Financial Difficulties Result in Nationalization of JSC Tbilisi Aircraft Manufacturing

Nationalization of JSC Tbilisi Aircraft Manufacturing (TAM) is an ordinary case and there is no ground for sensation, Georgian Prime Minister Nikoloz Gilauri said when introducing the government’s new action program to the Georgian parliament on July 2. The Prime Minister explained the management of Tbilisi Aircraft Manufacturing has taken a decision on turning over the company to the Georgian Defense Ministry to get rid of the current financial difficulties.

Having been nationalized JSC Tbilisi Aircraft Manufacturing will be transformed into a legal entity of public law and a large-scale repair-industrial complex will be organized on basis of the asset.

Before, Revaz Charbadze, head of the Georgian Defense Ministry department for procurement, told a news conference on July 1, JSC Tbilisi Aircraft Manufacturing had been nationalized by the initiative of the company managing team.

"The Defense Ministry has been cooperating with Tbilisi Aircraft Manufacturing for a long time basically in the form of acquisition of repair services. The fact the Defense Ministry has assumed the company management will only simplify many procedures", Revaz Charbadze told reporters.

Doctor of Technical Sciences Pantiko Tordia, TAM director general and chairman of TAM board of directors, confirms the enterprise has been cooperating with the Georgian Defense Ministry for several years.

"As to the organization of a new military repair-industrial complex, I believe the decision will guarantee the Tbilisi Aircraft Manufacturing staff to have permanent orders. Moreover, the decision will foster creating new job places. We are content the asset has been handed over to the Defense Ministry", Tordia said.

In the meantime, the association of military reporters of Georgia has spread a special statement demanding for additional explanations concerning the transmission of JSC Tbilisi Aircraft Manufacturing to the Georgian Defense Ministry. Both the company staff and ordinary taxpayers must have more detailed information, the statement reads.

The association asserts the idea of handing over JSC TAM to the Defense Ministry and organizing a repair-industry complex on basis of the asset arose several years ago.
"To this end the scientific-research center of Delta was organized in the ministry. Later the Tbilisi tank-repair plant was handed over to the Defense Ministry, but the Authorities decided to acquire western weaponry and equipment and the enterprise suspended operation because of lack of orders", the statement notes.

Tbilisi Aircraft Manufacturing assembles and repairs SU-25 military aircrafts.
"Many countries keep this model of military aircrafts in their armed forces. The competitive capacity of TAM is beyond suspicion. However, it is questionable whether potential partners keep relations with the asset, which is subordinate to the Defense Ministry", the association says.

The statement explains it is not acceptable in western countries state structures be both customers and suppliers.

In the meantime, according to unofficial information, Nikoloz Vashakidze, deputy Defense Minister in coordination of relations with international and Euro-Atlantic structures, will be appointed as a new director for JSC TAM to replace current director general Pantiko Tordia. However, the TAM management categorically denies the availability of staff reshuffles in the enterprise.

TAM History - JSC TAM - Tbilisi Aircraft Manufacturing (formerly Tbilisi Aircraft State Association, “TAM”) was established on December 15, 1941.

Following the World War Second TAM in conjunction with the Yakovlev Design Bureaus put into production Yak-15, the first Soviet jet fighter, which was followed by Yak-17, Yak-23 and Yak-23 twin-seat trainer jets in 1946.

In 1950s the factory started production of Mikoian's MiG-15 and later, MiG-17 fighter aircraft. In 1957 TAM started production of MiG-21 two-seat fighter-trainer aircraft and its various derivatives. At the same time, the company launched manufacturing K-10 air-to-surface guided missile.

The first Sukhoi SU-25 (known in the west as the "Frogfoot") close support aircraft took its maiden voyage from the runway of TAM. More than 800 units of SU-25s have been delivered to the customers worldwide. TAM remains the only manufacturer of this type of aircraft. Along with the SU-25 aircraft, the enterprise also launched large-scale production of air-to-air R-60 and R-73 IR guided missiles. The asset has manufactured over 6,000 missiles a year until early 1990s.

In mid 1980s, TAM also participated in Buran, the former Soviet space program (the Soviet equivalent of the Space Shuttle), by manufacturing and assembling various parts and assemblies for it.

In late 1990s, TAM and the Georgian Space Construction Institute designed and produced a space antenna-reflector, which was successfully installed on the MIR Russian space station. Today TAM directs its strategy to fully leverage its experience related to the SU-25 aircraft. The company today cooperates with Israeli partners to modernize and renovate original SU-25 aircraft.

In early 1990s TAM launched production of civil goods, including small gasoline tanks and hydropower turbines.

TAM has an excellent reputation in the industry, meets western technical standards as evidenced by its past and existing partnering arrangements. In 2001 TAM received EN ISO 9001:2000 quality certificate for the design and production of military and civil aircrafts and its components, as well as design and production of non-aviation industrial products. In 2006 TAM received EN 9100:2003 quality certificate for the design, production and maintenance of military aircrafts and its components and parts and for the design, production and maintenance of civil aircraft, components and parts as sub-contractor. These are the first similar certificates issued by certification authorities in the Former Soviet Union area. In December 2007 TAM received the certificate of Lahav Division Military Aircraft Group - IAI Israel Aerospace Industries Ltd. (Israel) as an "Approved Supplier". Besides, TAM has already finished preparatory works and will apply for NADCAP certificate.

