Irkut Corporation

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Irkut Corporation

30/7, Building 2, B. Molchanovka Street
Moscow 121069
Russia
Telephone: ( +7) 095 290-34-04
Fax: ( +7) 095 290-34-04
Web site: http://www.irkut.com/en/

Public Company
Incorporated: 1932
Employees: 22,000
Sales: RUB 13.07 billion ($522 million) (2003)
Stock Exchanges: RTS MICEX
Ticker Symbol: IRKT
NAIC: 336411 Aircraft Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences

Irkut Corporation is a leading developer and producer of aircraft and aviation products. In March 2004, Irkut became Russia's first publicly traded defense company. Originally the Irkutsk Aircraft Factory, one of the Soviet Union's major manufacturers of combat aircraft, including the MiG-23, MiG-27 and Su-27 fighters, the company became known as Irkut Corporation after its 1992 privatization.

As part of its bid to become a vertically integrated aircraft producer, Irkut acquired a controlling interest in the Beriev Design Bureau in 1997. A 76 percent holding in the famous Yakovlev Design Bureau was acquired after Irkut's initial public offering in 1994.

As it sought to increase the proportion of civilian-related work, Irkut was focused on three primary niches: trainers and light fighter aircraft; UAVs (unmanned aerial vehicles), and military cargo and amphibious planes. Irkut was also manufacturing Russia's most advanced fighter, the Sukhoi Su-30, for export.

Origins

The Irkutsk Aircraft Factory was established in Siberia in 1932. Located more than 3,000 miles east of Moscow, the plant was as secretive as it was remote. Over the years, it came to fill five dozen buildings at its complex to the southwest of Lake Baikal.

While Western aircraft companies had their own design and production facilities, under the Soviet system design bureaus and factories were independent.

In the mid-1930s, Irkutsk manufactured a stubby little fighter aircraft called the I-14. During World War II, the plant built heavy fighters and bombers. These included thousands of the Pe-2/Pe-3 series designed by the V.M. Petlyakov design bureau. Ilyushin's Il-4/Il-6 series of long-range bombers was also built in vast numbers. The Yermolaev Yer-2 was a twin-engine bomber built by Irkutsk in the last years of the war.

Production of bombers continued after World War II, including jets such as the IL-14 and Il-28 and later the Yak-28. The factory also built Antonov's An-12 and An-24 series of transport aircraft.

From 1970 to 1983, Irkutsk cranked out thousands of the MiG-23 and MiG-27 fighters, which were the workhorse of the Soviet fleet during most of the Cold War. The MiGs were followed by variants of the Sukhoi Su-27 and its successor, the Su-30, Russia's most advanced fighters of the 1990s. According to the Financial Times, Irkutsk was producing two dozen Suhkoi jets every year at the height of production.

Privatized in 1992

Irkut Corporation was established in 1992 as the factory was privatized. Irkut was led by Alexei Innokentyevich Fedorov, who served as chief engineer and director general of the factory from 1989 to 1997 and as Irkut Corporation's president after that. Fedorov had joined Irkut as a design engineer in 1974 and earned an MBA at Oklahoma State University in 1994.

The successor to the Sukhoi Su-27, the Su-30 was first built for export. The cash-strapped Russian military bought none of the company's aircraft between the time Irkut went private in 1992 and its 2004 initial public offering (IPO), according to the Financial Times.

The Sukhoi Su-30 was considered equivalent to the U.S.-made F/A-18E/F Super Hornet, but priced about 25 percent less, at $40 million. With thrust-vectoring engines, it was probably the most maneuverable fighter aircraft in the world at the time; some of its state-of-the-art avionics had been sourced from Israel and France.

In 2000, Irkut signed a deal with Hindustan Aeronautics Ltd. (HAL) to build 140 Sukhoi Su-30 fighters in India. The next year, the People's Republic of China ordered 40 Su-30s worth $2 billion. Another large order worth $2.2 billion followed in 2002, when Malaysia ordered 18 planes.

HAL of India was also collaborating on the development of a new military transport aircraft called MTA. The Ilyushin Aviation Complex was assisting with design in the venture, which was a smaller version of the firm's Il-76 airliner.

A $50 million, three-year modernization of the factory's equipment was begun in 2001. The AviaSTEP design bureau was acquired in 2002. It had been created six years earlier to specialize in computer-assisted design and manufacturing.

In 2003, according to Business Week, Irkut had pretax profits of $94 million on estimated sales of $522 million (according to international accounting standards), and a backlog in excess of $4.3 billion—enough to keep production lines busy for eight years. Vedomosti, as quoted in the Russian Business Report, reported the company's revenues as $368 million for the year, with a net loss of $4.86 million.

