Published: 3/26/2001

After yet another postponement of the presentation of aerospace industry reforms, the related restructuring of the military industrial complex is also challenging the presidential administration. Regional interests are continuing to oppose reforms, with direct ramifications on the specific aerospace industry plans. The regional objections continue, despite Putin's efforts to bring the regional authorities to heel, using his team of largely ex-military/security regional representatives and the clawing back of authority by Federal authorities, so turning around the drift of power to the regions under the Yeltsin administration. A manifestation of the structural problems confronting the administration in its reforming efforts is illustrated by the State Council. This advisory body is made up of Russia's regional governors, that meets once a quarter, with a smaller nominated presidium meeting once a month. It is seen as being an important element in support of legislation being pushed by the executive. Lately, despite the view that the governors are fighting a losing battle and the re-establishment of Federal power seems inevitable, certain governors have continued to prove less than susceptible to the charms of the presidential administration. This has generated the view that the administration may have waited for certain governors, most notably Victor Ishaev of Kharbarovsk, to rotate off the presidium before tackling the thorny issue of reform of the military industrial complex. The Kremlin's man on the presidium is reported to be Yaroslavl governor, Anatoly Lisitsyn: a presidium new boy, with little exposure to the military industrial complex, having only the Rybinsk Motors aero engine production plant in his region. Lisitsyn is regarded as being less susceptible to vested interest that, since 1996, has led Ishaev to prevent the privatisation and the incorporation of KnAAPO into the integrated Sukhoi entity. The payoff for Lisitsyn's support - according to some sources - is the contract for the serial production of the projected Al-41F engine for the new fifth generation fighter, although doubts remain generally about the programme's future. This is somewhat uncharitable and misses the point that the engine plants are probably not as directly under threat of consolidation as the fighter producers, given the level of diversification already in place and also that they are the most likely beneficiaries of a reformed industry with more viable developers and aircraft producers. The fact that Putin waited for Ishayev's departure before embarking on his restructurings does suggest that, despite the recent consensus on restructuring throughout the industry, military and government, the specific acceptance of the proposed 36 vertically integrated military producers is much less well supported by participants. In particular, regional governors, confronted by potential loss of influence and cash flow, and despite Putin's recent strong regional arm-twisting, are fighting a rearguard action to preserve the status quo. Their motivation is not difficult to see. Restructuring is a direct political threat: at worst, removing large employers and actual and potential income and, at best, losing leverage over the plants as they are integrated into large entities owing allegiance to Moscow, rather than regional capitals. Given that the Ministry of Industry, Science and Technology has what could be viewed as an unchallenging seven year target for reform of the sector (which in modern Russia parlance can mean anything up to 15 years), Putin's wait for one of the opposition to come off the presidium before embarking on the early stages of this very protracted process, indicates some idea of the difficulties that those reforming the industry will encounter. There can be little doubt that all levels of the industry will oppose specific reform, in varying degrees. Central control through structural integration will be accepted unwillingly over time, but as Ishaev has shown, a spoiling game can be effective. The real test of government's taste for reform will be the consolidation of the industry, the closure of facilities and the transfer of production. For the fighter producers, particularly, located in remote parts of Russia, the creation of streamlined production capacity with high levels of utilisation suggests that one plant at least will be redundant. Its closure, in a country where thousands of struggling enterprises survive like the “living dead", will be a major political issue, given the status of the industry in the Russian political scene.

Article ID: 2443