The head of Irkut is now at the helm of MiG. This is the first step toward a rapid merger of the two companies

Alexei Khazbiyev

Last Monday, Premier Minister Mikhail Fradkov signed an order appointing Alexei Fedorov, President and co-owner of Irkut Corporation, as General Director of the MiG Russian Aircraft Corporation MiG. Valery Toryanin, the former head of MiG, who had worked in this capacity for almost a year, was dismissed. The reason for his dismissal was his failure to keep to the schedule of contractual obligations with foreign customers and his inability to properly modernize and sell MiG-29 fighters on the foreign market.
MiG is the only Russian manufacturer of combat aircraft entitled to sell its products without going through state monopolist Rosoboronexport. However, despite this advantage, MiG sales are ridiculously small. Last year, MiG supplied a mere 12 aircraft abroad for a total of $190 million. This is only a third of the money made by Irkut with its Su fighters and eight times less than Sukhoi Corporation.
As recently as last spring, Toryanin stated that this year he would increase sales to $280 million. However, to all appearances, this will not happen. As few as four MiGs have been supplied since the beginning of the year to the tune of about $60 million. New contracts have yet to be signed. And MiG is currently unable to execute its old contracts, since there is no cash on hand to purchase supplies and equipment. To make matters worse, a $620-million debt is hanging over MiG like the sword of Damocles. To be fair, it should be noted that most of debt arose in 1995-1997 as the result of a state loan to the corporation secured by an export contract with India, before Mr. Toryanin had appeared at the corporation. As a criminal investigation found out later, the contract turned out to be fake, and the funds had never arrived in MiG’s accounts. Toryanin repeatedly asked the Ministry of Finance to write off this debt but this ended in fiasco. The case is currently under consideration in the Supreme Arbitration Court but there is almost no chance that a verdict will come promptly. Delivering his report to the Commission on Military and Technical Cooperation under the President, Mikhail Dmitriyev, Head of the Federal Service on Military and Technical Cooperation, put is plainly: “because of MiG’s directors, we have all but lost Europe.” As an example, he cited Bulgaria, which has refused to modernize its MiG combat aircraft, and Hungary, willing to carry out modernization, states it will only deal with Rosoboronexport.
However, Toryanin was not forgiven for difficulties with Yemeni and Indian contracts for which he was to blame. Last year, Yemen’s government ordered six new MiG-29SMT fighters, two training-and-combat MiG-29Ubs and the modernization of another 12 aircraft up to the level of MiG-29SMT. A new radar “Zhuk-ME” mounted on these machines makes them different from a regular model. The parties came to an agreement that Yemen was supposed to receive first aircraft back in late 2003 and it was stipulated that the contract would be fully completed this year. However, MiG was able to supply a mere two training-and-combat MiG-29UB and only mid-year. The modernization and supply of the MiG-29SMTs failed to take place, as the new radar designed for the fighter is still not ready. The situation with the Indian contract is even worse. Early this year, the Indian authorities signed a contract with Russia for the supply of a heavy cruiser-carrier Admiral Gorshkov and 16 MiG-29K fighters by 2008 for $1.6 billion with MiG’s share amounting to about $740 million. In summer, India’s Defense Ministry transferred an advance payment to the sum of $200 million to MiG’s accounts. Almost all these funds were taken by creditor banks for debts and the work on the aircraft never started. A mere three aircraft are currently in MiG’s workshops but workers argue that these are unfinished aircraft under the contract with Yemen. Thus, Alexei Fedorov will have not only to rectify errors made by his predecessor but come to an agreement with India and Yemen about the deferral in execution of the contracts. Given the authority the new head of Irkut enjoys in the Moslem countries and his partner contacts with India’s military leaders, who purchase large consignments of Su-30MKI manufactured by Irkut annually, this should be within his power.
Another thing is even of greater importance: the personnel decision can be easily regarded as the preparation for a merger of Irkut and MiG. According to Boris Alyoshin, Director of the Federal Agency on Industry, the government has been considering such a merger since the beginning of this year. To this end, the authorities plan to offer MiG as a joint-stock company in 2005 and privatize it in 2006. MiG light fighters will be an ideal addition to Irkut’s product line and enable the company to increase sales dramatically. The global demand for Su-30s will begin to shrink as early as in 2-3 years (the market is oversaturated), while demand for MiG-29s, on the contrary, will increase. According to the forecast made by the Center for Analysis of Strategies and Technologies, about 250 MiG-29SMTs will be sold on the global market by 2015 to the tune of around $8 billion. This prediction is already beginning to become a reality. Literally the other day, Algeria’s government voiced its willingness to purchase 50 MiG-29s for almost $1.5 billion.

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