$400 million of foreign investment expected by the Ministry of Economics in the Russian aerospace industry in 1999

Published: 6/23/1999

On June 17th 1999, the Russian daily newspaper, Kommersant, reported that, according to the press service of the Russian Economics Ministry, the Russian aviation industry will obtain about $400m in foreign investments in 1999. Investments will primarily go to finance projects for the certification and serial production of Mi-34 light helicopters, MiG-AT and Yak/AEM-130 aircraft, the Russian-Ukrainian An-70 military and transport aircraft, and the Russian-French Mi-38 helicopter. In addition, funds will support the production and certification of the An-38-100 passenger aircraft, and the establishment of a leasing company to promote it on the market. The Il- 96M/T project, which is currently underway, also falls within the framework of the Russian-us Commission for economic and technical co-operation. Investments totalling some $1.5 billion in the project include over $400m under Russian government guarantees. These funds are required to purchase Pratt & Whitney engines and Rockwell Collins avionics, as well as the manufacture of 20 Il-96M/T planes at the Voronezh aircraft-building enterprise (VASO). To encourage more foreign investment, Russia is streamlining legislation protect to the interests of foreign investors. It could be argued, however, that legislative changes need to be accompanied by a much more positive attitude among those influencing developments in the area. Specifically, the Duma is considering bills concerning the following: • foreign investments in the Russian Federation; • the list of industries, branches, activities and territories where the activity of foreign investors is restricted or forbidden; • concession agreements signed with Russian and foreign investors; and • free economic zones. Concise's view of the foreign investment in the sector is somewhat less optimistic than that of the Economic Ministry. Of the projects mentioned, almost all, with the possible exceptions of the An-70, which seems likely to attract support from the new German consortium, Airtruck, and the Yak-130, are struggling, owing to lack of support. Few of the foreign partners involved privately will express any enthusiasm for the projects, although publicly, they remain at least cautiously positive. For the civil projects, in particular, the issue of finance still remains the major stumbling block for many producers. Without a developed leasing structure, no amount of investment is going to resolve the difficulties faced. Among the military projects, the government is endeavouring to use debts as a means of setting up financing structures. In the case of the Yak-130 project, it has been reported that Aermacchi, the Italian partner, has inherited the right to part of the Russian debt to Italy, worth $62m, in addition to its own contribution of $100m. Mr Vasily Pankov, Director General of Sokol, has said that he expects this to be the basis of the Russian funding for the project, without explaining the source of the debt - possibly, the Italian government. Given the Russian government's recent defaults on sovereign debt, whether the Russian government can be expected to service the debt and provide the income for servicing parallel financing for the project remains to be seen. According to the Governor of Nizhni Novgorod , the primary customer of the aircraft will be the Russian Air Force, which will take delivery of the first three aircraft. Future funding through sales presents the project with problems, given the Air Force's own is funding difficulties of the air. It will however, be sold internationally by Aermacchi, which has considerable experience in selling this type of aircraft. The Italian government although it has stated interest has yet to place an order. The aircraft is considered as a strong contender for the Slovak light fighter tender by some commentators, given its use of the Slovak Povazske Stojarne LM (PSLM) DV-2 turbofan. However, reports from Slovakia suggest that Rolls Royce is wooing PSLM, which is keen to involve it in a BAe Hawk solution, powered by Rolls Royce Adour engines. The fact that the engine still requires $30m to be spent on its development, and that Yakolev is threatening to find an alternative power plant if the funding is not forthcoming, simply adds to an already complex situation.

Article ID: 617