Will this solve the problems for the troubled company? (440 words)

Published: 8/18/2000

Mil (MVZ), which is currently in administration, has entered into negotiations with its producing plants at Kazan, Rosvertol and Ulan-Ude with the objective of increasing its share of their revenues by increasing the royalties for products that it has designed. According to Leonid Zapolsky, MVZ's Temporary Manager, in 1999 the company received royalties on sales of only 0.1% compared with an international level of between 5-10%, giving MVZ only 300,000 rubles of revenue from the sale of a $3-4m Mil helicopter. The objective of the discussions is to raise the revenue on a typical sale to $60,000. The increased contributions should give troubled MVZ a revenue of $12.5m in 2000 according to some sources, as the three producers led by KVZ expect to sell more than 60 helicopters a year over the next three years, generating yearly sales of $250m. Zapolsky's move on royalties comes at a time when MVZ is making efforts to vertically integrate its efforts with the production plans in an effort to become more competitive and ensure the Moscow based company a viable future in helicopters. According to the company they have restarted their development efforts during the summer and are already re-employing employees who have 'drifted away' from Mil. The focus of the company's development, according to reports, will however, be on the development of helicopters using domestically produced equipment and material, which given the general condition of suppliers and the market, must be regarded as a high-risk strategy. On another topic, Zapolsky commented that the external management of the company would allow the reduction of foreign management in the plant from its present 42% to 25%, allowing the MVZ to develop and produce military aircraft, something it is currently legally barred from doing due to foreign ownership exceeding 25%. The tactics for the reduction of the foreign shareholdings are unclear and the company is reluctant to discuss details, but reports have suggested that foreign holders may have their ownership diluted by issuing additional shares to existing Russian holders or a new company may be formed to simply takeover the assets of the old, with lower foreign involvement. The possibility of buying out the foreign shareholders seems unlikely given MVZ's precarious financial condition. The decision regarding the ultimate action will be made at the AGM in the autumn. Foreign ownership restriction have been a problems for a number of defence production plants in Russia most notably Progress in Russia's Far East, which recently resolved its problems by backing foreign-held shares to bring ownership under the 25% threshold.

Article ID: 2003