Ан 74 2Defense Express presents the following interview with Hossein MOUSAVI Chief Executive Officer of ORIOLE CAPITAL GROUP. This American company recently signed an agreement with Kharkiv Aircraft Manufacturing Company (KSAMC) for the production of An-74 aircraft in Ukraine targeted for international customers.

 

Hossein MOUSAVI, could you please tell me about your company? Do you have experience in the aircraft industry? Unfortunately, in Ukraine we don’t have any information about your company. There is a lot of gossip after the memorandum was signed in November 2017.

Our company was formed last year by a group of American aviation professionals. Initially, we formed the company as a special-purpose vehicle, specifically as part of the Kharkiv factory project. The company itself is relatively new, but the people that are associated with the company are all U.S. aviation industry veterans, coming from various aspects of the industry. Our chief operating officer, for example, has extensive experience in manufacturing aircraft in the US. Specifically, he was instrumental, among other things, in a very large program where passenger aircraft were converted into cargo aircraft, and a hundred of those planes were sold to FedEx.

 

The broader team also has deep experience in the aviation industry. For example, our advisory board and aviation industry professionals include a gentleman who was appointed by President Obama as the Deputy Director of the Federal Aviation Administration (FAA) in the US. Obviously, given our plans to certify the AN-74 in the US, this level of regulatory expertise is invaluable to us, and by extension to the Ukrainian aviation industry. Yet another gentleman on the team was in charge of special mission aircraft programs for one of the leading western manufacturers, which is basically aircraft that are modified for specific use cases. In sales and marketing, we have an industry veteran who has been in international aircraft sales for over 50 years and is a legend in the industry. These are some examples of the caliber of the individuals at Oriole Capital Group, that should give you an idea of the very deep and very broad expertise available to our company in all aspects of the aviation industry.

 

As you know, in November 2017, your company signed a memorandum of understanding with Ukroboronprom, and now an agreement on cooperation with Kharkiv Aircraft Plant. What are the main positions of these Agreements?

Our overall plan has three phases:

 

Phase one is to start the manufacturing of the aircraft with no design changes and go after the existing customers familiar with the AN-74, as well as new customers that we have identified during the past several months.

 

Phase two is to modernize the aircraft which includes modernization of the avionics. We also plan to change the engine to the newer Motor-Sich D-436 engine which is faster, cheaper and more fuel efficient. And there are other things that we have plan for in modernization, such as lengthening the fuselage, etc.

 

Phase three is to get the modernized aircraft FAA and EASA certification, which would allow the aircraft to be introduced in the American and the European markets.

 

All three phases put together require $150 million of financing. We’ve been working very closely with various organizations and various parts of the Ukrainian government to come up with a structure that works for us, works for our investors, and works for the factory and the government of Ukraine. The process, as you might imagine, is complicated and takes a long time. But we understand that time is of the essence, and that the workers at the factory need work without delay. As a result, it is our strong desire to get started with the factory as soon as possible. The reason is that it is important to us that the workers at the factory have a steady job, and steady income.

 

In order to start sooner, we have been looking at the possibility of a more creative financing structure to get started on Phase 1 as soon as possible. But, in order for us to be able to put that more creative structure in place we need to have an agreement with the factory, so that everyone understands their responsibilities and how we would work together if we were to bring a customer to the factory today. The agreement that you are asking about defines the details of that relationship.

 

180514 KABINA AN74

180514 rampa AN74

 

Why did you decide to invest in Ukraine, in this plant? Because, if I’m not mistaken, Kharkiv Aircraft Plant has some financial problems?

Yes, it has a lot of financial problems. When I initially visited the factory, the Director of the factory and his team gave us a very nice presentation, laid out the capabilities of the factory, and also gave a tour of the facilities. I walked away from that tour very impressed and intrigued with the technical capabilities of the KSAMC. So, the first thing that we did was to look at the An-74 as an international product. We asked ourselves questions like how well it would compete in the international marketplace given the price point, the capabilities, etc., and what aircraft it would compete with. The competitive analysis really opened up our eyes to what a fantastic platform An-74 is. And from that point on we were trying to come up with a formula that works for everybody. Since then, we have been working very closely with KSAMC, Ukroboronprom, Ministry of Finance, and the Ministry of Economy, with support from the Presidential administration. At this point, it seems like we are getting closer to finishing the planning and financing stage, and starting production.

