Kamal reported to have committed $250m to Ulyanovsk plant (790 words)

Published: 12/18/2001

Kato Aromatic and Aviastar-SP are reported to be in the process of concluding an agreement involving the investment of $250m by the Egyptian company in the Ulyanovsk plant by 2003. Under the agreement, according to reports, the first tranche of financing $10-15m is expected to be transferred to the plant in January-February 2002, followed by a further $100m during 2002, with the balance in 2003. The financing being used for the plant to provide Kato Aromatic with 5 Tu-204-120s over the next 2 years, with an option on a further 10 aircraft for customers outside of Russia. The new General Director of Aviastar-SP Victor Mikhailov, stated at a recent meeting with the plant"s management that the current working capital requirement of Rb1m a month is sufficient to keep the plant ticking over while generating revenues of Rb1.5m and he is seeking to renegotiate the plant"s debts. According to reports from the factory floor however, little work is actually happening at present other than work on aircraft No.32, and is unlikely to begin until the Kato Aromatic/Sirocco money appears. Considerable work is also reported to be required to get the factory back in productive shape. During his speech Mikhailov apparently laid out his view of developments at the plant of late, with the comment that “things might have changed around here, but I have not". Leaving the suggestion that Mikhailov"s tough no nonsense reputation may be coming into play. Privately, sources within the Russian Aerospace Agency (RAKA) have admitted that although Mikhailov is Kamal"s appointee, a fact reiterated by regional governor Vladimir Shamanov speaking at the plant, saying “We shall not conceal that the appointment of Mikhailov occurred at the request of the only investor of Aviastar - Ibrahim Kamal". The agency appears to accept that Mikhailov does offer the plant badly needed stability and an individual who gets things done, as demonstrated by the original deal with Kato Aromatic in 1996. The earlier reports of reuniting Aviastar-SP with the OAO Aviastar are also reported to be still alive, with the suggestion that Mikhailov, on the board of the holding company, may become the holdings chairman. Mikhailov has also stated that he intends to examine the means of recombining the other elements of Aviastar including the airport facility Ulyanovsk-Vostochny, paint shop ZAO Aviastar-Spectre and transport company ATU. The reuniting of the elements into one company according to Mikhailov, will help make Aviastar more attractive to "banks and other financial institutions". Therefore addressing what Mikhailov sees as a fundamental problem for the plant and its associated activities; the total lack of confidence on the part of potential customers and investors in the plant"s ability to deliver aircraft to timetable and with adequate quality. Mikhailov also added that he would leave the plant if his rescue plan failed at the end of Q2 2002. Speaking at the plant, Shamanov has been reported as stating that he believes that the original privatization process at the plant was riddled with what he describes as “serious violations" and the administration would pursue these investigations. Highlighting both the plant"s high political profile in regional politics, although other comments appeared to point out the administration"s continuing weak grasp of the realties of the situation. By Shamanov"s stressing that the administration"s primary concerns were “about the plant's employees" and that the administration “hoped that by 2005, Aviastar will reach the production level of 1990". The latter view being at best overly optimistic, given current prospects even with Dr. Kamal"s investment and in the light of Shamanov"s own comments to the workforce, that the situation at the plant will improve only slowly as if progressing through “a minefield". The plant employed in the region of 40,000 people in Soviet times compared with its current 7,700. The region"s public stance on the plant is also reported not to be matched with its private dealings in OAO Aviastar. Reports having suggested that its holdings have declined from 12% to 9% in the last few months. Disposals that will continue according to former OAO Aviastar board member Alexander Polyakov, VP of OAO Tupolev, who has suggested that the "the regional administration has started gradually getting rid of its Aviastar's stock" and that he has information that suggests that a further 3% will be sold into "private hands". The recipient of the stock, as well as the price of the deal is unknown, but speculation has suggested that the buyer might be 18% shareholder Kato Aromatic. The board of Aviastar-SP (12 seats), re-elected last week, still contains four seats ascribed to Polyakov, who was particularly unhappy about his departure from the OAO Aviastar board. Seven other have gone to government agencies and one to Ulyanovsk Region who are represented by Deputy Governor Victor Sidorchev.

Article ID: 2961