. Last Updated: 07/27/2016

Government Targets Pratt & Whitney

VedomostiA PS-90 engine made at Perm Motors Plant, which is 25 percent owned by P&W.
National security is on the line, a government agency is claiming as it moves to edge out a U.S. aviation industry investor.

Connecticut-based Pratt & Whitney should not be allowed to hold more than a blocking stake in Aviadvigatel, the designer of engines for most modern domestic aircraft, the Russian Aviation and Space Agency reportedly argued in a recent letter to the Aviadvigatel board of directors.

P&W holds less than 25 percent in Aviadvigatel, along with a 2 percent stake held by a subsidiary, Turboenergoprom, that is Russian-registered but P&W-owned.

The Rosaviakosmos letter, dated last month but delivered to the board on March 19, is said to argue that this effectively gives P&W a 27 percent stake. It brings the firm into conflict with last year's licensing regulations for aviation technology development, under which the share of foreign capital should be kept under 25 percent.

If the stake is not reduced, Aviadvigatel risks losing its operating license, board member Sergei Permyakov said by telephone Wednesday, quoting from the letter. The letter gives the board until April 1 to deal with the issue, he added. The meeting is scheduled for March 31.

Neither Permyakov nor Rosaviakosmos spokesman Sergei Gorbunov would release a copy of the letter.

The Rosaviakosmos letter comes at a time when P&W is weighing whether to buy a blocking stake, or 25 percent plus one share, in the Perm Motors Plant, currently owned by Vladimir Potanin's Interros holding. This stake would add to the stake of almost 25 percent that it already owns. The deadline for its decision is next month, and Interros said Wednesday that P&W has yet to pursue the stake.

The Perm Motors Plant, or PMZ, manufactures the PS-90A aviation engine and gas turbines for Gazprom. Aviadvigatel, also based in Perm, designs the PS-90A engine, used on Il-96 and Tu-204/214 aircraft.

Rosaviakosmos head Yury Koptev said in a recent interview that he did not think P&W would buy the PMZ stake. If it did, "PMZ would lose its license," he said.

Interros also held a blocking stake in Aviadvigatel until last month, when it sold the shares for $25 million to the State Investment Corp., or Gosinkor, whose assets are now being transferred to the Property Ministry after Gosinkor was disbanded in February by a presidential decree.

Permyakov represents the interests of Gazprom-affiliated Tekhnologii Motorov on the Aviadvigatel board. Tekhnologii Motorov, in turn, owns blocking stakes in both Aviadvigatel and PMZ through its own subsidiaries.

Permyakov said he would propose that Aviadvigatel buy out Turboenergoprom's 2 percent to eliminate any legal worries.

Permyakov said Tekhnologii Motorov has proposed pooling its stakes in the two Perm-based engine firms into a state-owned holding company, along with those belonging to Gazprom and the federal government.

Tekhnologii Motorov proposes to leave P&W's assets in Perm companies outside the new holding, Permyakov said. Instead, it wants to create a joint venture with P&W called International Commercial Motors to modernize the PS-90A engine.

"Perm companies make dual-use products. P&W's direct participation there could threaten national security. We should be building our [Russia's] cooperation with them behind the fence," Permyakov said, referring to the security perimeter around the new state engine plant.

P&W declined to comment.

Rosaviakosmos' Koptev said last month that legislation should be relaxed to increase to 49 percent the level of foreign ownership allowed. "If we seriously talk about attracting resources from our Western partners, then without it we cannot reach a desired result," he said.