United Engine-Building Corporation (UEC)

The Russian President held consultations in August 2007 in St. Petersburg, and it was decided to integrate the enterprises involved in the design and production of gas turbine engines through the creation of a few holdings, by way of increasing the government's shareholdings in these companies. The first integrated structure, Dvigateli-NK, was to unify the enterprises of the Samara engine-building cooperatives. The second structure was to include the Perm engine-building enterprises along with JSC NPO Saturn and JSC Ufa Engine-Building Association (UMPO). Oboronprom's United Engine-Building Corporation (UEC) was defined as the center for this integration, in view of the necessity of consolidating privately-held shareholdings such as the enterprises of the Perm complex, along with NPO Saturn and UMPO. The third holding was to include JSC Klimov and the Chernyshev plant. The Salyut holding was to be the fourth structure. The President signed a decree with respect to Salyut right then in August.

The plan for the consolidation of engine-building assets, adopted in August 2007, foresaw the creation of four integrated structures, but by early 2008 the plan called for only three holdings. The government concluded that the "Dvigateli-NK" holding could not survive on its own, and should be folded into the holding that would include the Perm and Samara clusters, Saturn and UMPO. This idea received the President's support. Upon further examination, it was found that the Samara cluster of enterprises were in catastrophic shape, both financially and in terms of their production facilities. Kuznetsov SNTK, which was supposed to form the core of the Dvigateli-NK holding, was close to bankruptcy, and some of its assets had already been seized by its creditors. Power supplies to the enterprise had been cut off, and employees had not been paid wages for nine months. The situation at Motorostroitel, another factory in Samara, was not quite so bad, but it too was shouldering an increasing debt load and was prone to slippages in the implementation of contracts for its main clients - Gazprom and Rokosmos - all of which put into question the viability of the company and the holding as a whole.

In April 2008 Oboronprom United Industrial Corporation, the Russian holding company behind Kazan Helicopter Plant and Ulan Ude Aircraft, had created a new engine-building sector, in line with Russia's continuing steps towards greater consolidation in its defence manufacturing industry. The newly integrated structure - the United Engine Building Corporation - includes: NPO Saturn; Ufa Engine-Building Industrial Association; Motorostroitel; Kuznetsov Samara Scientific and Technical Complex; Samara Machine-Building Design Bureau; Metallist-Samara; Perm Motors Group; and other enterprises. The group's latest acquisition was that of Russian entity Sales Company, which holds 71 per cent in Perm Motor Plant and other engine plants in the city of Perm.

• Scientific-Production Association Saturn is a leading engine-building company specializing in the development and after-sales servicing of gas turbine engines for military and civilian aircraft, naval forces ships, power generation and gas pumping units.
• Ufa Engine Industrial Association (UMPO) is engaged primarily in the manufacturing, servicing and overhaul of jet aircraft engines, the manufacturing and repair of helicopter engine units, and makes ground-based products for the civilian market. The Motor Scientific-Production Enterprise (Ufa) will be converted from a Federal State Unitary Enterprise into a joint stock company, with 100% of its shares going to the charger capital of Oboronprom Corporation.
• Perm Motors Group is one of the largest Russian centers of engine building. The principal enterprises of the group - OJSC Perm Motor Plant, OJSC Aviadvigatel, OJSC Reduktor-PM - form a single technological chain encompassing the design, finishing, and series production of aviation engines, gas turbine installations and gas turbine power generators, helicopter gear assemblies and transmissions, as well as after-sales support in the field. In mid-March 2008 Oboronprom concluded an agreement with AFK Sistema to purchase 100% of ZAO Sales, which owns 71% of JSC Perm Motor Plant, as well as a controlling shares of other enterprises that are part of the Perm Engine-Building Complex.
• Kuznetsov Samara Scientific and Technical Complex [SNTK] designs the NK engine for strategic and civilian aviation, missile engines, as well as engines for gas compression and power plants based on aviation jet engines. SNTK is the sole Russian designer of strategic aircraft currently in service with the Air Force. About 40% of the gas compressor plants on the territory of the former Soviet Union are equipped with NK engines. Oboronprom also owns 21% of Kuznetsov SNTK.
• Motorostroitel produces aviation gas turbine engines for the gas compressor plants on gas main pipelines, unit design modular power stations, and liquid-propelled space missiles. Engines produced at Motorostroitel powered the launches of the Vostok, Voskhod, and the Soyuz piloted space ships, as well as the Progress automatic space vehicle.
• The Samara Machine-Building Design Bureau (SKBM) specializes in engineering design and support for the NK engine through its entire life cycle.

In line with the Presidential decree of April 16, 2008, Oboronprom Corporation functioned as a center for the integration of the engine-building sector. According to the decree, the Russian Federation would contribute the following shareholdings to the charter capital of the company: 37% JSC NPO Saturn, 14.25% Perm Motors, 45.03% JSC Aviadvigatel (Perm), 60% JSC STAR (Perm), 14.95% JSC Perm Inkar Machinery Association, 38% JSC Motorostroitel (Samara), 60% Samara Kuznetsov Research and Technology Complex, 50% Samara Machine-Building Design Bureau, 22.66% Metallist-Samara, 38% NPO Povolzhksky Aviation Technological Institute (Samara). The decree also stipulates that UEC should increase its share of the charter capital of these enterprises to at least 50% plus one share. According to the decree, 49% of the shares of JSC Kamov and 3.9% of JSC Rosvertol will be transferred to Oboronprom through an emission of additional shares and an increase to its charter capital. The decree gives the Government a 15 month deadline for implementation and to ensure that the Russian Federation maintains a minimum share of 51% in the charter capital of Oboronprom.

Created on the basis of Oboronprom Corporation, the consolidated engine-building corporation will become one of the leading industrial structures in Russia for its engineering design and production capabilities alike. The consolidation of the assets of the largest gas turbine manufacturing enterprises will bring sustainable financing, more investment - including investment for new product development - and lead to the successful implementation of structural transformations in the knowledge intensive sectors of the Russian economy.