State-sponsored consolidation

The Russian aerospace industry continues its consolidation effort under the umbrella of United Aircraft Corporation (UAC). This year UAC plans to get control over the new assets – MiG jet maker and Kazan KAPO production facility. The consolidation of the aircraft industry will be completed later with the merger with Myasishchev Design Bureau and the Gromov Flight Research Institute. The UAC President Alexey Fedorov tells Russia & CIS Observer reporter Polina Zvereva that while the economic downturn has affected airlines’ purchasing power and the UAC has revised its production plans, state funding for key commercial programs has been preserved in full.

— It is more than three years since the launch of the UAC. How complete is the corporation's organizational structure today?
— The UAC development schedule, approved by its board of directors in 2008, has three phases: reorganization and crisis management (2007-2010), evolution of existing projects (2010-2015) and further progress within the newly created structure (2015-2025). We are still in phase one. Going forward, the business management of the commercial and transport aviation segments will be given to UAC – Civil Aircraft Managing Company and the UAC Transport Aircraft company, respectively. The military aviation segment will be consolidated. The groundwork for that process is now being laid by UAC senior vice-president [and a head of Sukhoi] Mikhail Pogosyan, who has been appointed general director of MiG Corp.
— Could you comment on the prospects for improving the corporation’s financial standing?
— The UAC’s financial structure has changed significantly since its creation. Our first budget, in 2007, equaled some 2 billion rubles. Last year it exceeded 24 billion rubles [about $770 million]. Much of that money was invested in civil aviation programs, in order to improve the liquidity of the VASO and Aviastar-SP production facilities. It funded the R&D and retooling effort for the Tupolev Tu-204 and Antonov An-148 production programs, and developed the prospective MS-21 airliner project. Over 9 billion rubles was spent on the purchase of Irkut Corporation shares from the private sector.
This year the UAC plans to preserve the general budget parameters, but we will be spending exclusively on our core business activities. Some of the money to be raised through issuing additional shares will be channeled into the restructuring and recovery of those of our enterprises which have been hit especially hard by the crisis.
We have launched an effort to optimize the cost structure. Our aim is to cut the overhead costs by at least 10%. We are planning to reduce the cost of materials and components by 10% for the civil aviation segment and 5% for military aviation.
— In what way has the downturn affected the UAC?
— The effect on our long-term plans is insignificant because our major shareholder is the government. The aerospace industry in general, and the UAC companies in particular, are viewed as a top priority of the state investment and innovation policy. The amount of federal investments in various aircraft construction programs has more than doubled since 2007. Now, in crisis times, these investments have temporarily supplanted some of the so-called ‘extra budgetary’ sources previously available to the industry. This enables the UAC to keep the key programs on schedule. For example, the amount of funding for the Sukhoi Superjet 100 and MS-21 programs are actually growing. In other words, the crisis has not caused the UAC to revise its long-term strategy and global development objectives.
Unfortunately, I cannot say the same for our short- and mid-term plans. The UAC board of directors in late April revised the 2009-2012 production program due to the slump in airlines’ purchasing power, liquidity shortages and a reduction in the size of retooling investments. We hope the government will help us overcome these problems.