Already a Bloomberg.com user?
Sign in with the same account.
International -- Cover Story
DOES UTC HAVE THE RIGHT FLIGHT PLAN IN RUSSIA? (int'l edition)
Back in the 1930s, when Perm Motors first got involved with a U.S. company, the Russians produced aircraft engines under license from Curtiss-Wright Corp. In 1937, 15 Perm engineers traveled to a Wright plant in Ohio for training. Returning home during Stalin's purges, they were suspected of being spies: All were imprisoned. Most were shot.
Now, Perm Motors has a venture with another U.S. company--Pratt & Whitney--and again the stakes are high because the survival of this onetime jewel of the Soviet military complex is imperiled. Its $125 million joint venture with Pratt, to co-produce jet engines for long-range airliners, could do much to save the company. It could also provide Pratt and parent United Technologies Corp. with a powerful but cheap jet engine to sell in former communist nations and other developing markets.
Coming up with a winning engine, though, will be tough: It will require a painful restructuring at the company, located in Perm, a grungy city of 1.5 million some 1,400 kilometers east of Moscow. Perm Motors' traditional customers--Aeroflot and the military--can no longer easily afford its engines, such as the PS-90 series that interests Pratt. Other customers, such as aircraft maker Ilyushin, complain that Perm is so beset with internal problems that it isn't turning out enough engines and the ones it does make are plagued with quality problems.
The shareholders who took control of Perm Motors when it was privatized in 1993 are pushing through a dramatic rescue plan. Leading the charge is Moscow's Microdin, a new finance and trading outfit that, together with allied companies, has a 28% stake. These fresh players have already purged old-guard managers, replacing them with young Turks half their age. The workforce has shrunk from 41,000 to 25,000, and more layoffs are expected. "If we don't succeed at reorganization, we won't have products," says Mikhail A. Makarov, 32, an aviation engineer who is now chairman.
The products are what interest UTC Chief Executive George David. So far, Perm has sold about 60 engines of the first-generation, PS-90A type. Pratt is trying to help Perm upgrade its PS-90A model to international standards and jointly produce a more advanced version, the PS-90P. It aims to win coveted international certification for the PS-90P, which would make it marketable around the world.
In both engines, Pratt is trying to get the Russians to improve the technology of the combustion chamber. This would make for a smoother, quicker burn of the fuel, by replacing a series of individual combustion "cans" with a more unified burning area. The improved engine would be more efficient and would require less maintenance. If the PS-90P can be improved enough to be certified, perhaps by 1997, the financial returns could be sweet. The price tag could be $1.5 million, roughly half what a similar Western engine costs.
But 1994 saw big problems with the program. On three separate occasions, engines started to tear themselves apart in flight, says Vladimir V. Kinderknecht, 43, who is general director. Kinderknecht insists the engine is basically sound. "But it is in its childhood and has all the illnesses of childhood," he says.
Perm Motors' corporate culture does not make it easy for outsiders to help. Pratt engineers notice a proud touchiness among some of their Russian counterparts when technical improvements are suggested. "The trouble is, they don't accept [advice] at face value," says Robert A. Wolfe, who heads Pratt's large-commercial-engine business. "They have to prove it to themselves." But inch by inch, the Russians seem to be making progress. If they're successful, that would prove the wisdom of UTC's Russian strategy.By Peter Galuszka in Perm, with Tim Smart in Moscow