Week of March 9, 1998

Consolidation Of Russian Fighter Companies

By Vovick Karnozov

Mikoyan Restores Independence

On 28 May the council of VPK MAPO directors appointed Sergei Mikheev, general director and general designer at Kamov, as new head of the council instead of Vladimir Kuzmin. Shortly, Kuzmin was also fired from the post of MAPO MiG general director. Bezrukov won the battle, but did not enjoy the victory for too long - the Government banished him from VPK MAPO during Paris '97. The latter move was seemingly connected to the Central Bank of Russia's accusations towards VPK MAPO leadership of "improper usage" of a state loan given to VPK MAPO for fulfilment of MiG-29SE deliveries to India. Bezrukov's place was temporarily occupied by Aleksandr Manuev, former general director of Mikoyan design bureau, who appointed Grigory Nemov as new general director of MAPO MiG.

Resignations of Bezrukov and Kuzmin raised separatist tendencies at the former Mikoyan design bureau. Anatoly Manuev agreed to restore the name and trademark of the then world-famous fighter house. It happened in October, when the Ministry of State Property validated a decree about transformation of VPK MAPO into VPK MAPO-M with the simultaneous inclusion of the Myasistchev design bureau (it is interesting to note that the designation "VPK MAPO" continues to be widely used). The same decree prescribed to form an independent branch of VPK MAPO-M, the Aviation Scientific Industrial Complex MiG (ANPK MiG), on the base of the former Mikoyan design bureau .

At the end of the past year the Russian Government made the decision to conduct auctioning of VPK MAPO in 1998. This move noticeably increased the temperature of competition between the leading Russian banks (namely UNEXIMbank and Incombank) wanting to control financial flows of the local arms-makers. Having not found understanding with the Ministry for Economics on the terms of auctioning, Manuev had to resign. On 6 January the post of VPK MAPO chairman returned to unsinkable Vladimir Kuzmin.

The auctioning is aimed at turning all VPK MAPO members, and then the central company, into joint-stock companies with 51% of shares in the state's possession. The rest will be sold on the market to raise money for development of new MiGs. Thus the Ministry for Economics hopes to provide MiG makers with funds sufficient not only for upgrading the MiG-29 but for putting the MiG-33 and Article 1.42 in a flight worthy condition as well.

Battle For Sukhoi

The heads of the mass production factories wrote that uniting the developer and the manufacturers of Sukhoi aircraft would allow them to compete more effectively for foreign orders and concentrate resources on prospective projects for the Russian Air Force. The idea appealed to the President. On 14 April he ordered the Cabinet of ministers to prepare a foundation decree for AVPK Sukhoi (Aviation Military Industrial Complex Sukhoi).

It is important to note that the April letter was not signed by Mikhail Simonov, general director and general designer with the Sukhoi design bureau, despite the fact that historically he was the first to voice the idea of forming a Sukhoi corporation. In his turn, Simonov wrote to the President on 8 May. His short letter read as follows: "The leadership of the Sukhoi design bureau supports the idea to unite the developer and the manufacturers of "Su" aircraft into Aviation Concern Sukhoi. The specifics and practice of the aircraft development business shows that forming the control structure of such a union should be made on the base of aircraft developers, in our case the Sukhoi design bureau."

President Yeltsin put his "agree" on Simonov's letter and signed Decree No.1269 about the foundation of AVPK Sukhoi on 26 August 1996. From that monent onwards, Fiodorov and Simonov have been competing for the leading role in the new structure.

On 30 December 1996 Fiodorov was appointed the AVPK Sukhoi general director. Obviously, the choice was made in the joyful atmosphere created by the just signed Indian deal worth nearly $2bn for 40 Su-30s to be produced at Fiodorov's IAPO factory. However, this appointment did not mean a complete victory. For a long time AVPK Sukhoi was not registered. A temporary registration was issued in April 1997, but then declared "wrongful" by the court several months later. According to the Russian press, AVPK Sukhoi has not yet been proper registered.

