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. Last Updated: 07/27/2016

Russian Planes Can Benefit by Dutch Merger

In the next two or three weeks, the fate of one of Russia's most exotic investment schemes will be decided. I am referring to the possible purchase of the Dutch company Fokker by the Russian aircraft builder Yakovlev, which was first announced this summer.


The management of the Yakovlev united design bureau -- as the aircraft builder has been called since Soviet times -- is trying to convince the Russian government to extend guarantees for acquiring Fokker.


Five years ago, with most of its contracts coming from the military, Yakovlev could not have predicted it would run into difficulties. The company regularly received 94 percent of its revenues from the construction of two military planes -- the Yak-141, which can take off and land vertically, and the Yak-44, a radar patrol aircraft. Western equivalents with vertical flight capacity, such as the Harrier jump jet, lag behind the Yakovlev aircraft by almost an entire generation. These are subsonic planes and the Yak-141 is a supersonic one.


Yakovlev is also known for its small- and medium-sized civilian planes for unchartered flights. There are about 1,000 such planes in the world today.


Such a solid firm in normal circumstances would not need to worry about its future. The reforms in Russia, however, have brought about a sharp decline in military contracts and the successful company has been forced to fight for its survival.


This March, Dondukov was invited to Holland to speak before Fokker's board of trustees. He tried to convince the board that the Dutch and Russian companies had a common task before them -- to defend their markets. Between 1992 and 1993, Yakovlev and Fokker were beaten out by the Americans in China, one of the world's most promising markets. During the past few years, China has acquired about 500 airplanes.


In the coming five to seven years, more than 2,000 planes will have to be taken out of service from the 3,000 planes that are now working on the Russian market. Moreover, these will be the near- and medium-distance planes that make up about 70 percent of passenger flights. Russian aircraft factories during this time will produce at best 250 planes. This means that second-hand planes will be streaming into Russia from China itself. This is why the Yakovlev company considers that the only way to hold on to even a part of the Russian market is to acquire Fokker.


Dondukov's speech was met with understanding at the Fokker board of trustees. But it was on that day that Fokker was declared bankrupt. But this did not put off the idea of a merger. On the contrary, it made it all the more real, since the Dutch authorities expressed their readiness to support the project. Dondukov was promised a $300 million credit.


There was only one last small hurdle: The Russian government would have to provide financial guarantees. But the Russian government, despite the positive conclusions of the economics and finance ministries, is still considering the matter.


If Russian aircraft building does not take some kind of extraordinary steps, such as the ones that Yakovlev is proposing, then soon the powerful industry could turn into a repair shop for Boeing and Airbus industries.





Mikhail Berger is economics editor for Izvestia.