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. Last Updated: 07/27/2016

Finance for World's No. 2 Cargo Plane Halted

Volga-Dnepr, the world's biggest heavy-lift cargo airline, has suspended investment in the Aviastar-SP production facility as a result of an ongoing spat between the plant and the Ulyanovsk region administration over frozen shares and seized assets.

The decision casts a shadow over plans to complete an An-124 Ruslan -- the world's second biggest cargo plane and capable of carrying 120 tons -- which was due to be assembled in 2003. Volga-Dnepr received a $29.9 million loan from the International Finance Corp., the private financing arm of the World Bank, earlier this year for the project.

"The plant is in a very complicated relationship with the administration of the Ulyanovsk region," Volga-Dnepr spokesman Alexander Stepanenko said Friday. "All their activity indicates that their declarations about support of investor interests contradict the reality."

"We have informed the IFC about the [board's] decision," he said. The IFC was not available for comment Friday.

Volga-Dnepr, whose clients range from industrial giants to pop stars, has also said it will shift its registration to another, as yet unspecified region. The company is majority-owned by its management.

Volga-Dnepr's decision is not the only sign all is not well at Aviastar-SP.

According to Boris Brusilovsky, director of the Moscow representative office of Aviastar-SP, financing is yet to begin under a major $280 million two-year investment agreement signed in June by the government, Aviastar-SP, Tupolev design company and Ibrahim Kamel, chairman of Egyptian Sirocco Aerospace International. Sirocco holds exclusive rights to Tu-204-120 aircraft -- fitted with Rolls-Royce engines and Honeywell avionics -- being built at Aviastar. Sirocco has already invested $170 million into Aviastar since its inception in 1996.

With the new investment, Sirocco was to get 25 percent minus one share at both Tupolev and Aviastar-SP, but the stake in Aviastar-SP faces being revoked.

A local court is looking into legality of the shares changing hands. The shares set for Sirocco come from Inter-ANT company, a subsidiary of Aviastar Holding, parent of Aviastar-SP production plant. Inter-ANT was one of the subsidiaries where assets of Aviastar were transferred by former management.

The Ulyanovsk region administration believes the transfer was illegal and wants the assets to be given back to Aviastar Holding, which is now being monitored by the Federal Financial Recovery Service.

Last month, Economic Development and Trade Minister German Gref, Transport Minister Sergei Frank and Industry, Science and Technology Minister Ilya Klebanov flew to Ulyanovsk where they pledged support for Kamel's investment and ordered the Ulyanovsk administration to resolve the issue.

However, Brusilovsky said, the situation remains largely unchanged. A few days after the high-ranking visit, the An-124 airframe set for Volga-Dnepr, which had been transferred from Aviastar Holding to another subsidiary -- the Tupolev Aviation Leasing company -- was seized by court order.

"This impediment for Aviastar-SP comes from Aviastar [Holding] with the help of the regional administration. ... We think this decision is detrimental, and can frighten off investors from Aviastar-SP and Volga-Dnepr," Brusilovsky said.

Mikhail Mirimsky, adviser to Ulyanovsk Governor Vladimir Shamanov, said by phone Friday that it was in the interests of the administration to assist both Kamel and Volga-Dnepr.

"The problem is that Volga-Dnepr got the aircraft from the Tupolev Leasing company, which, to put it mildly, stole the aircraft. ... Together with the management of Volga-Dnepr, we are working on schemes so that Volga-Dnepr will legally own the aircraft," Mirimsky said.

He said, however, he was not aware of the Volga-Dnepr board decision to stop financing of the aircraft.

"We spoke to [Volga-Dnepr chairman Alexei] Isaikin today. He said there is no misunderstanding with the regional administration, which he will reiterate at a joint press conference next week," Mirimsky said Friday.

Volga-Dnepr's press service later denied that the conversation took place.

Brusilovsky said Isaikin, Aviastar-SP general director Viktor Mikhailov and the presidential envoy to the Volga federal district, Sergei Kiriyenko, were to meet Monday to discuss the fate of the plant and the plane.