Besides producing Su-30s, Irkut was also upgrading an earlier version, the Su-27, as well as Mi-8 helicopters. The company performed systems integration using equipment from sources inside and outside Russia. Irkut raised its interest in Russian Avionics (or ZAO Russkaya Avionika, formerly Ramenskoye Instruments) from 26.6 percent to 51 percent in 2001.

Irkut accounted for 10 percent of Russia's military production, and military aircraft accounted for 90 percent of its output, but the company was eager to raise the proportion of civil aircraft to 45 percent. In late 2003, Irkut won a contract to build floor panels for the Airbus A320.

Buys Beriev in 2002

Irkut had acquired a 40 percent holding in the Beriev Design Bureau, or Taganrog Scientific-Technical Complex, in 1997. This was raised to a controlling interest in the summer of 2002. Beriev had been formed by Georgei Beriev in the early 1930s and was best known for its hydroplanes.

While the West had stopped building large amphibious aircraft at the end of World War II, the Soviet Union's Beriev Design Bureau had developed a range of planes, including small jet airliners, that could land on water.

The Beriev Be 200 was one of the world's most capable firefighting aircraft. Powered by two Rolls-Royce jet engines, it could scoop up 12 tons of water in seconds. Beta-Air was established to market the Be-200. Before Irkut's 2004 IPO, Hawkins & Powers Aviation Inc. of Greybull, Wyoming, announced it was buying eight Be-200 aircraft for $200 million.

Other projects under development at Beriev included a land-based commuter airliner called the Be-32R and the huge A-40 "Albatross" amphibian, as well as the A-42PR search and rescue aircraft.

2004 IPO

Irkut launched its initial public offering in March 2004 on the Russian Trading System (RTS) and Moscow Interbank Currency Exchange (MICEX). Irkut became the first Russian defense firm to be publicly traded. It floated 23.3 percent of shares, raising $127 million for the company.

Irkut's top ten managers owned 70 percent of the company before the IPO, after which their holding fell to 50.3 percent. The Russian government owned 14.7 percent of shares before the offering and 13.4 percent after.

The company acquired a 75.46 percent holding in the venerable A.S. Yakovlev Design Bureau with the proceeds from its public offering. One source put the price of this acquisition at more than $50 million.

The Yakovlev buy helped build Irkut into a vertically integrated company. A new military jet trainer, the Yak-130, was already being developed to both Russian and world markets. Yakovlev was also working on unmanned aircraft and had designed a mid-range, 120-seat airliner called the MS-21.

Vedomosti reported in July 2004 that company officials were hoping to team up with Bombardier, the Canadian producer of regional jets, on the CSeries mid-size airliner it was developing. Irkut was also forming a joint venture with EADS, the European defense conglomerate, to market the Be-200 in the West. The first of these was delivered to Italy, which was considering buying up to ten of them for its civil defense department.

In September 2004, EADS polled the Russian government for permission to acquire a 10 percent interest in Irkut. At that time, foreigners were limited to owning 25 percent of a Russian aerospace company's share capital.

Company Perspectives:

Our key business objective is to maintain and develop the Russian civilian and military aircraft industry. To this end, more than 15,000 dedicated employees of IRKUT are at work each day delivering advanced aerospace solutions for both our civilian and military customers.

Key Dates:

1932:: Irkutsk Aircraft Factory is established in Siberia.
1970:: Irkutsk begins making thousands of MiG-23 fighters.
1986:: Suhhoi Su-27 fighters enter production at Irkutsk.
1992:: Irkut Corporation is privatized.
2002:: The company acquires a controlling interest in Beriev Design Bureau.
2004:: Irkut launches the first Russian defense sector initial public offering and acquires control of Yakovlev.

The Russian government designated Irkut president Alexei Fedorov as the head of RSK MiG, furthering plans to create a unified national aerospace company in Russia. MiG was famous for light fighter aircraft. The Unified Aircraft-Building Corporation, which had the Russian acronym of OAK, was also to include Tupolev and Ilyushin. Fedorov followed a string of seven general directors at state-owned MiG in eight years.

By 2014, said Irkut president Alexei Fedorov in 2004, Irkut aimed to have sales of $1.6 billion, with nearly half of that from the commercial aviation market.

Principal Subsidiaries

Beriev Aircraft, JSC (38.6%); BETA AIR CJSC (66.15%); Gidroaviasalon Ltd. (30%); IRKUT AviaSTEP Design Bureau JSC; Irkutsk Aviation Production Association; ITELA, CJSC (51%); Russian Avionics Design Bureau CJSC (51%); Techserviceavia, CJSC (51%).