developing the night-capable Mi-8MTKO, as an upgrade for military Mi-8s, and has completed state acceptance trials, with those of the upgraded Mi-24VK due to be completed in September. Four aircraft are expected be operational before the year-end according to Vitaly Pavlov, Commander of army aviation. In August, as part of an effort to reinforce control over its designs, the new Mil management team announced that the existing agreements covering repair and overhaul of Mil helicopters were ineffective and threatened to withdraw support from those organisations undertaking life extensions without official authorization. Andriyanov believes that this move will give Mil control of the $10m market over the next few years. .

Article ID: 2766