TAM Privatization Process - Until 1998 TAM was a wholly state-owned Limited Liability Company. The company became a Joint Stock Company (JSC) in March 2002. The move aimed at optimizing the company structure, streamlining the management and valuating the company physical assets. As a result, non-core assets were transferred to the Ministry of State Property Management.

Due to the expected saturation of SU-25 military aircraft, the company started process of finding opportunities outside military sector. The main strategy was to shift from military to civil aircraft building. Initial attempts to set up strategic partnerships with international aircraft manufacturers were not successful. The failure was mainly related to the fact the asset was state-owned. Therefore, the government contracted out the management through a tender process. The main criteria for contract award called for submission of a five-year business plan. Of the three bidders, the Georgian Government selected LLC Tbilaviamsheni, which had been founded by the top management of TAM. The company was also option of a future privatization of TAM.

In November 2004 the Government offered the LLC the opportunity to acquire 90% of TAM for 67 million USD. The deal was signed in the same month. In accordance with the Georgian legislation, the remaining 10 percent stake was transferred to the TAM personnel.

Formation of TAM Group - Due to large diversification towards civil production and continuous need of quick response to growing market requirements, the managing team of Tbilaviamsheni LLC decided to separate civil production (non-aviation) lines from JSC TAM’s structure and establish legally and financially independent subsidiaries. The decision allowed TAM, on the one hand, to focus on its traditional (core) business and, on the other hand, give full independence to the managers of new companies, diminish the risks of ineffective decisions and restrict bureaucracy.
Company today - Today JSC TAM follows two directions: building of military and civil aircrafts and production of civil goods of various designations.

Military aviation products include: 1) Production, overhaul, current maintenance and modernization of Su-25 aircrafts and 2) Overhaul of MI helicopters. One of the key responsibilities of TAM is the provision of repair works for the Georgian Defense Ministry military helicopters. The price of repair works per helicopter makes up 300 to 800 thousand USD. The company also repairs MI-type military and civil helicopters at the request of various states.

TAM is the sole company in the world that provides construction-modernization-repair works for SU-25 military aircrafts. The price of a new SU-25 equals 5 to 8 million USD.

Civil aviation products include: 1) Production of a 5-seat business aircraft TAM JET of composite materials and Williams International FJ-33 jet engines; The airplane can fly 1 800 km without landing. The price of a jet is over 1.5 m USD.

2) Joint project with a US company AIR to produce a 7-seat business aircraft of composite materials and Williams International FJ-33 jet engines. In collaboration with US EPIC Tbilisi Aircraft Manufacturing launched joint serial production of 7-seat Elite airplane. The parties founded TAM-Air joint company. The price of an airplane is 2.5 million USD. Having obtained the certificate, Elite performed the first Trans-Atlantic test flight from the Seattle to Tbilisi airport. A 20-man group of Georgian constructors took part in building the airplane. The Georgian and American partners have invested 5 million USD each in the project implementation.
Air forces of the CIS countries, countries of Africa, South America and former Soviet Union are main customers of TAM military products, while large corporations, private airlines and physical entities of US, Europe, Middle East and CIS countries are target consumers of civil aviation products.

TAM Partners - Foreign partners of JSC TAM-Tbilisi Aircraft Manufacturing are as follows: Israeli Elbit Systems, Avionics and electrical systems for upgraded SU-25; Israel Aircraft Industries (IAI), Avionics for helicopters, production of different items for GULFSTREAM type of aircraft; US Aircraft Investor Resources (AIR), Assembly of a 7-seater light business type jet “Tam-Air”, production and design of various items; British Growth Management Limited (GML), Investments and financial service.

Stakeholder Structure – LLC Tbilaviamsheni holds a 65.8 percent stake in the asset, while 21 stakeholders control approximately 24.3 percent of shares, 1885 employees manage 4.7 percent of shares (0.0025 percent stakes each) and major shareholders hold a 5.2 percent stake.

Logistics City – In collaboration with French partners, JSC Tbilisi Aircraft Manufacturing planned to organize a logistics center on a 220-hectare airdrome. The project was an estimated 400 million USD. TAM-Tbilisi Aircraft Manufacturing even launched talks with the Overseas Private Investment Corporation (OPIC) over opening a credit line of 60 million USD for the project implementation. OPIC was also considering the availability of providing additional USD 100m for TAM-Tbilisi Aircraft Manufacturing.

The project authors said Tbilisi Logistics City would link Central Asian and the South Caucasus business sectors and the center would be part of the Poti-Tbilisi-Baku railway. Within the city, warehouses was to cover 100 hectares, while railway and air-cargo terminals would be located on 12 hectares. The Tbilisi Logistics Center was to be directly linked to the Poti free industrial zone.

Turkmen Debt - JSC Tbilisi Aircraft Manufacturing has paid 70 percent of 400 million USD Georgia owed to Turkmenistan for gas consumption. JSC TAM provided SU-25 military aircraft repair works for the Turkmen Defense Ministry.

Gas Turbines – In partnership with Italian GFM company JSC Tbilisi Aircraft Manufacturing has produced major gas turbines.TAM uses Italian raw materials to manufacture gas turbine parts. TAM produced gas turbines for the world's largest gas turbine manufacturer. The price per turbine made up 2 million EUR.