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22.08.19 10:48

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025

Author: Yurii Butusov

Aivaras Abromavicius gave the first interview after being elected as head of the supervisory board of the Ukroboronprom state concern. Read about the new OOP development strategy, a short list of candidates to replace Bukin, plans to privatize state-owned enterprises and the sale of Ukrainian weapons abroad.

In early June, President Volodymyr Zelenskyi appointed Aivaras Abromavicius as a member of the supervisory board of the Ukroboronprom state concern. July 10, during the first meeting of the updated composition, it was decided to elect Abromavicius as head of the Supervisory Board. He immediately announced a large-scale audit and a major personnel change, up to top management. In the first interview as head of the Supervisory Board of UOP, Abromavichus shared his ambitious plans and his vision of the development strategy of Ukraine's military-industrial complex.

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025 01

- Who will get political responsibility for Ukroboronprom, what is the scope of your authority?

- I will provide the general leadership and political outline of the reforms at Ukroboronprom. Therefore, there will be one center for making personnel decisions, developing strategies, and monitoring.

- Is there any reform strategy for Ukroboronprom?

- The main goal remains - to timely deliver high-quality weapons to the Armed Forces. At the same time, it is necessary to increase exports and change OOP to a modern company. I look at the transformation of other state-owned enterprises, including that which I myself initiated as the Minister of Economics, and each time I see that the transformation in these companies is possible only after the replacement of senior personnel.

First of all, the general director of Ukroboronprom, Pavel Bukin, needs to be changed, because he is not effective enough. And, as practice shows, is bound by some old responsibilities. Lost control over enterprises, lack of cooperation among them, very low productivity, a huge problem with debts, poor interaction with other important stakeholders, a complete lack of new, breakthrough projects. We need to move forward and give people hope that the Ukroboronprom company can be managed by other methods.

Secondly, as in every successful state-owned company, take Ukrposhta, the easiest way to transform is when professional people who are not associated with the industry are involved as top managers. We need some consultaion from the outside.

Thirdly, it is necessary to determine priorities - as in any right business, you should throw your best resources at the most promising direction: human, temporary and material. We have good potential in the armored division and at Zora, but for Ukroboronprom, at this stage, in my opinion, the most promising are aircraft manufacturing and rocket science.

Fourth, it is necessary to conduct an audit and corporatization of state-owned enterprises of the defense industry in order to have a legal opportunity to create joint ventures and attract private investors. The state will not be able to finance the military-industrial complex sector in sufficient volume, therefore, it is necessary to focus on attracting partners to projects from the private sector, both domestic and foreign. A complete inventory of property must be carried out with the subsequent disposal of what is a burden and absorbs funds for maintenance.

Fifth, retaining the scientific staff of design engineers and technologists, attracting young people to study. Losing the best people. They leave for Boeing (across the road from Antonov in Kyiv), someone left for Russia, many simply find better conditions in the private sector. Our goal is to make OOP an attractive employer.

Sixth, focus on the production of end products that are competitive in foreign markets, increasing exports.

Seventh, the development of civilian production at defense enterprises to ensure full load.

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025 02

with William Taylor and Kurt Walker

- Who will become the CEO and which team will work for Ukroboronprom?

- From a long list of applicants, recruiters selected a short list of 7 candidates, three of which are ready to work in a new team. I will not name these people, they undergo a special check after an interview at the President’s Office, but this is a team of professionals with great achievements. The new team is a group of well-known top managers with diverse experience in mechanical engineering, aviation, finance, and personnel management. All participated in the successful transformation of unreformed structures - in private business, or Prozorro, MEDT, UGV. These leaders were selected on the principle that they did not have a conflict of interest, that there was no business in the defense and security sector, and that relatives in this sector were not involved. They must be loyal to the transformation of the company, be experts in their field.

