US consultancy evaluates the plant, but its future remains uncertain, with its possible inclusion in MAK Ilyushin still under discussion (644 words)

Published: 10/17/2001

The Ministry of State Property of Uzbekistan has signed a preliminary agreement with consultant, Emerging Markets Financial Corporation (EMFC), to assist the ministry in preparing the privatisation of Tashkent-based TAPO. The US-based company, that includes Russian and CIS aerospace veteran, Fred Strickland, is reported be undertaking a review of the plant, in what is assumed to be an exercise to package the entity to prospective investors. The stake is expected to be substantially larger than the original 25% that was unsuccessfully offered by tender in September 1998 for a minimum of $61.6m. EMFC has previously been involved with TAPO through a US Trade and Development Agency (TDA)-financed project to create a leasing structure for the Il-114 with Uzavialeasing and a number of other parties, including Price Waterhouse and P&WC. It has also participated in other TDA aerospace evaluation projects in Russia. Lack of interest meant that the September 1998 tender was deferred to November 1998, despite invitations to over thirty western companies, including many of the western majors. Sources within the ministry suggest that the result of the review could mean a substantial restructuring of the plant's present ownership, comprising the Uzbek government (51%), employees (10.5%), the National Bank of Foreign Trade of Uzbekistan and Ministry of Foreign Relations (6.7% each). TAPO has been the focus of considerable attention in the earlier restructuring of Russia's aerospace industry and was part of a decree, issued by Yeltsin in 1994, stating - in principle at least - that it would be incorporated into a new holding company MAK (International Aviation Company) Ilyushin, made up of AK Ilyushin, VASO and TAPO. According to Victor Livanov, General Director of AK Ilyushin and MAK, the deal originally failed to materialise because of what Ilyushin saw as the gross overestimate of the value of TAPO's assets ($600m) by Uzbekistan Ministry of State Property. The ministry subsequently reduced this to $147m at the end of 2000, but Ilyushin still holds that this overstates the case. The discussions over the future of the plant and its incorporation into larger entities have therefore continued, with an April visit by President Putin to make reassuring noises. In June 2001 during a visit to Moscow by the Uzbek President, Islam Karimov, Karimov was reported to have told the Russian Premier Kasyanov that Uzbekistan intended to cooperate with Russia in the continuing creating of MAK Ilyushin. Given the recent announcement of the potential sale of part of the company, probably to a foreign entity, it is unclear exactly how a new shareholder would fit into those developments. Livanov thinks that the Uzbeks are more interested in selling their interest than participating in a new company and continuing to develop the industry. The sale may, however, be a difficult one given the current state of its order book and some prevailing views in Russia - the main customer for the Il-76MF and civilian Il-76TF - where the military has already expressed private misgivings over having a major section of its transport fleet in the future built in what is perceived to be a fragile regime. According to Livanov, the lack of any deal joining the two parties into one company is not necessarily a problem, given that 90% of the components for the Il-76 come from Russia and he therefore proposes that production could be simply transferred to VASO. He still manages to gloss over the $130m cost of transferring production, which would undoubtedly undermine the Il-76's current price advantage. Livanov also skates over the fact that President Putin, during his June visit, which was clearly part of a wider political agenda, made commitments relating to the adoption of the Il-76MF produced at Tashkent as part of the Russian Air Force lift solution.

Article ID: 2830