26 August, 2015
Good afternoon, distinguished colleagues,
If you allow me, I will briefly tell you about the certain matters, and then I will be pleased to answer your questions.
As far as goals are concerned, we still have two focal areas and two major priorities – the military and the civil elements. And certainly UAC’s business is first and foremost associated with defense support and safety assurance. You will recall that 80% of our profit still falls on military programmes. At the same time, as to the goals specified in our strategy by the year 2025, the share of the civil element should be 50% of UAC’s profit. We are very grateful to the State, our principal shareholder and our major customer, for the support we have been given. You will recall that this is a large-scale State Defense Procurement in itself which has been growing over the last few years in a row. This also involves measures assumed to promote civil aeronautical engineering which include tackling the issue related to the debts of JSC “SCA”, a company that manufactures and promotes Sukhoi Superjet 100 aircrafts. And this also involves measures related to capital top-ups for state leasing companies which mean for us a possibility to sell our aircrafts to the air carriers that do not have sufficient financial strength and to propose to them a financial package enabling to balance the demand in the falling market.
As is customarily, UAC has the biggest showroom. At our exhibition stand of almost 2000 square meters we have tried to give a vivid and clear description of all the areas of activity and to present the UAC member firms. There are around 30 aircrafts are demonstrated at the static stand. The flight program: I believe that Prospective Airborne Complex of Front Line Aviation (PAK FA) will generate the biggest interest. T-50 aircraft takes part in the flight program; it will complete a flight in the triad. Su-34, Su-35, MiG-29, Be-200, Yak-130 etc will also be present. We tried to demonstrate, to the maximum extent possible, all the aircrafts we produce. Unfortunately, due to inability to settle differences with the aviation authorities we could not demonstrate the interior of SSJ100 belonging to Interjet, a Mexican company. Those who participate in the international exhibitions Farnborough or Le Bourget etc had a chance to have a look at the interior of this aircraft. I specifically wanted to show it because this is the most up-to-date, advanced, stylish interior not only out of the whole line of Russian civil aircrafts, but out of the line of international aircrafts as well. We will try to bring the aircraft to Russia. This is synchronized with purchasers expansion program and development of optional proposal of several types of interior, including the interior designed by Alenia Aermacchi in conjunction with Pininfarina which are currently only supplied to Mexican customers. We strongly hope that this solution will be appraised within Russia and overseas and we will find purchasers for the aircrafts with such design.
I will briefly list what has already been signed. Yesterday an agreement was signed between Joint-Stock Company “Sukhoi Civil Aircraft” (JSC “SCA”) and “State Transport Leasing Company” (GTLK). I’ve already told that, owing to state support measures we have acquired a contract for 32 Sukhoi Superjet 100 aircrafts. It additionally includes an option, and this option has been developed based on negotiations held by our colleagues from “State Transport Leasing Company” with the airline. An option for 28 more aircrafts was signed. Thus, we added 32 firm and 28 soft orders to our portfolio. The first aircrafts under the contract will be delivered to “Yamal” air carrier. This is all synchronized with the measures assumed to develop the operative leasing system which we have spoken a lot about, and in this regard it is those measures that subsidize these models by the State that work - I will not list them, we mentioned them a lot at our meetings dedicated to operative leasing development, including introduction of amendments to regulatory acts.
Just two hours ago we signed a cooperation agreement with Sberbank in the sphere of implementation of residual value guarantee mechanism. We created “UAC Capital” company. Partnership with Sberbank serves for us as a guarantee of further stability, reliability and presentability in the endeavours we take up in this regard to make our clients confident that the aircrafts acquired today in the absence of after-market statistics will definitely be bought back by us at certain times for a certain price. Therefore having a financial partner like Sberbank and the actions we have made provisions for at a corporate level confirms such confidence.
A memorandum on VEB’s participation in Sukhoi Superjet deliveries to Interjet, the Mexican company, was signed. This is a third ten. Mexicans actively develop their destinations network; there are several routes to the US being opened right now. They asked us not to derogate from the schedule of deliveries that has been approved. We hope that despite the difficult situation in the financial markets we will be able to guarantee, insure and finance a transaction associated with the delivery of ten more aircrafts to the Mexican company.
Questions of journalists
- What activities are you engaged in with regard to import substitution in “Superjet” which consists of foreign components to a large extent? In particular, how do you evaluate the prospects of PD-14 engine, within what time is it possible to effect import substitution on their part? Second question: what new activities are being carried out in the sphere of small regional aviation – drones, amphibias?
