Russia Cuts Motor Sich Out Of Russian Military Helicopter Market

The CEO of the Klimov plant (Russia) announced that Motor Sich (MSICH: BUY) would no longer produce military helicopter engines for Russia. No high-level Russian government officials have confirmed this news, however, Motor Sich says no orders for military helicopter engines have arrived from Russia recently. Klimov’s CEO said that the decision was made after Ukraine voiced its intention to join NATO. According to him, in 2006-08 production will be conducted at the Klimov plant, and starting from 2009 will be transferred to the Chernyshov plant (Tushyno, Russia). Concorde Capital: The news may affect up to 20% of the company’s sales. Motor Sich depends heavily on Russia, as over 50% of its output goes there. The management of Motor Sich has expressed its frustration with Ukraine’s government for worsening relations with Russia, which has had an adverse impact on the company’s operations. We believe Russia’s decision will also lead to a slow-down in the An-70 project – the aircraft is intended to be used by the militaries of the both countries. However, cooperation in connection with civil aviation is not likely to be affected, and orders for the An-148 new regional plane, will bring new orders for Motor Sich, which produces engines for the plane. Revival of An-224 Ruslan production, the other plane that uses Motor Sich engines, is also underway- NATO has signed a three year contract to use six An-224 Ruslans for transportation purposes, and may extend the deal until 2012. WATCH we are currently reviewing this situation and will be commenting in more detail soon.