01 March 2004 01:55
Irkut looks to lighten its military load: Company hopes to use IPO proceeds to fund civilian aircraft, says Arkady Ostrovsky
With its concrete fenceon the outside, fighter jets inside and camouflaged
guards on every corner, Irkut, Russia's leading aircraft manufacturer,
based in Siberia, resembles a set for a 1970s James Bond movie. But what was
once a top Soviet secret military plant is about to become public.
Irkut, Russia's second largest defence company, which produces Sukhoi
multipurpose combat jets and heavy amphibian aircraft, will later this month
float 20 per cent of its shares on two Russian stock exchanges with a
possible listing in London a year later.
This will be the first initial public offering from Russia's defence
sector and a rare example of a non-oil sector company coming to the market.
Irkut management would not disclose the value of its stock, but the company
is believed to be worth more than Dollars 500m.
Aleksei Fedorov, the energetic, English-speaking president of Irkut , says
the proceeds from the IPO will go towards purchasing a designer bureau that
will help the company widen its range of aircraft.
Over the past few years, Mr Fedorov, who along with a few other managers
holds the controlling stake in the company, transformed an old Soviet plant
into a competitive business.
In preparation for the IPO, Irkut released international standards accounts
which showed sales had more than doubled from Dollars 244m in 2000 to Dollars
528m in 2002.
Its earnings before tax, depreciation and amortisation have grown from
Dollars 53m in 2000 to Dollars 103m in 2002. In the first nine months of last
year, it made a gross profit of Dollars 151m on sales of Dollars 368m. Built
in 1932 to supply the vast appetites of the Soviet military machine, the
Irkut aviation plant hit hard times following the collapse of the Soviet
Union in 1991 and the demise of its military and industrial complex. Once its
biggest customer, Russia's military can no longer afford any of
Irkut's produce. "We have not had a single order from the Russian
military since 1991," says Sergei Matvienko, chief engineer at Irkut.
Instead, Irkut, which employs 14,000 people, has had to rely on foreign
markets - mainly in south-east Asia, India and China. It has a total order
book of Dollars 4.5bn.
It has produced its highly manoeuvrable Sukhoi-30 fighter range for India and
has sold a licence for India to produce them. It has an agreement with
Malaysia for the delivery of its Su-30MKMs. All this, however, is a fraction
of the number of aircraft Irkut produced during the Soviet era. "We used
to make two Sukhoi a month. Now we make 10 a year," says one of the
plant's managers.
To supplement its military contracts, Irkut has produced a unique amphibious
heavy aircraft, the Be-200, used for fire-fighting. It can glide on water,
scooping 12 tonnes of water in 20 seconds. Irkut has orders for seven Be-200s
from Russia's government and last month signed a letter of intent with
Hawkins & Powers Aviation, a US fire-fighting company, to sell eight
Be-200 aircraft powered by Rolls-Royce BR175 engines. The first delivery on
that agreement is planned for 2007.
Mr Fedorov hopes to shift Irkut's ratio of military to civilian aircraft
from 90:10 at present to 50:50 in 10 years. He says Irkut also needs
international partnerships to reduce risks and boost its research and
development.
It has a joint venture with EADS for marketing its Be-200 and supplies
components for Airbus. Mr Fedorov said he was also in talks with the
UK's BAE Systems about the possibility of supplying unmanned aerial
vehicles and combat trainer jets.
However, the future of Irkut depends as much on its foreign ventures, as it
does on the relationship with the Russian government, which last month
announced plans to create a single holding company that will comprise both
private and state aircraft producers. If such a holding company is created,
Irkut will become part of it.
It might then discover that selling a large stake in Irkut to foreign
investors is unpalatable for the Russian government, given a growing mood of
nationalism in the country.
But Mr Fedorov is convinced that "Russia will continue to integrate in
the international economy". If his prediction bears fruit, James Bond
may one day fly Su-30s.
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