In May 1997 Fiodorov handed over the post of IAPO general director to Vladimir Kovalkov, former chief engineer at the factory. Thus, from a powerful leader of a prosperous enterprise he became the head of something that yet has to be determined. Further impairment of his position came with the crash of the An-124 Ruslan at take-off from the IAPO airport with two Su-27UB Vietnamese fighters aboard.

At the same time, Simonov's reputation has risen. In September his team put to the air the S-37 Berkut, a fifth-generation fighter whose development had been kept secret for a long time. The Berkut is the first all-new combat design conceived and constructed under Simonov's supervision (Mikhail Simonov became Sukhoi general designer after the death of Pavel Sukhoi in 1975). The public response to the advent of this machine has been very enthusiastic. Russian people, used to bad news in recent years, see in the Berkut a sign of their country still keeping the leading place in combat aviation.

The camp of mass production factories, which at the beginning supported Fiodorov, has collapsed. The first to depart was KNAAPO. Victor Merkulov says, "Signing the 'April letter' was my mistake. I did not realise how the status of a AVPK Sukhoi branch would affect the enterprise and the region in general." KNAAPO is the only large enterprise in the city of Komsomolsk-upon-Amur, contributing 45% of all payments into the local budget.

Here lies the main difference in Fiodorov's and Simonov's approaches to the very concept of a Sukhoi corporation. Simonov would like to see it as a finance-industrial group, whereas his opponent insists on a unitary state structure with all control functions concentrated in one place. Simonov's concept has been found more appropriate by KNAAPO and NAPO general directors, who signed a new letter to the president, asking him to form a new consortium with the participation of UNEXIMbank and Incombank.

Both the banks have an interest in the Sukhoi design bureau, holding 15% and 25% respectively. At the same time, their interest in IAPO is minor (about 40% of IAPO shares belong to the Russian Credit bank). Reportedly, IAPO owes $100 million to UNEXIM, which at one time provided credits for fulfilment of the Indian deal and completion of the Beriev Be-200 first prototype. The latter aircraft should have been flown last year but has not done so yet. This new-generation amphibian jet is in the final stages of completion, and the latest credit from MANATEP bank, worth $10 million, can finally put it in the air.

Defending his concept of a unitary enterprise, Fiodorov says, "Finance-industrial groups have shown themselves less effective. Links within such a structure are too loose. We must create an integrated complex with a vertical control system from the top to the bottom. We should also take into account the fact that the whole of Russian aviation directorate was brought up to work in such a system." Fiodorov's opponents, however, assert that he insists on this scheme in order "to spread the IAPO's debts over all ANPK Sukhoi members."

In Fiodorov's scheme, AVPK Sukhoi's structure should resemble that of Western aerospace consortiums. He says, "The designer at a Western company is not a leader, not a main figure. It is the market researcher who determines what product is needed... and who sets tasks for the designer. That is why the statement that the general designer should control the whole process to me seems erroneous."

Simonov has another viewpoint on the subject. "In recent years not one customer showed an interest in series models. Instead, they give aircraft manufacturers a long list of requirements. That is why the design bureau must be the core of the corporation."

Although Fiodorov's concept looks unsuitable to the local authorities, it seemingly appeals to the Government. On 27 December Premier Victor Chernomyrdin signed a decree about auctioning of the KNAAPO and NAPO, despite the protests of local administrations. Half of their shares is to be put into the capital base of AVPK Sukhoi, which itself should afterwards be transformed into a joint-stock company. Somewhat earlier, the Government moved its stakes in the Sukhoi design bureau, Beriev design bureau and IAPO (51%, 38% and 14.7% respectively) under the control of AVPK Sukhoi.

In February, a rumour began to circulate in the industry that the Ministry for Economics offered Aleksei Fiodorov to resign from the post of AVPK Sukhoi general director. Almost simultaneously, Mikhail Korzhuev, the newly-appointed general director with ANPK MiG, hinted at a possibility of joint projects with Sukhoi. The "consolidation" of the Russian fighter industry is taking a new turn.

Photo credit: Mikhail Simonov, courtesy of Aviapanorama magazine.