I will start with the second question. As for the small aircraft, in the strategy adopted by UAC, we do not consider, at least for now, the aircraft with less than 50 seats, so the aircraft relating, according to traditional classification, to small aircraft, is not a subject of application of our efforts. We work together with “Rostec” company and those colleagues who implement projects related to small aircraft. As for the drones - we have several contracts with the Ministry of Defense to create drones in their interests. Unfortunately, I cannot comment much on this, but such contracts are being implemented. In addition, the company “Irkut” and our other companies are proactively developing a number of drones to meet the interests of the national economy, for monitoring and so on. In this sense, the attitude towards drones in terms of their strategic importance to civil and military customers, remains. For the Corporation it is too early to announce the strategy for the development of drones, as we are at the stage of actualization of our entire product portfolio. For us, the section associated with the drones is a separate task which in the near future we will try to solve and to present.
Concerning the import substitution in “Sukhoi “Superjet”, it is part of a large program to improve the operating efficiency of the corporation as a whole, and the main effort related to import substitution is now focused on finding the effects associated with exchange rate volatility and an increase in the exchange rate of the dollar. We are confident that now the Russian suppliers and developers can offer solutions which, in comparable circumstances, include both quality and price, and compliance with modern requirements, with the current exchange rate will be more attractive from the economic point of view, than those suppliers we are having now. For us, it is an increased competition among our suppliers, the appearance of the opportunity in respect to each purchased component to acquire it from several suppliers. This, of course, raises some difficulties associated with the need for additional tests, but this work is being carried out, our task in the horizon of three years, as a result of a number of efforts, to reduce the cost of the aircraft “Sukhoi “Superjet” by 2.6 million dollars for a set. Therefore, within the framework of import substitution, we hope to implement this task.
As for the engines, our colleagues from UEC are developing an entire range of engines for the aircraft, based on the engine PD-14 for MS-21 aircraft, which also include the engines suitable for “Superjet” aircraft in terms of thrust. We're now following this program and wish success to our colleagues in the implementation of the tasks that they have set for themselves.
- The question related to cooperation with Sberbank and JSC “SCA”. Last autumn it was reported that one of the conditions of granting the credit of 600 million dollars to JSC “SCA” was the delivery of a certain number of aircraft and a number of firm contracts for the coming years. Please, specify how many aircraft JSC “SCA” will manufacture this year, what kind of firm orders portfolio should JSC “SCA” have so that the company does not violate the covenants.
Second question: according to our information, a new head will soon be appointed in JSC “SCA”, could you specify what tasks does UAC set for the new possible management of JSC “SCA”?
In accordance with the order of the president, which was issued based on the results of March meeting; we have set a task to develop an updated business plan, including an assessment by an independent company, and to coordinate that updated business plan with our three banks - VEB, VTB and Sberbank. Now I would like not to disclose the details of the business plan, as it is at the stage of negotiation. I can only say that last week the updated business plan and the financial model were sent to the banks. We have engaged the company Ascend to assess those conclusions which we have made. On the basis of the examination carried out by the reputable and authoritative expert organization, a new business plan has been made, which is being coordinated by the banks. It is now early to speak on this subject.
In recent days, there were a number of publications on the subject of personnel changes, of quite a peremptory character. Although it is not in the practice of UAC to comment on the information that we have not officially confirmed, or to say in advance about upcoming personnel changes, in this situation, in order to prevent possible insinuations, I would like to say that Ilya Sergeyevich Tarasenko, who is the head of JSC “SCA”, was and remains the head, and we have no plans to replace him. Perhaps, in that publication which was published in the newspaper “Kommersant”, the accents were not placed completely properly. Vladislav Evgenievich Masalov really joins UAC, we are very pleased that he has accepted our offer to join our team, but he takes the position of the Vice-president of Civil Aviation. It is linked to another more complex area, which we have not touched on yet, but, I hope, after the Board of Directors approves the approach related to the implementation of the divisional structure of UAC. Vladislav Evgenievich will be a head of the division of Civil Aviation, while Ilya Sergeyevich remains in his position, and there are no plans to replace him. As for Sergei Sergeyevich Korotkov, there was some substitution of notions. Sergei Sergeyevich will be introduced next week into the Board of Military-Industrial Commission as a Chief Designer from the Corporation, while remaining the head of RAC “MiG”. We have a separate presidential decree regarding the position of Chief Designer – it is a key position, and we are very hopeful that with the change of functions of Sergei Sergeyevich, he will be able to implement the tasks related to the unification of approaches to the design and creation of a unified information environment. At the same time, at this stage he will have to share his activity between the implementation of functions of the Chief Designer and the management of RAC “MiG”.
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