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Aviation History
1994
1994 - 0871.PDF
BUSINESS ANALYSIS DILEMMAS IN PRAGUE Loss of automatic Warsaw Pact trade, and suspicion of production standards, have caused a financial crisis for Czech producers, and forced them to look to poorer countries for sales. Standing silently along the perimeter roads of the Aero Vodochody production site, to the north of Czech capital Pra gue, is a cluster of some 40 immaculate, unused L-39 Alba- tros military jet trainers. They were produced by Aero under contracts signed with Nigeria and Russia. Both customers backed out, unable to pay. According to the company, these aircraft are worth about $320 million. Meanwhile, the Czech Government and the Aero group of companies are still struggling to settle three- year-old overdue bank loans totalling $62 million. "The weakness of our bank ing system is that our banks are not able to provide the aero space industry with medium- or long-term loans," says Zdenek Pernica, president and chief executive of the Aero holding company. Aero took loans of CKrl.7 billion ($57 million) from the former Investicni Banka, now re-named Investicni a Postovni Banka (IPB), and a further CKr350 million from Obchodni Banka (OB). Both credits were to be repaid within a year. According to Pernica, most of the money went towards supporting Let Kunovice — best known for its L-410 com muter and the L-610 regional turboprop — which was suffer ing from the loss of guaranteed Eastern Bloc exports. This business formerly accounted for 90% of the Czech aerospace industry's production. In the late 1980s, annual jet-trainer sales from Aero Vodochody stood at more than 200 aircraft, making the com pany a world leader in the field. By 1992, the figure had dropped to six. In the civil sector, annual L-410 sales aver aged 75 aircraft during the 1980s, falling to eight in 1991, with a slight recovery to 20 units in 1992. "The Government did practi cally nothing to stabilise the situation," says former Aero board member Josef Fucik. "Repeated attempts to create a re-structuring programme brought no response ...[the Aero] holding began to support its daughter companies, result ing in a financial crisis." It soon became clear that the resulting losses made repay ment of the loans impossible. It was not until June 1993 that the Government's Committee of Economic Ministers pro posed a solution, but this fell victim to friendly fire. The scheme was to exchange the debt to IPB for 30% of the state-run National Property Fund's shares in the Aero hold ing (the Fund owns 64% of the holding company). Within two months, the Czech Parliament passed legislation which for bade the Fund from using its shares to capitalise loans. The deal was never completed. Now the committee has ap proved a new scheme, incorpo rating a long-expected re structuring plan for the entire industry and measures to settle the outstanding debt. Much of the debt to the IPB and the OB is to be paid off by Konsolidacni Banka, a state fi nancial institution established by the Ministry of Finance in 1993, which is also due to buy back Air France's stake in Czech flag-carrier CSA. In return, the Aero holding will hand over 27% of its shares in the four companies which will remain under its ownership in the new struc ture. They are Aero Vodo chody, Letov, Tehnometra and the VZLU aeronautical research and test institute. The remain ing six Aero subsidiaries will be sold or liquidated. A further 10% of Aero's shares in the four manufactur ers will be paid directly to each of the creditors. The rest of the money will come from the sale of excess land and subsidiaries, including engine manufacturer Motorlet and light-aircraft pro ducer Moravan. Instrument manufacturer Mesit, which made a CKrl82 million loss in 1992, has been sold to Prague-based Banka Bo hemia. Motorlet is still on offer after initial bids were rejected as unsatisfactory. Pratt & Whitney Canada and Czech company Frutovo are known to be interested. Moravan is believed to have five bidders pursuing it, in cluding the Canadian Bat'a shoe company, the owner of which founded the Czech com pany before emigrating. Of the remaining subsidiar ies, Cenkovske Strojirni, which formerly produced seats for Russian and Ukrainian aircraft, is being liquidated. Landing- gear and hydraulic manufac turer Teset, which was also on the verge of being declared bankrupt, may now be saved by the capitalisation of Aero's debts, says Pernica. Let is in continuing negotia tion over a joint venture in volving Fairchild, although direct discussions are now being held with Washington- based investment firm Newstar, which is to take Fairchild as its technical partner in the ven ture. A joint stock company is expected to be formed by the end of June, says Pernica. The new Aero is focusing the entire group on military-trainer production — specifically the L-39 and L-59 Albatros and their derivatives. Western en gines, avionics and weapons systems are being fitted to the Albatros to make it more ex port-friendly, with some suc cess. Aero Vodochody is now fulfilling a contract for the delivery of 48 L-59s to Egypt and a further 12 to Tunisia. Other contracts are under negotiation, but the low tech nology of the 25-year-old airframe, along with evident suspicion of eastern European production standards, is limit ing sales to poorer countries drawn by the low cost. For now, being able to claim that the cost of an Albatros is half that of a British Aerospace Hawk gives Aero some clout in its dealings with developing nations. Yet this restricted market en tails its own hazards, vividly shown by the aircraft lined up like spurned, canvas-bedecked wallflowers at Vodochody. BY ANDRZEJ JEZIORSKI a "For now, being able to claim that the cost of an Albatros is half that of a BAe Hawk gives Aero some clout." FLIGHT INTERNATIONAL 30 March - 5 April, 1994 25
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