Financial holding company chief sets out rationale behind investment proposal and plans for the struggling plant (753 words)

Published: 10/22/2001

Igor Leiko, the President of the Leader Group, a financial holding company with substantial leasing interests, has confirmed that it is interested in becoming a major investor in the Aviastar and, on 10th October, submitted a proposal, together with a Russian investment company, Fund of Direct Investments, to OAO Tupolev, the controlling shareholder. Leader's entry into the frame brings the number of investors currently considering funding the plant to two, according to Mikail Mirimsky, an advisor to the Governor of Ulyanovsk, who is seeking a replacement for New Community (NC), that recently quit the factory. Leiko claims that Leader's involvement in the aerospace industry over the last five years means that it is eminently better qualified to contribute to the plant's success than the previous NC management, through its understanding of the sector and those involved. It was this apparent lack of understanding that was one of the biggest criticisms of the previous management team. According to Leiko, Leader intends to invest $168m in the plant over the next three years with state support. Leiko says the process of securing the funding is already underway after his testimony to the Duma Transport committee in September, resulting in an amendment to the 2002 budget proposing assistance to Leader. He further claims that such assistance will exceed the $10.8m interest subsidy for the company from the leasing tender and his confidence stems from the support of at “least three parties" within the Duma for the measure. Leiko says that Leader proposes to build 12 Tu-204s within three years (two Tu-204s in 2002, four in 2003 and six in 2004). The plant is unable to reach its full capacity of 40 aircraft due to collapsed supply chains, both physically and in terms of its external relationships, given reports of many months of non-payment for parts supplied. These, he says, will have to be rebuilt. Leiko claimed that, in contrast to NC, Leader is not looking for a stake in the aircraft maker. “It is not a sector where you need to have shares to operate the company", he says, adding that it is more concerned about transparency on where investments are made and what he describes as protection from “risk". Leiko would not elaborate on the risk, or how Leader would receive its return on its investments. Media reports, however, have suggested that the company would seek to collateralize the plants assets against its investments. Leiko did reveal that Leader plans to co-operate with Sirocco Aerospace, the other reported investor, believing that Leader's expertise in the Russian and CIS leasing market complements Sirocco's foreign experience. On this basis, Leader would focus on the PS-90 powered Tu-204 and Sirocco Aerospace on the Tu-204-120 with RB-211s. Leiko says that he has already met with Dr Kamal of Kato Aromatic/Sirocco at MAKS 2001 and believes that the two companies can work together in sharing the task of getting and keeping the plant producing aircraft. Leiko describes Kamal's reaction in August to Leader's proposal as "positive", but adds that Sirocco needed time to analyse the situation at the plant and make a decision about its interests. Last week, Leader sent a cooperation proposal to Dr Kamal, laying out the basis of an agreement on operating the plant and awaits his response. Leiko dismisses reports of a tender by Tupolev for the plant and recently confirmed by an Aviastar-SP spokesman, as nonsense. “What tender? There aren't 20 companies standing in a queue eager to become an investor at Aviastar", he says. Leiko adds that the Leader Group understands the timescale for returns in the sector and also the risks: “You have to work hard for five years, be busy as a bee, and still there is risk that nothing will happen." At present, Leader's involvement in the aerospace sector includes a number of Yak-42D leases in the Ukraine through one of its subsidiaries, a lease of a Tu-154M to Dalavia and - according to the company - over 70 engine overhauls and leases over the last five years. In late 2000, the company also proposed the completion and lease of 14 Tu-154 airframes that remained unfinished at the struggling Aviakor plant. While well received by the region's Governor Konstantin Titov, the plant's controlling shareholder was reported to be cautious about the ability of the leasing company to fund such a venture, although did agree to a single project.

Article ID: 2842