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. Last Updated: 07/27/2016

Auditors Slam Aviation Privatizations

A new Audit Chamber report found that the government committed massive violations in privatizing the aircraft manufacturing industry in the 1990s and calls for a review of the sales.

The report, a copy of which was obtained by The Moscow Times, paints a gruesome picture of a once-mammoth industry that has fallen on hard times because of violations in the 1992-99 sell-offs and the subsequent mismanagement of the enterprises.

The Audit Chamber, parliament’s budgetary watchdog, said Tuesday that the report will soon be presented to the government. President Vladimir Putin has already been briefed, they said.

It was unclear Tuesday how the Kremlin would react to the report. It has largely ignored the chamber’s findings in years past.

The chamber found that Russia last year produced only nine civilian planes and 21 military planes — none of which were for the military — compared with 150 civilian airplanes, 300 civilian helicopters, more than 620 military planes and 390 military helicopters in 1991.

Of the 315 aviation manufacturers inherited by post-Soviet Russia, up to 224 were privatized. The state kept a controlling stake in only seven of those 224 plants and lost complete control of 94.

The report also criticizes ineffective management — such as not finishing a complete inventory of each company’s assets before they were sold — for costing the state hundreds of millions of dollars in the sell-offs. For example, the chamber found that in the course of privatizing the Mil Moscow helicopter plant, the state received less than $30,000 at a time when it had 13 valuable helicopters on hand, including four Mi-26s worth $8 million a piece.

Also, legal loopholes led to a large-scale buy-up of the enterprises’ shares by foreign companies, the report says. For example, 41.2 percent of the Mil plant went to foreign companies, as did 35 percent of the Aviastar plant, 26 percent of Tupolev’s complex and 25 percent of the Perm Motors Plant.

Aviastar, which makes the An-124 cargo plane and the Tu-204 passenger jet in Ulyanovsk, is now producing at less than 10 percent of its capacity. Likewise, Perm Motors went from making 476 engines in 1992 to only three engines in 1998. The report says that 35 of the 131 enterprises in the industry are either losing money or are near bankruptcy.

If the current situation prevails, the report says, the domestic aviation industry will not be able to produce competitive aircraft in three to five years.

A number of companies mentioned in the report could not provide immediate comment. But Perm Motors’ chairman, Vladimir Shmatovich, said overturning the results is highly unlikely because practically all the enterprises have been restructured. "These are different enterprises now," he said in a telephone interview from Perm.

The report’s head auditor, Viktor Demedyuk, said the violations were enough to reconsider the privatizations of a number of enterprises. He added, though, that only the government or the Prosecutor General’s Office could start any proceedings.