We are looking for divisions only experts in this field - rocket science, aircraft manufacturing, and armored vehicles. Everyone went through a polygraph to verify cooperation with the special services of other countries so that these people did not work for third parties and did not enter under the influence of industrial and financial groups. Such a team of change agents, which at the most difficult moment for this enterprise is ready to go in and work. We are telling the president that by the end of his first term as president, this company will look completely different - modern, powerful, both financially and productively, and image-building. At the same time, we ask every year to do a serious review - whether we are going in the right direction. As for the personnel policy, I believe that there are a sufficient number of worthy people and specialists in the industry within Ukroboronprom. Therefore, no one is going to change technologists to financiers. The company lacks managerial competencies, financial competencies. We do not have signed joint agreements (JVs), we do not use export potential, there are a lot of financial issues when payments are late inside the company and in settlements with the Ministry of Defense, and this could also be solved with more modern financial approaches. The function of communication with government bodies should be improved. Our goal is to make Ukroboronprom and its leading enterprises an attractive employer. When salaries are delayed, when non-modern working conditions, regular drop in orders - this greatly affects psychology and people, young people do not come, there is no motivation.

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025 03

- Where to get resources for modernization and development? There are no more than 20 active enterprises in Ukroboronprom, and there are hundreds on the balance sheet.

- Foreign investors and joint ventures. Budget money will definitely not be allocated for the development of Ukroboronprom. Those who retained competencies and technologies will work. Companies within Ukroboronprom have not yet been audited, and raising money for powerful projects through financial instruments on foreign markets is possible only when you go and agree with foreign partners who have money and potential sales markets. The state defense order is growing, but not by much. Last year, OOP delivered $ 400 million worth of arms to Ukrainian defense departments. A large increase in this figure should not be expected. But in export, we set an ambitious goal - to grow 5 times by 2025. The global arms market is nearly $ 2 trillion a year. We want to export 2 billion US dollars per year. The most promising area is aircraft manufacturing, which we have not actually had in the last few years, including due to sabotage by those responsible for this area. As well as rocket science, where several very successful contracts have recently been signed, where we know that we have a competitive advantage in world markets, we need to throw the best resources there.

But in all, Ukroboronprom has 70 thousand employees, five main production clusters, and we will load everyone who is able to work. Companies involved in the production of weapons will, inter alia, develop the production of both dual-use goods and civilian goods. It is no secret that many companies turn to us who are just ready to give orders for civilian enterprises - towers for wind power stations, products for the gas transmission system, domestic gas meters and so on. People need to be occupied with work, to raise salaries seriously. We need to carry, take investors by the handle, show that at our enterprises we can also produce products of both military and civil purposes, that we can work in a modern way and, finally, we can be trusted. I look forward to creating joint ventures, both military and civilian, including with leading world companies.

- it is said that you are a supporter of the sale of land and real estate of bankrupt defense enterprises in order to get a resource for the development of Ukroboronprom. Are you not afraid that you can wallow in this real estate trade, weighed down by courts, disputes, and these will be great corruption risks?

- Here the fears are exaggerated. I believe that it is necessary to use all opportunities for the effective use of existing resources. But we, of course, are not going to leave for the real estate business. The company has one priority - arms production. An audit is required, an objective assessment of the state of enterprises and their assets is required, and professional decisions must be made. I guarantee that all these decisions will be substantiated, and as transparent as possible. But we should not finance empty workshops, territories, social infrastructure at our own expense. Ukraine was only 2.7% of the territory of the USSR, but 30-40% of the Union military-industrial complex was concentrated on our territory. Plant them. Malysheva could produce up to 900 tanks per year. Over the past 15 years, they have produced no more than 24 tanks per year (2017). Many available production facilities do not meet our needs and will never be in demand on such a scale. Of this, including the very low productivity of the company. Revenue per employee is only 16,000 US dollars per year, when the average sector in the world, think (!) 365,000 US dollars. You can’t continue to pay losses, you can’t turn defense enterprises into real estate offices that rent premises for a penny. Or when the most attractive sites are pulled away by former deputies of the Verkhovna Rada. In the course of the reform, only working enterprises will remain at Ukroboronprom, we must clear ourselves of the unresolved problems and mismanagement accumulated over decades, which are paid by Ukroboronprom, and ultimately, paid by the state. This will help to focus financially, and personnel, and organizationally on the production of modern weapons and the development of new products.

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025 04

from personal archive

- What is your attitude towards the privatization of Ukroboronprom enterprises?

