Export agency evaluates a 25% stake in the leading cargo carrier, but the motivation behind the purchase is unclear (346 words)

Published: 10/15/2001

Answering enquiries about a possible deal between East Line and Rosoboronexport, Julia Mazanova of East Line Group has confirmed that the group is in talks with the defence equipment export agency over the possible acquisition by the agency of a 25% stake in the airline. She added that as the talks are in progress, no further details were being released until the negotiations had been concluded, but confirmed that East Line and Rosoboronexport currently plan to co-operate on unspecified investment projects. In the absence of more information, it is only possible to speculate on the rationale behind the agency's desire to buy a stake in the carrier. East Line, as one of Russia's largest air cargo carriers, carries a substantial proportion of Russia's $2.8-3.2m of Russian arms sales exported by air. It is also true that, over the last year, Rosoboronexport has begun to move beyond its role of intermediary and has committed to direct investment in companies involved in the modernisation of military equipment, particularly avionics. Civilian opportunities may also be on the cards, flagged by comments made by the agency's General Director Andrey Belyaninov, who said at MAKS in August 2001 that the agency would be prepared to become involved in projects not necessarily with a direct military connection. For East Line, a state holding may be quite attractive, in that it would prevent a recurrence of the events in September 2000, when the number one cargo carrier was effectively grounded during an investigation by the Federal Security Service (FSB), with a commensurate impact on its business. In terms of Rosoboronexport, the benefits of such an acquisition are not so clear cut, given that its military order book is now $13 billion, suggesting no direct financial need.

Article ID: 2827