Board elections significantly weaken Tupolev's power in favour of Sirocco and Leader Group, but there is still little real indication of any resolution (1,142 words)

Published: 11/6/2001

After months of upheaval, the Aviastar Holdings' EGM on 5th November 2001 elected a new board of 12 members, in what proved to be something of coup d'etat at Tupolev's expense, by some of the company's the newly politically enfranchised shareholders. The EGM had been called at the behest of the State Property Fund and the Ulyanovsk Property Fund, which control 12% of the company, on the grounds that the company was in crisis, owing to mismanagement by the previous board. Aviastar Holdings is distinct from Aviastar-SP, the production company, that was formed in 1997 as a separate entity, but still a major part of the holding along with 16 other companies. The structure has not been popular with the regional administration and Alexander Bespalov, Chairman of the Ukyanovsk Regional Property Fund, has stated that the split of Aviastar Holding from Aviastar-SP should be reversed as the current arrangement is undermining the plant's efforts to produce aircraft, although he offered little specific explanation of why this was so and, in the circumstances, showed a lack of understanding of the problems actually confronting the plant. While there were reportedly 17 candidates for the board, three of them were absent from the EGM and had failed to submit the required documentation, so shareholders were recommended not to vote for them. The absent candidates included an unexpected contender in the form of the arbitrage manager of the MVZ helicopter plant in Moscow and it is not clear what interest the enterprise might have had in being on the board. More predictable, was the nomination of Vice-President of the Leader Group and General Director of Aviaexport. In addition to these, Sergei Seldin, Manager of the banking fund, Anticrisis, asked shareholders not to vote for him. As a result of the election the new Directors are: · Yury Berestnikov, Financial Director of Leader Group · Igor Leiko, President of Leader Group · Boris Zenkov, President of Sirocco Aerospace Russia · Igor Karavaev, Executive Director of Sirocco Aerospace Russia · Vera Neiland, Financial Director of Sirocco Aerospace Russia · Denis Manturov, Deputy General Director of Gosinkor (state investment corporation) · Mikhail Mirimsky, advisor to the head of Ulyanovsk regional administration · Dmitry Piorunsky, advisor to the head of Ulyanovsk regional administration · Vladimir Tsarev, deputy to the head of Ulyanovsk region administration · Victor Mikhailov, Chairman of Russian Cargo Airlines Association · Eleonora Romanova, member of OAO Tupolev's management · Vladimir Fadeev, Russian Aerospace Agency (RAKA) The board is, moreorless, a complete change in terms of personalities, reflecting the underlying shareholders: · 18% Sirocco Aerospace · 10.57% OOO Florena · 10.5% Gosinkor · 10% OAO Tupolev · 8% Leader Group · 7% Russian State Property Fund · 5% Ulyanovsk Region Property Fund · 20% employees · 10.93% minorities. If the intention of the state and regional property funds was to create greater common ground in order to resolve the company's problems through a new board, this represents a failure. Even so, senior managers within Aviastar are reported to be reasonably happy with the outcome given that it largely removes Tupolev from the equation. Alexander Polvakov from Tupolev, an outgoing director, declared that the new board will "kill the company". It appears, however, that Polyakov, who played a key role in the New Community (NC) debacle, has been made the sacrificial lamb for what has been regarded as Tupolev's mishandling of NC's relationship with the plant. Initially welcoming the industrial holding company, Tupolev latterly reversed its stance, as it became obvious that the NC style of dealing with established customers - particularly Sirocco/Kato Aromatic - was causing political ructions at the highest level of the Russian government. The status of the EGM itself remains questionable, given that the secretary to the previous board, Constantine Feodosiadi, declared it to be illegal as the retiring board had not discussed the agenda and the list of candidates had changed, with the suggestion that the matter would be taken to the courts. Another board member, Vladimir Kostrov of Aviastar Service, said that the previous board had voted to postpone the EGM until January 2002 and rejected the claim that bad management had contributed to situation at the plant, which had reduced its indebtedness from $400m in 1996 to its current $38m. A pending legal dispute aside, the outcome of the EGM appears to have consolidated both Sirocco's and Leader Group's positions, in terms of control of the plant, with a partnership between the two alluded to by Igor Leiko President of Leader late last month. Leiko then stated that the two companies saw their interests at the plant as being mutually beneficial, given that one company had an interest in selling the Tu-204 internationally and the other, domestically. He added that Leader and Dr Kamal had been in close negotiations in recent weeks, presumably in part to achieve sufficient common ground to engineer the outcome of yesterday's meeting, as the start of a process to bring the plant back on line. So, what happens next? Unconfirmed reports suggest that Sirocco will take up the mantle left vacant by New Community through acquiring 49% of the company in the foreseeable future. In this respect, it is reported to have the support of the regional administration, in the form of Mikhail Mirimsky, adviser to the region's Governor, who appears to have played a role in bringing Leader and Sirocco together to take control of the factory and provide funding. While the plant is currently reported to have no ongoing work, owing to lack of funding or delivery of components, although Air Rep has recently agreed with the plant to get work underway again on aircraft 32, sources suggest that a Sirocco team has been completing the technical documentation on the Tu-204-120s for China and is due to travel to Beijing next week to present it to the Chinese authorities. This is expected to lead to an exchange of contracts within the next couple of weeks and the payment of deposits that will fund suppliers for the first Chinese aircraft, with an expectation that the first aircraft could be delivered in the first quarter of 2003. The plant will have to cope in the longer term with the problems of building its first aircraft from scratch in nine years but, at present, getting sufficient cash flow to get production rolling is the main priority of those involved. Opinion appears split on the ability of the plant to make new aircraft once the existing airframes are used. One source, however, points out that the major suppliers are still in business and Sirocco, particularly, has historically proved itself up to the challenge of facilitating production in this environment.

Article ID: 2889