- My position is simple. If we were to have sold as many of our industrial enterprises as possible to our Scandinavian companies, German, French, American, even in the 90s, during privatization, maybe we would not have had a war! Because more interests of different countries would be in Ukraine, there would be strong lobbyists, which we are sorely lacking now. This is the time. Secondly, these companies would have long been technologically re-equipped. And due to lack of investment, they have been working all these 28 years for a narrow number of some outdated markets, and they could work for the whole world in new markets with new products. The ethics and culture of doing business and production in our country as a whole in the event of privatization and the entry of large foreign companies would be more advanced, there would be more top managers, designers, technologists with world knowledge and approaches. The president said he expects large-scale privatization to begin in the near future. We already have in principle that it was not enough to sell political will and past leadership to do this, so such civilian enterprises, known to me by the Ministry of Economy, for example, Centrenergo, Odessa Port Plant, State Grain Company, were not privatized despite numerous attempts . Ukraine has lost a lot from this. Perhaps the same Electrotyazhmash will interest such world giants as Siemens or Alstom. And when we see successful examples of privatization of a non-defense sector company, successful examples of investment in Ukraine, then, of course, we can already speak of withdrawing the status of "strategic objects not subject to privatization" from individual enterprises within Ukroboronprom. I believe that our domestic business could work more successfully than the state in the defense sector. There are real examples. In KharkIv, on the same territory there are two campaigns with the same name - FED. One PAT, another DP. I visited them last week.

They are engaged in aggregate construction for aviation and railway. One has long been in the twenty-first century, the other was lost in the last millennium. Private FED is like a pharmaceutical laboratory, state-of-the-art equipment, cleanliness (you can walk in socks), young specialists work, the average salary is 21,000 UAH. The State FED is far behind, both technologically and humanly. The average salary is only 9600 UAH per month. I would very much like to make a large copy of this private FED from the whole OOP.

- Will something change in the sales system, did this question come up with the president?

- Yes, we have big plans to make changes in this key area. Firstly, I would like to thank the Ukrainian intelligence services for their cooperation. I have already met with the Minister of Internal Affairs and the head of the Foreign Intelligence Service - there is a clear understanding and there will be support for the work of special exporters.

In society, as well as among journalists, among law enforcement agencies, there is often a misunderstanding of how the world arms export market works. My mission, including the public explanation of this important point. In this area, as in the trading of securities, or the purchase and sale of stellar athletes, there are intermediaries, agents. All countries that purchase weapons work with them; everyone who sells weapons to these countries works with them. They have experience, communication, access to those who make decisions. And we, the same participants in this market, the size of 2 trillion US dollars, like everyone else. And it works according to the established rules. Our special exporters are often demonized, but I would like more support, cooperation, coordination.

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025 05

- As far as I understand it, this is a case of the state special exporter Spetstekhnoexport, which concluded a contract for the sale of missiles to India through an Indian intermediary, and as a result, Director Belbas and other employees were suspected of corruption from NABU. What is your position in this issue?

- I do not have the authority to evaluate the actions of NABU, this is their service, their responsibility, we must treat anti-corruption investigations with respect.

Therefore, I would not want to give an assessment specifically to this case, but I got acquainted in detail with the work of Spetstekhnoexport, with the whole team, saw the results, contracts for the sale of our weapons that bring us work, taxes, profits, saw many young people with great ambition to sell even more for export. Therefore, I will help such companies, including through my contacts abroad, my experience in negotiating with international partners, and I believe that successful sellers need to be supported. Here is one function where I saw that Ukroboronprom has high competencies - these are special exporters. There is knowledge of languages, there are already established contacts, sometimes there is not enough coordination, sometimes there is not enough collaboration between manufacturers and special exporters. And we will work on such a team game of all state bodies. Among the successful arms dealers, I saw former colleagues from the Ministry of Economic Development and Trade, as well as ex-bankers, car dealers, and former intelligence officials. The main qualities are love of one’s business, good understanding of products, negotiation skills, interest in culture, traditions of the countries of the region with which you work.

- Will the number of special exporters be reduced?

- There will be no politics, only pragmatism. There are warring countries where there is a demand for different types of our weapons, different special exporters must work with them, so all this should be justified, should be concrete achievements, benefits. We should keep this in mind when optimizing our structure.

- In rocket science - will the director of the Luch design bureau Korostelev lead the rocket cluster or are there other candidates?

- I was in the Luch Design Bureau - they have export contracts, they have an average salary of 47 thousand hryvnias per enterprise, and there are many young people under 35 years old. This is unique because the average age at many other defense enterprises is well over 60 years. But I think it's too early to talk about a particular leader. We know who are the advanced technologists and who are the most respected people in individual areas, we deeply appreciate this expertise, which is very difficult to restore. We hope that such leaders share their best practices, their experience, their mentoring with younger employees, and that these employees, thanks to the leadership of such people, remain in the companies. Including due to the creation of conditions as an attractive employer in a single company, high wages. But we will talk about the appointment of specific specialists in clusters at another stage.

