Days Numbered for the MiG?

The fate of Russia's large aircraft producer is still unknown

The MiG represents Russia's defense establishment; it is the second most popular brand name after the Kalashnikov gun.  It as been reported (again) that the enterprise is on the verge of bankruptcy. MiG is rated second after Rosoboronexport in terns of volume of exported weapons. Given this, how can there be talk of bankruptcy?

The scandal about the concern started when the Ministry of Finance appealed to the Arbitration Court to recover a debt of $290 million from the enterprise. The Court then supported the claim of the Ministry of Finance.

Against the background of this claim, the press published the correspondence of MiG Chief Designer Nikolay Nikitin and Russian vice-premiers Alexey Kudrin and Boris Aleshin; there were also reports of different experts concerning the fate of the contract concluded with China to supply MiG-29 shipborne airplanes valued at $1 billion. 

This sounds rather strange that contracts for military technical supplies which are handled by special services in other countries are widely discussed in the press here in Russia. This is a public discussion that must be held between the head of the state-run concern and members of the government.

As for the fate of the contract concluded with China for supply of MiG-29 planes, the subject has been discussed in the mass media for several years. This is strange that the subject is touched upon each time when the MiG enterprise is experiencing some problems. It is very well known that the MiG-29K is not in production. In 1989, the MiG-29K airplane underwent tests but wasn't adopted by the Russian Navy. There are just two airplanes of the kind; they are from time to time demonstrated at aviation exhibitions.

There is no basis for a serial production of the jet; what is more it is impossible to develop shipborne models for the current design of the MiG-29. At present, the management of MiG can hardly even find materials to develop a seaborne technologies for the plane. Two or three years ago experts said that when it comes to equipment of the Admiral Gorshkov aircraft-carrier with airborne fighters, those would be Su planes because MiG couldn't perform this large-scale job.

The government doesn't ignore requests of the MiG enterprise. When Chief Designer Nikolay Nikitin assumed the position early in 1999 much was spoken about saving of the enterprise. The debt of the enterprise at the level of $290 million, due to the obvious criminal behavior of the previous management. Further, the debt was postponed several times more; however today the MiG enterprise hasn't made and progress in the settlement of these debts. What is more, even though the enterprise's export of military technique is great, the total debt of MiG almost doubled compared to 1999. Where is the money?

When Nikolay Nikitin became the chief designer of the enterprise the backpay was up to 3 months, the enterprise worked 3 days a week. The new manager promised to put an end to this disorder. There was a return to full work week and wages were paid on time. The government gave the MiG enterprise documents for Tu-334 plane for free and the enterprise was charged with its final assembly. Nikolay Nikitin promised to start serial production of the plane in 2002 and said that one plane would cost not more than $13 million. Further, the terms of launching Tu-334 serial production were postponed several times. However, according to the results of a session conducted together with members of the government immediately at the enterprise at the beginning of the summer, it is hardly likely that serial production of the plane may start next year. As of today, there is only one full-size model of Tu-334, at that the readiness of the machine is just 50 per cent. Even though $27 million dollars have been spent on equipment of the workshop where the plane is expected to be produced, it is still far from being perfect. So, there is no plane and what is more there is still no workshop where the plane can be produced. At the same time, Nikolay Nikitin says that the actual prime cost of the plane is at least $18 million which is $5 million less than the minimal price within the profitability limit. In other words, it is suggested that the government must find the sum of $5 million itself.

Unfortunately what we have is the following: if airlines are finally to get the Tu-334 plane it will be outdated and what is more the price will be very high. There will be no chance to sell the machine abroad.

Since MiG has failed to produce planes for the civil aviation, may it would be more successful producing military jets. It is well-known that neither the Russian nor the French militaries have the intention to buy the MiG-AT instructional airplane (the machine was designed together with several French companies). So, the sample may safely go to the aviation museum where one of the MiG-29 shipborne planes is already exhibited.

In a couple of years, the legendary MiG-29 fighter will be cited as outdated in the aviation catalogues. In fact, MiG-29 is still subject to modernization, not to speak about years-long maintenance of these planes sold to different countries. This is rather feasible job for the MiG enterprise.

One of the former top-managers of the MiG enterprise says that when he came to the office next day after appointment of Nikolay Nikitin chief designer of the enterprise, he was surprised to see two dozens of black BMW autos waiting for bosses right opposite a dilapidated building of the enterprises head office. "I suggested selling the cars to settle the arrears of wages. In four years I see "considerable" changes: the bosses have changed BMW for Lexus cars, the wages are still delayed and the work week still lasts for three days only."
 
Today MiG owns only 20 per cent of the Voronin production center in the heart of Moscow; the rest of the premises have been given to the city administration and will be used as construction sites. Thus, it makes no sense to speak about investing in renovation of the production line there.

It would be reasonable to shift the production complex to the machine-building enterprise in the town of Lukhovitsy, the third component of the aviation corporation. Even though 70 per cent of the assembly workshop for Tu-334 has been completed, it is not clear yet where parts of the plane are to be produced.

This is interesting that some bank is interested in purchasing of MiG debts at half price; when the bank demands payment of the debts they are settled immediately. Unfortunately, the bank invests money obtained from debtors not in the MiG enterprise nut in shares of some French aircraft building company.

Let's get back to the relations between MiG and the RF Ministry of Finance. The matter of the fact is that the letters Nikolay Nikitin sent to vice-premiers Kudrin and Aleshin in June 2003 were just the beginning of a process that resulted in exclusion of the MiG enterprise from the list of companies prohibited for privatization; further the enterprise was added to the privatization plan for 2004.

At the beginning of August, Deputy Premier Boris Aleshin held a meeting when Nikolay Nikitin was offered different schemes for rescheduling of the debt which wouldn't be injurious for the enterprise. At the same time, the debt rescheduling schemes agreed with the RF legislation.

However, on August 7 Nikolay Nikitin said at a session in the RF Ministry of Finance that he was dissatisfied with any of the variants of debt rescheduling as they were unfeasible for the corporation. Further Nikolay Nikitin declared he wouldn't settle any debts as the investigation hasn't yet determined whether MiG actually owes $290 million to somebody or not.

When the Ministry of Finance sent an appeal to the Prosecutor's Office it received the response that the investigation was already over; what is more, the money in question was sent to MiG and the corporation wonderfully disposed of the money. Then, the corporation must pay in accordance with the court decision.

Anatoly Krasnoyartsev