Putin issues decree to create Aviation Holding Company Sukhoi (762 words)

Published: 11/2/2001

Vladimir Putin has signed a decree creating the new holding company Aviation Holding Company (AHC) Sukhoi, marking yet another step in the creation of the fighter producer holding company. Under the terms of the decree, the privatization of KnAAPO and NAPO, currently state unitary entities, will leave 25.5% of equity retained by the State Property Fund and the remaining 74.5% transferred to AVPK Sukhoi, that will in turn become AHC Sukhoi. While AVPK Sukhoi was formed in 1996, with a remit of bringing the various elements of the design and production of Sukhoi together, in practice, the design bureau OKB Sukhoi continued to be its only unit, with the state entities of KnAAPO and NAPO continuing to operate semi-independently. It is unclear at this point if this change will make a significant difference as, although the transfer of equity gives Sukhoi the legal standing, there is doubt that the regional administration, long fearful of the loss of valuable tax revenues to a new consolidated aerospace entity, will allow a smooth transition. This poses a potential challenge for the new management assumed to be led, for the meantime at least, by Pogosyan, General Director of AVPK Sukhoi. Given its extensive experience of difficult reconstructions, the government has anticipated some problems and has incorporated into the decree elements directly aimed at the concerns of regional administrations, particularly those of Victor Ishayev, Governor of the Khabarovsk Region, who has historically been strongly opposed to the subordination of KnAAPO to Sukhoi. Under the decree privatizing the two producers, a local administrations clause has been included stating that "conditions will be created to prevent the reduction of tax proceeds to the budgets of all levels". What this actually means in practice is left unexplained, but it does suggest that the government recognizes that the path to full integration will not necessarily be quick nor without its bumps. Further efforts to ameliorate the worries of the regional governments are also evident. There are reports that an amendment will be included in the new tax code, to prevent groups such as AHC Sukhoi simply consolidating the activities of the production plants out of the hands of regional tax authorities. According to these reports, companies within the military industrial sector will have to undertake consolidation of earnings and revenues under strict criteria. This again suggests that the decree authorizing the new company may only be the start of another chapter in the reshaping of Russia defence aerospace producers. Just who will manage the process is also not clear, although the favourite will undoubtedly be the incumbent at AVPK Sukhoi, Mikhail Pogosyan. Putin's failure in the decree to name a general director is, however, being seen by some as a sign that Pogosyan may not be the man even if no other candidates have been mentioned. For the meantime, Pogosyan has the job at least until April 2002 when Sukhoi's AGM is scheduled to be held after the two holdings are transferred to the new entity. In the past, however, the transfer of such holdings has been delayed by inter-departmental wrangling, as shown recently with the transfer of the state's holding in Antei, the air defence systems producers. Despite the decree privatizing Antei being signed in May 2001, the shares have still to be transferred by the Ministry of State Property. Deputy Prime Minister, Ilya Klebanov, dismissed fears that privatization could cause Sukhoi to fall into hands independent of the government stating that “AHC Sukhoi opens a new page in the reformation of the Russian military industrial complex” and “unites the interests of participants and concentrates the material and intellectual resources for the development of the 5th generation aircraft”. This sends a clear signal that if certain industrial groups saw this as an opportunity to acquire an industry cheaply, then they will be at odds with a government that is not going to allow the industry to slip out of its control in the move from state entity to joint stock companies. AVPK Sukhoi was created in 1996 by a Presidental decree and included OKB Sukhoi (51% state interest). The holding was also to have included TANTK Beriev (38% of state interest) and IAPO (14.7%), with KnAAPO and NAPO as state unitary enterprises linked to the structure. However, a new decree in late 1997 prescribed that AVPK Sukhoi should be fully privatized, along with KnAAPO and NAPO. None of the decrees were however, implemented and in spring 1998, AVPK Sukhoi was registered as federal state unitary enterprise, and received the state's holdings in OKB Sukhoi, IAPO, and TANTK Beriev.

Article ID: 2879