The Russian government is about to approve the creation of a corporation that brings under one roof the design and manufacturing plants of Mil helicopters.

Yet some key decisions regarding Mil's product range may take up to five years to implement, according to the chief executive of state-owned Oboronprom, here.

The government in early May will issue a resolution detailing the asset structure of the new holding, said Oboronprom General-Director Denis Manturov.

Oboronprom, set up in 2002 by the government and state arms export agency Rosoboronexport, is a 50-50 joint venture to oversee government defense assets and acquire stakes in private defense firms.

Under a Nov. 29 decree from President Vladimir Putin, Oboronprom will accumulate government stakes in contributing companies and have a controlling 51 percent stake in the future Mil holding. Oboronprom will get the state's 31 percent stake in the design bureau, Mil Moscow Helicopter Plant (MVZ), a 29.92 percent share in Kazan Helicopter Plant (KVZ), 49.18 percent of the Ulan-Ude Aviation Plant, 38 percent of the Moscow Machinebuilding Plant and 60 percent of Stupino Machinebuilding Production Enterprise.

The new holding also will involve Rostvertol, Rostov-on-Don, the majority of which is privately owned. The state recently received a 3.5 percent share of Rostvertol through a company additional share issue and plans to increase its stake to 25.1 percent. The shares either will be bought from Rostvertol shareholders or swapped for shares in Oboronprom. This stake can be increased to 51 percent at a later date, Manturov said.

The shareholding structure in the new holding will be finally identified by the summer, he said.

Dividing Responsibilities

The member-companies of the new corporation will each maintain an independent legal status, with Oboronprom coordinating their marketing activities and research and development work, he added.

Contributing companies would keep their rights to fullfill state procurement orders and export sales.

This provision appears to address industry fears that under the holding plan, the individual companies could lose financial independence or see their cash flows redistributed in favor of their domestic competitors.

Yet streamlining the holding's product range may take some time, Manturov said.

MVZ deals with design work and Rostvertol keeps its niche making Mi-24/35 combat and Mi-26 super heavy transport helicopters, while also developing the new Mi-28N Night Hunter attack helicopter.

Meanwhile, production plants in Kazan and Ulan-Ude produce similar products - variants of the Mi-8/17 transport helicopters.

KVZ, the largest and strongest of the three production plants, which also has set up its own design bureau, has been seen by industry analysts as the winner in any possible shakeouts during the reorganization.

"Indeed, one of the goals for creating this corporation is to optimize the product range, but no one is saying it will happen overnight," Manturov said.

"It is not possible to do it within a year. To take production away from one plant and give it to another and shut it down will not make any sense. I think it will take up to five years [to split the model range]," he said.

But when the new corporation is up and running, "no plant will be making helicopters from bolt to blade," he added.

Oboronprom will push for closer production integration and cooperation among the member companies.

With this new format, Russia can aim at 15 percent of the global market, he said. Under the USSR, the Soviets accounted for 30 percent of global helicopter production. Russia now holds just 5 percent to 6 percent of the market, Manturov said.

Spreading Globalism

One analyst here said industrial integration is part of a global trend which Russia is about to start.

"Over the past few years, these helicopter plants have been functioning successfully enough and would not need an immediate integration," said Marat Kenzhetayev, expert with the Center for Arms Control, a think tank here.

"However, when thinking about the future, one design bureau or one plant does not have enough resources to develop new products. Hence, integration comes in handy here; it is a global tendency that is now settling in Russia as well," Kenzhetayev said.

The industrial disarray in the first post-Soviet decade and almost simultaneous disappearance of domestic orders from both commercial companies and the Defense Ministry saw company revenues plummet. Primarily foreign sales allowed the helicopter sector to stay aloft. In 1991, Russia produced 300 civilian helicopters and 390 military helicopters.

In the past two years, however, the Air Force began the upgrade of Mi-24 combat helicopters and Mi-8 transports with all-weather and 24-hour operational capability.

Last year, Gen. Vladimir Mikhailov, chief of the Air Force, said that by 2010, the service will buy 50 Mi-28N helicopters and increase its fleet to 300 in the next decade.

Mil helicopter producers are expected to rake in $500 million in revenues this year, and that figure is expected to gradually grow.

"We expect a breakthrough in 2008," Manturov said. "There is a growth in state procurement and in 2007, we will have new products, the Mi-28N and Mi-38."

The Mi-38, jointly developed with Eurocopter, is set to replace the workhorse Mi-8.

Manturov said that by 2010, the company will be ready to enter financial markets, perhaps with an initial public offering, if the holding's further development requires that. That financial instrument, still new in Russia's defense industry, was first tested by Irkut, producer of Sukhoi fighter jets.

Including Kamov?

Manturov said that Mil's domestic rival, Kamov, also can be integrated in the newly created corporation at a later date, but refused to give a more precise timeline.

Incorporation of Kamov is not currently being discussed, Valery Lukin, general director of Kamov Holding, said.

"And it is positive because compared to the monsters like Mil and Sukhoi, Kamov, which is big on scientific potential but less so in production volumes, is in serious danger of being trampled on in a merger," Lukin said.

Kamov lost out to Mil when the Air Force decided to go after the Mi-28N attack helicopter instead of the Ka-52.

The firm's design bureau has been developing new helicopters for dual use, such as the Ka-60/62, Ka-226, Ka-115 and an unmanned helicopter, which have a more immediate commercial future.

"At present, it is difficult to say whether creating a holding is good or bad," Lukin said. "The main problem that we have in the aircraft industry are [government declarations] of principles which, often due to economic reasons, are impossible to realize."