Russia injects $1.7bn into struggling aerospace company UAC

By bne IntelliNews March 30, 2015

bne IntelliNews -

 

The Russian government has injected RUB100bn ($1.7bn) into the country's biggest aerospace company, United Aircraft Corporation (UAC), as part of its drive to support the struggling aviation industry and tighten control over the defence sector.

The move is also part of an import substitution programme, as Russia tries to reduce dependence on foreign-made aircraft and parts. The state has increasingly pushed airlines to buy home-built planes, but Russia's aviation industry has struggled to match the quality of foreign-built aircraft.

UAC's flagship passenger aircraft, the Sukhoi Superjet 100 (SSJ-100), has struggled to compete with Boeing and Airbus equivalents. Last year, the company delivered just 37 of the civilian airliners, compared to 124 military aircraft.

United Aircraft Corporation is a joint-stock company founded by President Vladimir Putin in 2006. With a majority stake belonging to the government, it consolidates Russian private and state-owned aircraft construction. UAC unites around 30 aviation firms, including Sukhoi, MiG and Tupolev, which produce some of the world's most sophisticated military aircraft.

Half of the company's debts of RUB270bn ($4.7bn) as of June 30 last year are foreign currency loans, which have become harder to service because of ruble devaluation, and are almost equal to its total 2014 revenue of RUB285bn. UAC already applied to the government for more than RUB20bn ($345mn) in loan guarantees earlier this year.

In January, as slowly rising oil prices gave some hope for Russia's stricken economy, Industry and Trade Minister Denis Manturov said the government would work to keep the scope of the aviation industry financing unchanged. 

“We’ll have to provide funds for [aviation projects], to search for off-budget financing in order to implement them,” Manturov said.

New man in the cockpit

There was a significant shake-up in UAC in January, indicating that the Kremlin will exert much more influence over the nominally independent company’s activities. Manturov’s deputy, Yuri Slyusar, replaced UAC President Mikhail Pogosyan, signifying an expansion of the powerful state-owned corporation, Rostec.

Already controlling around two-thirds of the defence industry, Rostec is led by Viktor Chemezov,  a close ally of Putin and his mentor during his service with the KGB in East Germany in the 1980s. Both Slyusar and Manturov are regarded as being closely linked to Chemezov, who has been actively expanding Rostec's defence holdings. 

Ruslan Pukhov, director of the Moscow-based Center for the Analysis of Strategies and Technologies, told The Moscow Times at the time that the leadership shuffle reflected ongoing clan fighting within the defence industry, especially in the context of the shrinking federal budget. "The state has less money, and UAC is a nice, tasty piece of the pie," Pukhov said.

Meanwhile, beyond the apparent defence sector manoeuvrings, the state is actively promoting UAC’s Superjet, and especially the 19-seat business variant. 

Russia will manufacture around 8-10 business models of the SSJ-100 annually, the industry and trade minister told the Rossiya-24 news channel in December.

“This is a real rival [for foreign counterparts],” Manturov said. “We have been to India and Bahrain showing this aircraft to those interested in buying it."

A business model made its maiden international flight from Moscow to New Delhi during a visit of a Russian delegation to India in December.

Russia injects $1.7bn into struggling aerospace company UAC

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