Dispute over 26% stake rages on while producer struggles to keep going (983 words)

Published: 8/6/2001

Valery Maltsev, Executive Director of Aviastar-SP, has reported that the much debated investment by industrial holding group, Novoye Sodruzhestvo Holding (New Community), in Aviastar-SP is currently suspended and awaiting the resolution of the dispute relating to New Community (NC) taking control of a blocking stake of 26% of the company. Maltsev said that, under the 18th April 2001 agreement between the two parties, NC undertook to invest Rb 2 billion ($67m) within two years in Aviastar in return for a 26% stake in the company by 26th April 2001, rising to a 48% over the two year time period. As such, NC would become a shareholder alongside state-owned Tupolev Holding, which would retain a 52% controlling interest. NC, however, has not received any shares and the announcement of the plan was followed by a flurry of speculation over the ownership of NC, which controls a number of agricultural equipment producers. Maltsev said that, despite not receiving the shares it had been promised, NC still invested over $8m in the company: more than $2m than the planned $6m. He added that the funds were used to: · repay $2m of wages unpaid for five months and to meet the wage bill of $0.5m a month · pay current taxes of $0.8 m from May 2001 · buy $2.7m of components NC has also, in the interim, undertaken a due diligence investigation of the company and developed an ongoing programme to bring the company back to health. According to Maltsev, this involved the removal of some of the company's senior managers, which has already been achieved as part of the NC commitment. Under the programme, Aviastar is targeted to build three Tu-204s in 2001, nine Tu-204 in 2002, 12 Tu-204s in 2003 and more than 12 aircraft in 2004-2005. NC has also discussed further orders with potential customers in China, Libya and Egypt and anticipates potential demand for as many 70 aircraft, including possible orders from Europe, if the RB-211 powered Tu-204-120 receives certification early next year, as expected. Maltsev said that, while Tupolev Holding has approved the programme developed by NC along with the Russian Aerospace Agency (RAKA), it has proved reluctant to part with the 26% of the company to NC. According to Constantine Babkin, Vice-President of NC, it has yet to receive any clear explanation for the delay, either from Tupolev or the government. Earlier suggestions had rumoured that the agreement had been struck between NC and Aviastar-SP without the required agreement of the full Tupolev board. According to Babkin, however, the problem is the "youth of the NC team". This seems pretty fanciful against the backdrop of the controversy over who actually controls NC and how the deal was actually sealed. However, NC has now ceased to provide funds to Aviastar after 13th July, shutting it off from the Rb 0.7billion that Babkin says was earmarked for investment. He stated that funds will not be released until NC receives its stake. According to Maltsev, the cessation of finance has led to the deterioration of the situation at Aviastar. He claims that: · Production has almost ceased · Aviastar is not able to finance its debts · Employees may not receive their salaries on 10th August which Maltsev fears may lead to problems with the workforce According to Maltsev, NC's intentions are honourable and he rejects, along with Babkin, reports that Aviastar is looking for another investor. Babkin says that NC is simply looking for its stake to reflect the commitments it has already made and is reluctant to go to court in order to acquire the holding that it believes to be its legal right. On other issues relating to its holding in Aviastar, NC has also attacked the current import duty regime that allows Aeroflot to import foreign aircraft free of import duties, while Aviastar, which requires an increasingly higher proportion of foreign manufactured components to complete aircraft, is charged increasing duty costs, so reducing the competitiveness of the aircraft. Maltsev said that NC would call for the need for a level playing field, with equal application of the tariff rules. In terms of the Aviastar orderbook, Maltsev said that the company currently had interest from airlines in seven aircraft. Further demand is expected through the government guaranteed leasing schemes, currently being tendered and in which Aviastar is competing with two leasing companies. It expects to lease 11 aircraft, if successful, although claims that it has an unspecified plan in the event of a failed bid. It is difficult, however, to imagine a situation whereby Aviastar would not benefit from the leasing scheme, no matter who wins the tender, given that it produces the aircraft likely to take a sizeable proportion of the funding. Commenting on reports that Kato Aromatic, a long time partner in the development of the Tu-204, is moving it's allegiance to KAPO, the producer of the Tu-214, Maltsev said that the fixed price nature of the original Kato/Sirocco contracts meant that they had to be renegotiated as they had been set on terms that reflected the desperation of the plant at that time and were now unprofitable. He insisted that relations with Kato/Sirocco remained good and that the Egyptian-owned company was playing a major part in getting JAA certification of the Tu-204-120. On the prospects for the An-124, Maltsev said that, while there are plans to maintain the production lines for the aircraft, the supply of former military aircraft is currently answering demand. He added that Volga-Dnepr and Polet currently owe around Rb70 m to Aviastar and the producer is reluctant to build more aircraft until the situation is resolved. The Polet situation, particularly, appears tense, with Maltsev commenting that the airline would not get the two aircraft currently at Aviastar if it does not pay outstanding debts.

Article ID: 2686