Unfortunately, I am disturbed by other large enterprises where young people are not kept, the best engineers leave. We must stop the outflow of valuable personnel.

- Yes, the situation with Antonov Design Bureau and Boeing is eloquent, Boeing opened an enterprise in Kyiv and, in fact, lures (the best conditions, all honestly) the best aviation specialists in Ukraine. In fact, they create such a system for promoting their fleet here, the best service with the best specialists, localization, which stimulates the purchase of new Boeings. The outflow from Antonov was enormous. How to save the company? On paper, 10 thousand people are listed, but in fact it is an air transport company, and the production of aircraft itself is zero. What to do with it?

- If you don’t do anything with Antonov, the story of the shipments will end sooner than we can think about it. One of the greatest brands in Ukraine to be proud of will cease to exist. Therefore, of course, you need to develop the company only through joint projects with those international partners who have financial resources. We have intellectual property, we have achievements, we have design, we have history, we have employees. And they have money. And markets.

- It was announced a lot that Saudi Arabia was negotiating and showing interest, Russia was extremely concerned about these plans. But as a result, the joint venture was never created. Is this a lost contract?

- Look, there are discussions with the Indian side, with the Israeli side, with the Saudi side, with the American side. But here, precisely, the goal of the new management should be based on their experience in international negotiations, in structuring such complex transactions. Because what is it all about? It is about the development, certification of aircraft of a new modification, and only after a few years from mass production. We are talking about investments in excess of $ 2 billion even before the start of mass production. I believe that this is a priority area, it will be a real challenge for the new Ukroboronprom team, if we squeeze such contracts to the end and prevent the company from dying. Different interested parties have different interests. In many countries, the economy is booming, there is money, infrastructure is developing, airports are also developing. We need, inter alia, passenger aircraft of medium size and medium range, we need military transport aircraft for their needs. I just think that there was no political will, and this was not put a priority in the work of Ukroboronprom, everything flowed as it flows. Sometimes there was not enough competence to inspire life in promising projects. Last week, the first joint venture agreement in the history of Ukroboronprom in Turkey was signed. Unfortunately, this only happened for the first time.

 - Will there be complex system solutions for the plant in Mykolaiv, which the president Zelenskyi recently visited? Unfortunately, instead of a systematic solution to the old problem, the president simply ordered the debt to be financed at the expense of Ukroboronprom, but without a fundamental solution to the problem. It is sad to see such a superficial approach, it is time to sell the cruiser and reform the enterprise, there are no more engineers there, there are enormous debts, life must be revived from scratch.

- Unfortunately, we have far from one such enterprise. Huge debts from the old days, it’s like a noose around his neck, does not give a chance for development. The same situation at the Kharkiv Aviation Plant. They can produce, but due to bankruptcy proceedings, old debts, while this is not possible. I will offer a radical improvement in the defense industry sector. The best resources should be thrown into the most promising, trouble-free, obvious areas - rocket science and aircraft manufacturing.

As for shipbuilding, we need to evaluate the new reality, the loss of the Russian market, for example, see where our competitive advantage is and see how we can get out of this difficult situation without government intervention, possibly including financial ones. It will be difficult to solve, the problems are too deep.

- Have you received signals of corruption in the Ukroboronprom system? Do you help in the investigation of these cases?

- About 500 criminal cases against Ukroboronprom have been opened by various structures and law enforcement agencies. Efficiency is not high - only 2% reach the court. In July, in my opinion, 23 searches at Ukroboronprom companies. I believe that the company should work to prevent corruption, including by reviewing procurement processes and so on. Centralization of such processes of building common principles will help. Need more public communications. There is a demonization, sometimes unfair, of some areas of our work - and especially of special exporters. We know that some sell goods worth hundreds of millions of dollars, but at the same time, due to a lack of communication and understanding, a negative public impression is created that everyone is doing something wrong there. Therefore, one of my functions, as a person from a business, is to properly communicate and protect those employees who work for the good of the country, for the good of the company. There are criminal cases, but they rarely reach the verdict. It is necessary to work on prevention and help law enforcement agencies in every way, doing regular explanatory work that after all the majority of people in Ukroboronprom are working for the country, for the Armed Forces and doing the right thing.

