Procurement: Repackaging The Soviet Past


February 22, 2011: In the wake of the post-Cold War collapse in Russian military procurement, defense companies are being consolidated. The latest of these efforts puts all Russian helicopter companies into one firm; Russian Helicopters. To accomplish this, the government has bought a majority of the stock in these companies. Thus Russian Helicopters now owns 75 percent of Rostvertol, 72 percent of Mil Moscow, 99.8 percent of Kamov, 60 percent of Stupino Machine Production, 75 percent of Ulan-Ude Aviation, 66 percent of Kazan Helicopters, 100 percent of Kumertau Aviation, 81 percent of Reductor-PM and 75 percent of Progress Arsenyev Aviation.

Total annual production of all these companies collapsed to less than a hundred helicopters in the 1990s, mostly for export. Four years ago, annual production passed a hundred, and it continues to grow, but not enough to keep all these firms solvent. Many have been staying alive by producing spare parts and refurbishing older aircraft. Thousands of aircraft produced by these companies are still in service, and they needed spares, upgrades and maintenance services. But now there are more new models coming out, Russian armed forces is buying again, and the export market is booming.

Russia has already consolidated fixed-wing aviation companies. The situation here was, in some ways, even more desperate. Two years ago, it was determined that the company that produces the MiG-29 (and all earlier MiG combat aircraft) was worth less than a nickel (about 3.5 cents, to be more precise). This valuation was calculated by auditors who were ordered to determine the worth of the company prior to a reorganization. MiG, along with Sukhoi, Tupolev, Irkut and others, was merged into one large firm; UAC (United Aviation Corporation). Russia started UAC off on a firm fiscal footing by investing billions of dollars into the new corporation. The government does not want the money wasted, as was the case with RSK MiG (which, as of first of the year, owed $1.5 billion, and lost $363 million last year). Executives associated with RSK MiG are being prosecuted for corruption. In comparison, Sukhoi's worth was estimated to be $230 million, and the firm has been making money (on brisk sales of its Su-27/30 line of jets). But that was an exception, as the other aviation firms were in bad shape, although none as dire as MiG.



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