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Aviation History
2004
2004-09 - 0702.PDF
THE FLIGHT INTERVIEW STRATEGY MURDO MORRISON / BERLIN Russia set for industrial revolution Irkut's Alexey Fedorov leads way as consolidation of outdated Soviet-style infrastructure gathers pace Russia's creaking aerospace indus try is heading for an historic shake-up, with President Vladimir Putin's government anxious to see the Soviet-era jumble of design bureaux, assembly plants and technology houses merge into one or possibly two powerful vertically integrated businesses able to com pete, forge partnerships and source finance on the world stage. Alexey Fedorov, the US-edu cated president of Russia's biggest privately owned aerospace corpo ration, Irkut, is confident his com pany and its shareholders will emerge winners from the consoli dation. The Siberian manufacturer has just spent $127 million, raised from floating 23% of its shares on the Moscow stock exchange two months ago, to buy a controlling stake in the Yakovlev design bureau. Irkut has made no secret of its ambition to strike international alliances. At last week's ILA air show in Berlin, it signed a strategic framework cooperation agreement with EADS, which will see both companies "support each other in penetrating new markets". The two already have a joint venture, along with Rolls-Royce Deutschland, to market the Beriev Be-200 amphibious aircraft outside Russia. Irkut has also held partner ship talks with BAE Systems and in December last year signed up to make Airbus A320 floor panels. "We have to be a strong player in the global market," says the 52- year-old engineer and 30-year Irkut veteran, in Berlin last week for the air show. "It is a good idea for consolidation to take place and we want to be one of the leaders in the process, which we expect to happen very quickly, possibly within two years." Like state-owned Sukhoi, Irkut has followed a vigorous acquisition strategy over the past few years. This has seen it diversify from its traditional business of building mostly military aircraft for Sukhoi and Ilyushin into a more vertical enterprise. In 1997, it took a 40% stake in Beriev, maker of the Be- Fedorov: "We have to be a strong player in the global market" 200; it followed this by buying a controlling interest in Russian Avionics, which specialises in navi gation and targeting systems. Two years ago, it added design bureau Aviastep. Irkut's latest addition to the family, Yakovlev, brings exper tise in unmanned air vehicles and trainer light attack aircraft with the Yak-130. The lion's share of Irkut's $500 million revenues still comes from military production - particularly the long-term order for Sukhoi Su- 30MKI fighters from the Indian air force and a new deal for the Su- 30MKM variant from Malaysia. But Fedorov believes the company must develop into specialist mar kets and boost civil sales. These rep resent only 10% of Irkut's profits. "Niche marketing has to be our strategy," says Fedorov - who has an MBA from Oklahoma State University. "We have to be realistic about who we can compete with internationally and concentrate on what we do well." Core to this are UAVs - Irkut has developed a light reconnaissance UAV and, through Yakovlev, is working on a medium-altitude long-endurance vehicle. The Be- 200 is also crucial. With EADS and Rolls-Royce, Irkut wants to certifi cate a BR715-engined version of the amphibian and believes it can have it ready for delivery to Western customers by 2007. It already has a letter of intent for eight aircraft from US firefighting company Hawkins & Powers Aviation. Fedorov says Irkut is also talking to authorities in France and Italy. Once the aircraft achieves certi fication, he maintains Irkut will have a virtual monopoly in a mar ket for around 100 aircraft over 20 years. Other Be-200 configura tions, such as coastal patrol and transport aircraft, could also boost the type's prospects. In addition, Irkut is involved in "We have to be realistic about who we can compete with internationally and focus on what we do well" a number of more blue-sky pro jects. These include design work on a narrowbody jet airliner under a Russian government tender, and the Be-2500, a 2,500t (5.5 million lb) maximum take-off weight transporter which incorporates many of the same ideas as the US Pelican wing-in-ground-effect con cept. It has also started work, with India's Hindustan Aeronautics (HAL) and Ilyushin, on an Indo- Russian multipurpose transport aircraft project. Irkut, which employs 22,000 people, mainly in the Siberian city of Irkutsk, reports its results under US GAAP accounting rules, some thing Fedorov says makes it unique in the Russian aerospace community. The latest figures show gross profits of $151 million for the first nine months of 2003. Managers with 45% and employ ees with 6% together have the majority stake in the company. Institutional and private investors make up another 34%, with long- term industrial partner Sukhoi holding the rest. The next step for the 72-year- old company depends on the Putin government, which is look ing at raising the foreign owner ship limits on Russian aerospace companies from 25% to 49%. This might make Irkut a much more eligible bride for a suitor such as EADS. The fate of Russia's remain ing independent aerospace com panies, including Ilyushin and Tupolev, within a consolidated industry still has to be decided. An eventual merger with Sukhoi might also be a possibility. This would allow Moscow to keep a golden share in any future aero space champion. Another option for Irkut is to raise further capital by issuing shares on the Frankfurt or London stock exchanges. As head of a pri vate company, Fedorov is clear as to whose interests will be para mount in any decision. "Whatever we do, we do not want to break the rights of our investors, particu larly the new ones who came in through the IPO." www.fliqhtinternational.com FLIGHT INTERNATIONAL 18-24 MAY 2004 35
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