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United Aircraft Building Corporation (OAO UABC / OAO OAK)

In line with the Russian government’s October decision to hand control of United Aircraft Corporation (UAC) – parent of Russia’s major aircraft manufacturers Sukhoi, MiG and Irkut – to state-owned technology and aviation giant Rostec, the latter pushed ahead to take over UAC’s shares from current owner Rosimuschestvo, the federal agency for state-owned property management. The integration process was originally scheduled to be completed within 18 months but, in just a month, as of November 2018, Rostec had already acquired more than 83.89 per cent of UAC’s equity.

The process of transferring the shares of the United Aircraft Corporation may be completed in the first half of 2020, Rostec’s General Director Sergey Chemezov told journalists at an exhibition in Dubai. “Today the UAC shares are in the process of being transferred to Rostec, I think it will take some more time. But I hope we will complete this process in the first half of the next year,” - Chemezov said 24 Nivember 2019. He also noted that the next year will be devoted to cluster reorganization after the transfer process completion. “We will make three, or perhaps four, divisions,” - he said. “Those will be civilian, military, transport and, probably, the fourth one will be strategic aviation. We may join it with the transport aviation but this matter is now being discussed. Naturally, much work is needed to reduce costs, and we will make also some changes to our organizational structure so that all Rostec companies are included in this cluster. Companies manufacturing components, engines and so on will be joined in on cluster,” - Chemezov said.

As of 2006 Russia's domestic industry employed around 500,000 people in about 300 companies and research and engineering institutes. It suffered from a lack of financing for aircraft construction and was in need of significant restructuring. For a number of years, the Russian Government has been discussing possible measures to revitalize the industry, including consolidation.

In February 2005 Russian Industry and Energy Minister Viktor Khristenko suggested a national united aircraft manufacturer be established to unite all Russian aircraft makers. Khristenko said the state, with its 60-70% of the stock, will be sure to dominate the company in the beginning. Setting up a single aircraft manufacturer aimed at enabling Russia to retain its position on the global military market and penetrate the commercial plane market. Khristenko said that the industry was ripe for consolidation that had already been conducted in other countries. The united aircraft maker will feature three tiers. Tier I will be the parent company itself to select programs. Tier II will include combat, commercial and transport plane and unmanned aerial vehicle (UAV) production segments, with Tier III to include special plants. The legal procedure of establishing the holding company is to be completed by 31 December 2006. According to the Ministry of Energy and Industry, the long-term goal is to become one of the world's leading players, to reach a minimum return of $6 billion and, by 2015, to match the sales volume of Airbus, Boeing, Bombardier and Embraier. It was planned that OAK will first produce 30% civil and 70% military aircraft. Eventually 50% of production will be civil aircraft.

In February 2005, Prime Minister Mikhail Fradkov approved the idea of establishing a national aircraft-building company, which will consolidate Sukhoy, MIG, Ilyushin, Irkut, Yakovlev and Tupolev. At the first stage, participants would form a public-private consortium and a management company, which will be called the Unified Aircraft Manufacture (OAK - Obedinennia Aviastroitel'naya Korporatsiya). The government share in the management company would be from 25.5 to 51%.

On 21 February 2006 Russian President Vladimir Putin signed a resolution to form a consolidated aircraft-building corporation. The United Aircraft-Building Corporation "is being established to maintain the scientific-industrial potential of Russia's aircraft manufacturing complex, and to ensure the country's security and defense capabilities". Documents on establishing a United Aircraft manufacturing Company were signed 06 February 2006 by Prime Minister Mikhail Fradkov. In signing the resolution, the president approved a government proposal stipulating that the state would own at least 75% of the corporation's equity. The resolution also approved the government proposal to transform two state-owned majors in the field, the MiG Aircraft Corporation and the Gorbunov Kazan Aircraft Production Association, into joint-stock companies, in which 100% of shares will be held by the state, and will subsequently form the state's contribution to UAC, as payment by the government for additional stock issues made by the company to increase its equity capital.

The government controlled over 51% of the merged company, which united 19 legal entities. Almost all of them are products of the industrial era with a full one-site production cycle. This means about 100,000 people will be employed in manufacturing and about 20,000 at design bureaus. The share of private capital in the holding will at first be around 25%. The second stage of its development envisaged a new issue of shares and, in March-May 2007, a merger with the Russian Aircraft Corporation MiG and the Kazan-based Gorbunov aircraft production association, which were being converted into joint-stock companies. In addition, talks with a large number of private shareholders have shown that they are willing to convert their shares in the corporation's and its enterprises' stocks. So the share of private capital would gradually increase to 40%.

The situation in the Russian aircraft industry was as follows: military and civil airplanes are produced at 13 specialized plants. Their average volume does not exceed 35% of capacity, while the equipment and technology remain at 1970s levels. The active part of their fixed assets (about 83% of equipment) is outdated. Out of 10,000 assembly machines, only 3% have a speed of above 5,000 rpm. The average age of the personnel employed is over 50. Less than 10% of workers meet current qualifications standards, and the industry's computerization lags terribly behind modern requirements.