 

For what missions do you plan to use this An-74? Who will be the customer for this aircraft?

The type of missions the aircraft will be used for ultimately will be decided by the customers themselves. But An-74 really shines as a cargo aircraft. The fact that it is a combi, meaning you can have passenger and cargo and can have various combinations of passenger and cargo, makes it more interesting and flexible, but primarily it’s a cargo aircraft. Because of the efficiency of the aircraft and the fact it has a short takeoff and landing, it can operate in extreme temperatures, it can be very appealing to a variety of different countries because of their climate, local conditions, and operating requirements.

 

As you know, the US right now is not manufacturing any aircraft in this category. We believe there is a big market in the US and in Europe for this aircraft, but it will take a few years to go through the proper certification.

 

Who will pay for the certification of the platform, in the USA, for example?

It’s an investment on our part, a substantial investment. But once we get through it, we have the world’s largest markets opened up for the aircraft.

 

If we are talking about bilateral cooperation between ORIOLE and Kharkiv aircraft plant, what does it mean: will you build the aircraft together; what contribution will be in the project from both sides?

The contribution from our side fundamentally is bringing experience and input from world-leading aviation professionals including a western approach to sales and marketing, after-sales services which traditionally have not been a strong suit of Antonov, and, of course, the required financing for production, modernization, etc. We also bring modern manufacturing know-how. As part of our due diligence, we had a technical team visit the KSAMC to survey the production methodology and the state of manufacturing processes as compared to what is in place in the US. Our team came back very impressed with KSAMC and with a number of recommendations for improvements based on western manufacturing practices which have not yet been introduced in Ukraine. Some of the suggested improvements are more difficult and require time, but some of them are not, and even the quick ones make a real difference in the production speed and/or quality. This technical knowledge is something that we look very much forward to sharing with the factory and partnering to improve production of the aircraft. We believe that this knowledge transfer will not be limited to the Kharkiv factory. We also believe that there are some manufacturing improvements that we are going to share and implement at the factory that have the potential to be adopted by the broader manufacturing community in Ukraine.

 

What is your assessment of future relations with Ukraine and Ukroboronprom? What is your forecast and hopes?

Our experience has been very positive in Ukraine. The support that we have receive across the board, from the highest levels of the government on down, has been phenomenal. Now not to say it’s easy, as you know there is bureaucracy to navigate…

 

….corruption..

We have not come across corruption. It’s certainly a big problem in Ukraine. I’m not disputing that fact. But we have not come across it, and if we do come across it, unfortunately, we will have to bring everything to a halt, because, as you know, being an American company, we cannot and will not engage in any such activities. I believe that the level of cooperation that we have seen so far will continue without corruption becoming an impediment. If our current positive and professional partnership does continue, the Kharkiv factory is going to be a fantastic showcase of what can be achieved when you marry Ukrainian ingenuity and technological knowhow, with Western sales, marketing, services, finance, and manufacturing. The success of this flagship project can also become a platform and a model for additional areas of partnership. Ukroboronprom obviously has a number of different companies under its umbrella, and once we have figured out a formula for the Kharkiv case, then the next ones are going to become a lot easier. I hope that the partnership will expand, and that we will not stop at this project. But we need to get this project started first.

 

When do you expect to get the first aircraft?

I hope very soon, but I cannot tell you exactly when. That is something that we have been working on diligently since the MoU in November was announced. There were a few groups from three different countries that have approached us who are very interested in An-74. There are proposals in front of these three groups for a total of ten aircraft. As you know, proposals, for selling an aircraft, can take a long time to get signed. We will start the production of the first aircraft as soon as we have the first signed customer. I am hoping it’s going to be very soon. However, in the meanwhile we are doing our best to perhaps find smaller projects that we can bring to the factory to, as I mentioned before, make sure that people are getting paid and that the factory is actively working on a project while we finalize the deal we are working on, and start the production of aircraft at full speed again.

 

Thank you for your answers

Anton Mikhnenko, UDR, Defense Express

180514 Ukraina SSHA

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