- One more large enterprise - Zoria - Mashproekt, until recently, one of the leaders in the world market for the production of ship turbines, after the outbreak of war stopped cooperation on Russian military projects and needs urgent solutions to save the enterprise while it is attractive for investors. Is there any vision for his future?

- I believe that there were opportunities in the history of Zoria - Mashproekt when it could become part of the production chain of the largest industrial production giants of the world –General Electric, for example, but these opportunities were missed. But this does not mean that everything is lost. The company is absolutely unique. Of course, part of the product line that they make went to Russia and this market is lost forever, but there are markets in India, China, you need to work with this, and there is a huge prospect. Our fleet does not need these turbines, but overall demand is large. Zoria-Mashproekt needs a systemic foreign investor, and we will actively work in this direction. We want to make quick decisions so that Zoria - Mashproekt will find a new life. The company is capable of producing civilian products, has a large contract with Ukrtransgaz. This direction also needs to be developed.

- Do we really need Ukroboronprom? Indeed, this is, in principle, not the necessary laying on financial flows, which Yanukovych created not for the development of industry, but rather, for its robbery. Will Ukroboronprom be liquidated - was it a logical reform?

- As a result of the reform, we must come to a more liberal model, this is a fact. An American example shows that there are no state-owned arms manufacturing companies at all, all in private hands, including the largest Lockheed Martin company in the world in this sector. I believe that a private manufacturer of any product in the world will always be more efficient. He has no old debts, old obligations, he is more flexible in making decisions, he is interested in the development of new technologies, ahead of competitors. Therefore, the goal of reforming the defense industry complex and Ukroboronprom should be a situation where the private sector will be the main player. But I will not say now that the state must liquidate something - this is a matter of the strategy that we will prepare, and where the President of Ukraine will say his final word. My vision is simple - for the first few years we regain control of key enterprises, tighten centralization, create a strong corporate center to support manufacturers, create strong divisions. In a few years, after a successful transformation, purification, after we are firmly financially on our feet, we can also give different directions to independent existance.

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025 06

- What are the main risks you see?

- We must fight for the trust of people, we must awaken in them the desire for change, motivate. I have already traveled around 30 OOP companies. I was at a factory recently, the powers of the CEO expired there, and the team is worried that it will not be reassigned. I ask - how old is he? They say - what difference does it make if a person is 80 years old, but we are afraid that someone else will come without him, and here everything will fall apart. This is all from mistrust, people do not expect anything good from personnel changes, even if their situation is not very good and their prospects are difficult. For reputable senior managers, it is imperative to find positions - an honorary general designer, adviser, for example, to treat them with respect, in order to gain their experience and knowledge. I also often rely on the opinions of people with extensive life experience. We need to maintain the backbone, technologically support engineering personnel, we must be flexible, individually approach each case. But we need changes, we need people who can produce them.

Aivaras Abromavicius: We set ambitious goal - to give arms export fivefold increase by 2025 07

- Will the principles of the formation of the Defense Procurement and Acquisition be changed?

- We have experts within the new team who stood at the origins of the bill in the 15th year that the state defense order made - this is Ruslan Korzh. Therefore, I believe that we can help in this matter.

I consider such things, this should not relate to the interests of individual state enterprises, but this should be state policy. The defense order planning that is now - it does not work. Having toured all these enterprises, I saw that the enterprises are trying their best to produce quality products for the armed forces. Sometimes or often, all this is based on parole, on some kind of handshake, but without a contract in advance. In conditions of lack of capital, this is a very painful topic, because our money is expensive, loans are 20% per annum. Therefore, without prepayment, without a clear understanding of when this payment will happen, companies practically freeze quite serious funds into the "incomplete". In normal countries this does not happen. Therefore, there must be a clear understanding for each particular enterprise in advance how payment will be made so that they plan their human resources. There is simply no transparency of visibility, predictability, and this should change. Sometimes the situation reaches the point of absurdity. The Ministry of Finance did not transfer money to the Moscow Region; it did not transfer money to the enterprise. As a result, they did not pay salaries, and the tax issued a fine. That is, the Ministry of Finance wrote a fine for not timely transferring money itself. And people, the army, enterprises are suffering.

 By Yurii Butusov, Censor.NET

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