Deripaska Said to Eye Top Bus Maker

Metals giant Siberian Aluminum is in talks to buy LiAZ, the nations largest bus maker, LiAZ general director Dmitry Strezhnev said.

"In about three to four months, we should know the result of our conversation with Sibal [Siberian Aluminum]," Strezhnev said during a factory tour Tuesday.

However, Siberian Aluminum spokesman Alexei Drobashenko said Wednesday that he didnt know anything about a potential deal.

Nevertheless, Alexander Dvoretsky, LiAZs deputy commercial director, insisted talks were underway, offering as proof the fact that Strezhnev and Siberian Aluminum head Oleg Deripaska have been friends since college.

If true, having a new, cash-rich owner would be a godsend for LiAZ, which is finally turning the corner after nearly going bankrupt a few years ago. And Siberian Aluminum has already made some acquisitions in the auto industry. Last year, it took over all day-to-day operations at No. 2 automaker GAZ and bought the Pavlovsky plant in the Nizhny Novgorod region, a LiAZ competitor.

Alexander Agibalov, a metals analyst at Aton, said that Russias current fleet of buses, which are used in every major municipal transportation system in the country, is potentially a very lucrative market because they are so old and run down that they will soon need to be replaced.

"Russias bus fleet is in need of a major upgrade, and Siberian Aluminum may be looking for a way to create a monopoly of bus manufacturers," Agibalov said.

LiAZ estimates that as much as 75 percent of the nations registered 627,000 commercial buses are so run down that they need to be scrapped for parts. The recommended life span of a bus on Russias notoriously bad roads is about five years or 500,000 kilometers. However, most buses run twice as long and in many cases more than 20 years.

According to the company, 60 percent of all the buses were made by LiAZ, despite the fact that it made just a dozen in 1997. Unable to repay an $18 million prepayment by St. Petersburg for 500 buses, LiAZ filed for bankruptcy in late 1996 and production plummeted.

Strezhnev said a group of investors, which he would not name, allowed the company to stay afloat, and it is now ready to meet the demands of local governments. "LiAZ is capable of satisfying the demand of this market," said Strezhnev. "We already have the capacity to produce 4,000 machines annually."

The factory, based in the town of Likino-Dulyovo 90 kilometers east of Moscow, boosted production more than 2.5 times to 978 units last year and plans to produce 1,500 in 2001.

While that is a far cry from 10,000 buses it produced annually during the Soviet epoch, the increase signals heightened demand from Russias regions that can no longer postpone refurbishing their decrepit fleets.

LiAZ is now facing some tough competition, however, not only from local manufacturers but also from foreign automakers. Last June, Hungarian bus manufacturer Ikarus Bus agreed to provide the Moscow city government with 286 buses. And two years ago, Volvo Bus signed an $100 million agreement with the federal government to begin producing buses at a manufacturing site in Omsk.

But LiAZ should not fear foreign competition, said Yulia Zhdanova, a transportation analyst at United Financial Group, because "foreign manufacturers price their buses 10 times higher."

Western-made buses can cost hundreds of thousands of dollars, while a standard LiAZ bus costs about $45,000, and an upgraded version with a Caterpillar engine runs about $75,000.

"We have made 200 changes to improve the quality of our product, but we have not changed our prices," said Strezhnev. "They are still 15 percent to 20 percent lower than any of our competitors."