Oboronprom Halts Talks With Motor Sich

CEO Denis Manturov of Russia’s Oboronprom, a subsidiary of Rosoboronexport, said the company has ended negotiations on the purchase of a 51% stake in Motor Sich (MSICH: BUY). According to the daily Kommersant, the two sides could not agree on the price. Motor Sich currently produces engines for most Russian helicopters and in light of recently announced ambitious plans to boost production, the Russian industry is eager to secure engine deliveries. In Kommersant, it was also stated that Oboronprom plans to produce Motor Sich helicopter engines (TV3-117 and VK-2500). Inna Perepelytsya: We believe this announcement is part of the negotiation process and Oboronprom will attempt to use it for more leverage in talks. Last year Motor Sich CEO Vyacheslav Boguslayev made a similar statement that it was pulling out of talks. In regards to helicopter engine production, Manturov said in an interview two months ago that it was inefficient to produce the TV3-117 engine as it is nearing the end of its product life cycle. However, he said it would be more expedient for Oboronprom to have additional assembly facilities for the VK-2500 engine in Russia in cooperation with Motor Sich, as we anticipated in our May 2007 report. We reiterate our recommendation and target of USD 285 per share.