Thanks to shrewd investing and a little luck, privately owned Kaskol has Airbus as a joint venture partner and is fast becoming a Russian powerhouse
Like Napoleon and his generals, Sergey Nedoroslev believes that if they are to succeed businesses also need to be lucky. Certainly, his own numerous investments in Russian aviation seem to have had an ample share of good fortune.
As the founder, 80% shareholder and chief executive of Moscow-based Kaskol Group, the entrepreneur has grown the company into one of the most powerful entities in Russian aerospace. Kaskol is Airbus’s joint venture partner; the company effectively controls the Sokol plant that builds MiG fighters; has a 49% stake in outsize freight market-leader Volga-Dnepr; and has a 20% holding in Russia’s primary space company Energia. Other interests include a growing components arm at Sokol; the Zvezda life-support systems firm; Russian hydraulics leader Hydromash; and, most recently, a stake in airline Atlant-Soyuz.
A new venture, and Nedoroslev’s current primary interest, is the Air Transport Systems air-taxi operation being launched in Moscow as an operator of the M101 Gzhel/Expedition aircraft designed by Myasischev and to be produced by Kaskol. Possibly more significant is Kaskol’s growing ties to powerful Irkut, maker of Sukhoi fighters and EADS’s partner in Russia.
Former Irkut president Alexei Fedorov now runs MiG and is chairman of Sokol. Some Russian observers say the Kaskol/MiG/Irkut/Sokol grouping is effectively becoming the “unified aircraft company” favoured by the Putin administration.
Responding to the theory is the only time Nedoroslev is less than comfortable during his interview. He says a link between the pair was almost inevitable “if you look at the facts and not the comments”, since for historical reasons MiG has never had an export sales licence, unlike Sukhoi, leaving Sokol’s future severely restricted.
Nedoroslev is much exercised about Russian business culture in general. “The right corporate governance is very important. Strategic decisions should be made only at board level. Each company should have a very strong board, and strategy is the foundation of the company. You should understand what the company will look like in 10 years. Former Soviet Union companies just had a vice-president of production and all other functions were in the government. I tell directors: ‘You are personally responsible’.”
He points to Irkut, now partly floated, and in which Kaskol was once a 40% shareholder as justification for his view. “Irkut is now the number one publicly held company. I am very proud of that.”
A public listing for Kaskol itself is not on the agenda, however. Nedoroslev explains: “To be a public company is a huge transaction cost. And, as we are, we can make very quick decisions.” Kaskol’s value, based largely on holdings in non-traded firms, is difficult to assess. Nedoroslev allows that turnover is $250-350 million, but notes that a large chunk of that is from its stake in Volga-Dnepr, which itself turns over $300 million.
New ventures are funded by financial institutions on the strength of Kaskol’s remarkable record, external finance being raised at a 5:1 ratio to internal funds, according to Nedoroslev. Perhaps Kaskol’s biggest coup was in being selected to be Airbus’s partner in the ECAR Moscow engineering design centre.
The marriage lets Airbus meet Russian ownership requirements and entails it paying Kaskol for successive work packages. If Kaskol wanted to liquidate its holding, then the partners would go to an independent valuer. Their agreement specifically excludes a trade sale.
Nedoroslev also admits that the expertise Kaskol gains is priceless in improving its own engineering know-how. He oozes pride at Russia’s involvement in the Airbus project, but expresses heartfelt admiration for the European airframer.
He says: “Airbus was worried about Russia – bribes, crime and everything else you hear on CNN. Most of this is not true. I am very proud that they have 120 Russians there and a Russian chief executive. And ECAR must confirm each day its competitive advantage because Airbus has very tough rules for suppliers. The middle management decide if your work is OK or not and nobody will save you – not [EADS chief executive Noel] Forgeard, not [Airbus chief executive Gustav] Humbert, not [French president] Mr Chirac.” The last is a telling reference to the key role of the French state in Airbus’s and EADS’s success in Russia.
Kaskol recruits engineers on Airbus’s behalf for ECAR, and Nedoroslev says: “Airbus has a single culture. If our technologies are different, then we should drop them. I tell our guys that if Airbus has standards then we should meet them. You do not know why Airbus uses this technology, you do not think it is right, but Airbus has decided it is – right from the top. There is resistance and it is not so easy.”
Ventures that do not attract the required degree of luck, however, have no place in Kaskol, notably the Titan Air outsize freight venture abandoned in favour of Volga-Dnepr. “Titan was not such a lucky company and so we decided to close it,” he says. “Volga-Dnepr is always a lucky company and you must invest in lucky companies.”
Less idiosyncratically, Nedoroslev is passionate about the advantages of companies that are not hamstrung by their pasts – green-field operations as he calls them. He explains: “Airbus did not work with Tupolev or Ilyushin, but they worked with us because it was a green field. Tupolev said they were the best in the world for engineering and they could give us money. But we like a green field because then we can be like a dictator in the culture.
“You cannot say to people who have been 40 years at Tupolev ‘now you are fired because you cannot meet the new culture’. Some in government think I am mad. But in Moscow, for example, you cannot find a successful restaurant that was converted from an old one.”
The latest green field is the air-taxi project with partner and former politician Sergey Generalov (Flight International, 28 June–4 July). The concept envisages a guaranteed availability service to help business users and private individuals overcome Russia’s huge transport challenges. At its heart is the robust M101 – a single-turboprop, eight-seater built to cope with the rigours of remote regions, and with a startlingly strong landing gear. In a rare concession to Russian practice, Nedoroslev cheerfully admits that he will refuse to sell the M101 to any operator proposing a similar service.
The M101 investment was the outcome of thinking that began with an investigation of the crowded regional jet market and ended with a plan to enter a market proved by Socata and Pilatus, but arguably with room for another player. Nedoroslev says: “In Russian factories they always tell you that ‘nobody else in the world produces this product’. But the first question is ‘why not?’ So for this reason we found a non-unique programme, which is the M101. It is a completely frozen configuration. We are not going to modernise it. This is another problem with our designers – they always want to modernise the design and not push for sales.”
He has further ideas for the future, hinting at the possibility of attracting Western companies to Russia. “We are in negotiation with some companies,” he says. “There are companies that cannot survive on the orders they have because everything is so expensive. In Germany and France they have built a post-industrial society – a society of lawyers and everything that is not connected with real things.
“A secretary in Switzerland has a very high salary and what does she do? She answers the phone and copies documents. You can do that in India, so why make things in Switzerland – it’s politics. We are speaking to companies who understand this. But in Russia we have an industrial society. If you move a company here you will be ahead of break-even. Or you can wait for 10 years when people from Malaysia or somewhere will buy it for 10% [of today’s value].”
This is not what Western politicians are keen to hear, but coming from a man who has spent the last decade explaining the facts of industrial life to his own nation’s politicians, it is not to be ignored.