Aircraft construction companies entered United Aircraft-Building Corporation, which has been created to fulfill the following tasks:

  • To liquidate the surplus of production capacities (average capacity use of production equipment ranges from 10- 15% at present);
  • To unite resources that are spread out at present so as to fulfill priority goals (for example, to create a 5thgeneration fighter jet);
  • To eliminate competition between Russian producers for state orders and export contracts;
  • To increase the competitiveness of the Russian aircraft-building sector on the world market.

President Vladimir Putin, in his state-of-the-nation Annual Address to the Federal Assembly on 26 April 2007, said "Russia has historically been a leader in aircraft manufacturing, both military and civilian. Over the last decade, however, we have seen our civilian aircraft manufacturing industry decline. We have adopted a programme to develop this sector and have established the United Aircraft Manufacturing Corporation. This new aircraft manufacturing corporation should become an engine for modernising the entire sector. Ultimately, Russia will develop a modern aircraft manufacturing sector producing the main different types of civilian aircraft. This year, we need to choose an international partner for mutually beneficial cooperation, while continuing to implement the projects already begun."

The United Aircraft Building Corporation (UABC) [far less commonly, United Aircraft Corporation (UAC)] was officially set up in 2007, with plans to include about 20 major aircraft-industry companies - seven major aircraft building plants and five leading design houses. The formation of the UAC was finalized by 01 April 2007. The UABC, which is 90% state owned, incorporates aircraft building companies and state assets engaged in the manufacture, design and sale of military, non-military, transport and unmanned aircraft in a bid to streamline the Russian aviation industry.

In November 2006 the government's Commission for the Integration of Russian Aircraft Builders made the decision to create Open Joint Stock Company United Aircraft Building Corporation. The government contributed the following assets to the corporation's authorized capital:

  • V/O Aviaexport (15 percent)
  • Aviastar-SP (1.2491 percent)
  • Financial Leasing Company (77.52 percent)
  • Ilyushin Aviation Complex (86 percent)
  • Ilyushin Finance Co. (38 percent)
  • Irkut Corporation (30.6 percent)
  • Kazan Aviation Production Association (100 percent)
  • Komsomolsk-on-Amur Aviation Production Association (25.5 percent)
  • MiG Russian Plane Building Corporation (100 percent)
  • Nizhny Novgorod Aircraft Building Plant Sokol (38 percent)
  • Novosibirsk Aviation Production Association (25.5 percent)
  • Sukhoi Aviation Holding Company (100 percent)
  • Taganrog Aviation OJSC (51 percent)
  • Tupolev Company (90.8 percent)

The united corporation has four business units, called Combat Aviation, Civil Aviation, Military Transport and Special Aviation, and Hubs and Components. The annual turnover of the corporation is expected to be between $8.2 billion and $8.5 billion. In all, about 20 Russian aviation companies will be placed under UABC control, including seven of the largest aircraft making enterprises and five design bureaus. It should become the world's fifth largest aircraft building corporation.

The Board of Directors will include: Deputy Chairman of the Government of the Russian Federation, Defense Minister of the Russian Federation Sergei Ivanov; First Deputy Chairman of the Russian Government's Military-Industrial Commission Vladislav Putilin; Deputy Minister of Industry and Energy of the Russian Federation Andrei Reus; Commander-in-Chief of the Russian Air Force Vladimir Mikhailov; Assistant to the President of the Russian Federation Igor Shuvalov; the Head of the Federal Industry Agency Boris Aleshin; the Head of the Federal Agency for the Management of Federal Property Valeri Nazarov; the Head of the Federal Military-Technical Cooperation Service of the RF Mikhail Dmitriyev; Director-General and General Designer of the Federal State Unitary Enterprise RSK MIG Aleksei Fyodorov; Director General of the Federal State Unitary Enterprise Rosoboronexport Sergei Chemizov; Transport Minister of the Russian Federation Igor Levitin; Deputy Minister of Economic Development and Trade of the Russian Federation Andrei Belousov; Chairman of the Board of the Sberbank of the Russian Federation Andrei Kazmin; President-Chairman of the Board of OAO Vneshtorgbank Andrei Kostin.

On 09 August 2007 it was reported that the Tashkent aviation production association named after Chkalov (TAPOiCh) specializing in the production of transport airplanes IL-76 and IL-114, would be included into United Aircraft Building Corporation (OAK). This decision was made as a result of negotiations of Senior Deputy Prime Minister Sergei Ivanov, Chair of the Board of Directors of OAK, with th authorities of Uzbekistan.

By 2012, Sukhoi was calling the shots in the UAC, while Tupolev is practically bankrupt and is surviving by renting out its premises. The Superjet was the authorities’ pet project and a good investment destination.

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Page last modified: 01-01-2020 18:31:59 ZULU