MOSCOW — Russian President Vladimir Putin has reportedly signed off on a Ministry of Industry and Trade proposal to for defense and high-technology holding Rostec to help fund a high-profile civilian airliner project managed by the United Aircraft Company.
According to the Kommersant newspaper, citing several unidentified government and industry sources, the 30 billion ruble (U.S. $535 million) investment in United Aircraft’s MS-21 commercial airliner project may pave the way for an eventual takeover of the company — which is Russia’s second largest defense contractor, and the world’s 14th largest according to the 2017 Defense News Top 100 ranking of global defense enterprises.
Putin reportedly signed off on the proposal by stamping a January 23rd letter from Industry and Trade Minister Denis Manturov, according to an unidentified Kremlin source cited by Kommersant. In the letter, according to Kommersant, Manturov wrote that Rostec has “confirmed the possibility of allocating about 30 billion rubles to the MS-21.”
Kommersant was unable to secure official confirmation from the Kremlin, and a request for comment from the Industry and Trade Ministry went unanswered. When approached by Defense News for comment, the United Aircraft Corporation declined to comment on the proposal for Rostec financing of the MS-21 project. However, a source from United Aircraft spokesman said that “any aircraft development program such as the MS-21 is investment intensive. And capital investment is better than borrowed investment.” Ultimately, he added, such a decision isn’t even up to Rostec, “as the decisions are made elsewhere.”
The reported MS-21 financing proposal is seen in Moscow as the first step in a broader play by Rostec to consolidate its control over the Russian defense industry. In 2015, the company’s former president, an experienced aerospace engineer who one lead MiG and Sukhoi named Mikhail Pogosyan, was replaced by former Deputy Industry and Trade Minister Yury Slyusar.
Slyusar is considered to be an ally of Sergey Chemezov, the head of Rostec. Chemezov, himself reported to be an old friend of Putin’s, has presided over the gradual expansion of Rostec’s defense industry holdings over the past decade. Rostec today controls over two-thirds of the Russian defense industry. Acquiring UAC would be a major expansion of its holdings.
“It is an open secret that Rostec is trying to absorb as much of the industry as they can,” a defense industry source told Defense News on a condition of anonymity. “Rostec makes certain moves, and then Manturov supports them. The company is, in effect, a kind of shadow ministry of defense industry production.”
But UAC’s fate is not yet sealed. According to Kommersant, Rostec itself has reservations. If the company takes control of UAC, it will also find itself responsible for financing the company’s projects beyond the MS-21 airliner. With development of high-end military aircraft going on at Sukhoi, MiG, and even Tupolev, such a burden could end up being substantial.
But jockeying for control over the company continues behind the scenes, Kommersant reported. In November, the newspaper reported that the Industry and Trade Ministry had already worked out a proposal with the Economic Development and Finance Ministries by which the state’s 91.7 percent ownership of the company would be transferred to Rostec.
That proposal was blocked by Deputy Prime Minister Dmitry Rogozin, who’s portfolio includes oversight of the Russian defense and space industries. Rogozin has argued that there is no economic justification for such a transfer. Manturov’s proposal, however, is supported by Prime Minister Dmitry Medvedev, Kommersant reported.
“Rogozin is lobbying in the other direction,” the defense industry source told Defense News. “He is pushing for a merger of United Aircraft Corporation with Roscosmos, the state space corporation, in an effort to create a sort of super aerospace company. But Rogozin is much weaker than Manturov and Chemezov, so if Chemezov really wants it, he will ultimately get it.”
In an effort to sidestep Rogozin, Manturov has reportedly submitted his latest proposal directly to the Kremlin. This plan, which Kommersant reports is expected to be featured on an upcoming draft presidential decree on the matter, features the merger of United Aircraft with Russian Helicopters — a Rostec holding. Medvedev has reportedly agreed that a merger of the helicopter and aircraft industries make more sense.
When approached by Defense News Thursday, a Russian Helicopters spokesperson said the company has no comment at this time. United Aircraft spokesman Syssoev told Defense News that the company’s official position is that “we are controlled by our shareholders and as such it is up to them to decide on these matters.”
United Aircraft’s majority shareholder is the Russian government. According to the defense industry source, the question is really whether or not it is Chemezov himself who is attempting to make moves on United Aircraft, rather than someone close to Chemezov.
Matthew Bodner covered Russian affairs for Defense News.