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President Vladimir Putin: On February 20 this year, I signed a decree on the creation of the United Aircraft Manufacturing Corporation (OAK). The corporation was to be established by the end of the year. I have brought you together today to hear about the state of progress in this work.

Sergei Ivanov: As you rightly said, in accordance with your decree of February 20, we were instructed to establish an open joint-stock company, the United Aircraft Manufacturing Corporation. We have now completed the first stage of work in accordance with the timetable that you approved. The most complex and intensive part of the work was the valuation of the assets that will form the new corporation’s charter capital.

This was a complex process because the corporation will include well-known and solidly established enterprises such as Sukhoi, Tupolev, Ilyushin and Irkut, as well as two Russian aircraft manufacturing leasing companies. A very thorough valuation of the assets was therefore carried out, including with the help of international valuers and auditors. The initial valuation, as at June-July this year, gave the assets a total value of 60 billion roubles.

But at this same time, the state approved a number of important decisions on investing in the aircraft manufacturing sector, and we had to take these additional state resources into account in our final valuation.

What I am referring to with regards to investment is above all the state arms procurement programme through to 2015, which you recently approved and signed, the two federal targeted programmes for the aviation sector – ‘Reform of the Defence Industry’ and ‘Civil Aviation’ – and also the considerable state investment in the leasing of aviation equipment. Taking into account this investment, our final valuation of the assets produced a figure of 96 billion roubles, that is, more than 30 billion higher than the initial valuation. We plan to create four main divisions within the corporation: military aviation, civil aviation, transport aviation, international cooperation and a components business. This represents four major divisions.

In accordance with your decree, state participation in the corporation has been firmly fixed at no less than 75 percent plus one share. Currently, the state stake in OAK is more than 90 percent, but we also plan to bring a number of important enterprises into the corporation, big companies such as RSK MiG, and the Kazan Aviation Plant, which manufactures civilian equipment and repairs and services very complex military equipment, including the Tu-160. Private assets will also enter the corporation. But it has been clearly established that even in this situation, the state’s share will not be lower than 75 percent. In this respect, we will adhere strictly to the decree’s provisions.

I would like to say a few words on our views on the possibility of foreign capital participating in OAK. As I already said, there will be four main divisions, one of which will be military aviation. I think that Russia is one of the world leaders in this sector and we plan to continue developing this particular sector, this division, independently.

Regarding civil and transport aviation, we think that we could develop international cooperation with our foreign partners, above all in Europe. There are only essentially formal questions to settle in this respect now and we have one request to make of you, namely that you give the instruction to issue a decree as soon as possible on including OAK in the list of strategic enterprises, because without this decree we cannot legally form our assets. We need to have a legal base.

In any event, we plan to register the company by the end of this month, and to complete formation of the company as was agreed at the outset by April 1, 2007. We recommend that Alexei Innokentyevich Fyodorov become CEO of the corporation.

President Vladimir Putin: Good. How will the board of directors be formed?

Alexei Fyodorov: We have already drawn up and discussed a draft charter for the company that stipulates a board of directors made up of 14 members. In accordance with the size of the shareholders’ stakes, the majority of seats on the board will go to the state. We plan that there will also be two independent directors who will represent the interests of non-state shareholders, because the company wants from the outset to be a modern, public enterprise, and having independent directors on the board will be a very encouraging signal for the market and for continued increase in the company’s capitalisation.

We discussed at length with the company and plant directors the question of who should become chairman of the board of directors. This is an important position because the company is in itself a complex enterprise, a large enterprise in terms of sales and in terms of the assets that form it. The company directors share the view that Sergei Borisovich Ivanov should be asked to fill this position, taking into account his status as deputy prime minister responsible for the defence industry, including for the aviation sector.

Vladimir Putin: It’s the prime minister you need to ask, because such questions are settled by government resolution, but I know the prime minister’s view, I know that he supports this idea, and I have no objection. Let’s consider this matter settled overall.

I just wanted to draw Sergei Borisovich’s attention to the fact that we need to make use of the experience already built up in the aviation sector and spread it to other sectors of the economy. You just said that there would be four divisions, of which one would be purely military. Perhaps the situation is not quite as some directors would like, but I know that there is a flow of information, technology and sometimes personnel into the civilian sector. We need to reflect on the part the defence sector can play in developing areas of modern technology in the economy in general, and how we can use the defence industry to help us achieve innovative development in the national economy. I ask you please to take a broader view of this issue and not look at it only from the point of view of developing the aviation industry.

Sergei Ivanov: Yes.

Alexei Fyodorov: We have carried out a large amount of systemic work and have prepared the company’s management structure. It will be built on a modern basis, a matrix-type foundation, that is, on the basis of project management with functional links. The management structure will also include a collegial executive body, because all questions regarding major deals and strategic decisions should be decided on a collegial basis. We will present this structure, the organizational chart, for approval at the first meeting of the board of directors very soon, in order to begin hiring the people we need and start work.

The second area of our work – the principal area, I would say – is work on our range of products, that is, making the final decisions on what kind of aircraft the corporation will manufacture over the next few years. We are all aware that our biggest problems are in civil aviation, and so we will be focusing particularly on this area and as well as supporting production of aircraft already being manufactured by our companies – the Il-96 and Tu204/214 – we will also concentrate on their continued modernisation and ensuring they fit international standards.

But our main focus will be on new projects. Above all, this is the regional plane, which is already in the design phase and is going ahead quite well according to timetable. The biggest and most important project that OAK will undertake is probably the creation of a new plane for longer distances, because we see the aging fleets of our airlines and see the need to create a new plane that will replace the Tu-154 and other aircraft currently flying in Russia. This is one of the company’s most complex and strategic objectives today.

Sergei Ivanov: This new plane is the MS21.

Alexei Fyodorov: Yes, we’ve named it the MS21, that is, a new main-route plane for the twenty-first century. But this is a complex task because we need to build this new aircraft based on completely new technology. We realise, too, that the Russian market alone will not make the project financially viable, and so the plane needs to be competitive. The creation of this plane will help develop technology in all the related industries – in metallurgy, the chemicals sector, electronics, engine-building and so on. This is why we are going to focus our main scientific and technical efforts on this particular project.