Yuzhmash’s Plan to Overcome the Crisis

Ukrainian Yuzhmash rocket-building plant has faced the toughest time since its establishment soon after the WWII and desperately tries to settle vast amount of problems

by Viacheslav Pronskyi

Recently a lot of media agencies (not surprisingly, most of them Russian) published different articles that has more or less the same message, ‘Ukrainian heavy engineering and high-technology industries have almost ceased to exist’. As an example, they describe situation around Yuzhmash plant (Dnipropetrovsk, Ukraine), manufacturer of Zenit and Cyclone family of launchers, Dnepr rocket and Antares first stage, which faced salary debts in front of its employees and put on hold all operations for the winter 2014–15. The latest such article, written by RIA Novosti, addressed to financial details of the plant’s crisis, so after visiting Yuzhmash official website we have also taken chance to find out what is happening there and is there any light at the end of the tunnel.

‘The situation in Yuzhmash closely related to and greatly caused by the situation in the country. Unpredictable and sudden loss of strong business relations with the largest Ukrainian foreign partner (Russia) has resulted in decrease in production volumes of heavy engineering enterprises, average value of which throughout them constituted more than 20%…’ This arguable paragraph (20% is not so critical not to pay salary and close production, Russian ties snapping was not ‘unpredictable’, etc.) starts rather good and honest description of Yuzhmash’s hopes (we call them in title as the ‘Plan’).

Table 1 — Revenues of Yuzhmash over the last 4 years

We used here US dollar (USD) conversion rate to UA hryvna (UAH) for 2011–2013 equal to ≈8, and for 2014 equal to ≈16 (these approximation are almost accurate). Although Yuzhmash calculates all revenues, profits and losses in UAH, hereinafter we’ll use USD in order to make the article clearer.

We see almost tenfold decrease in Yuzhmash revenues in USD over the past four years (in fact, in UAH this decrease is only fourfold due to different applicable conversion rates), primarily caused by more than hundredfold (!) decrease in revenues in USD received from Russia. But the worst is profits/losses summary. On January 1, 2015, Yuzhmash had more than $40Mln debt, $9Mln of which is under salary, associated costs and utility charges.

Table 2 — Profits/losses of Yuzhmash over the past 4 years

Furthermore, less hopes left for conventional products: Sea Launch and Land Launch are on hold (no orders for Zenit rockets), Orbital Sciences will order more Antares first stages not later than by the end of 2015, Dnepr and military programs with Russia step-by-step being scrapped. So what Ukrainian engineers and workers are currently dreaming about?

Plan for 2015

· $157Mln — approximate volume of revenues in 2015 necessary to maintain Yuzhmash’s operational activity (including coverage of existing debts);

· $62Mln — volume of payments that Yuzhmash expects to receive in 2015 under signed contracts (expected revenue — the largest since 2012! or ?);

· $95Mln — amount of payments that shall be found somewhere;

· $63Mln — expected additional amount of payments (under contracts that are in signing phase, state armaments order, etc).

Considerable part of expected additional amount of payments (near $46Mln) constituted in the State Armaments Order. If Yuzhmash receive this military contract, it would be the first order of Ministry of Defense to the plant since 1991, when Ukraine became an independent country.

Other opportunities

— Experimental tests of RD-809 rocket engine, designed by Yuzhnoye SDO. The engine, based on Cyclone-4 third-stage engine, intended to be used to power upper stage of new Mayak family of launchers;

— Manufacturing of Cyclone-4 electrical and fuelling model (almost full first and second stages of the rocket, with no engines but with all pipes, lines, electrical and hydraulic systems);

— Resume of Antares first stages manufacturing;

— Manufacturing of agricultural tractors for Borex JSC;

— Manufacturing of agricultural tractors for Tajikistan.

Additional measures that Yuzhmash (Ukrainian government) is going to introduce are raise of charter capital by $31.4Mln (to cover debts), sovereign guarantees for $132Mln in 2015–2017 in order to invest in aerospace, agricultural and even nuclear power equipment production lines, optimization of organizational structure. Possible Ukraine’s association in European Space Agency also regarded as beneficial move for the plant.

All of that sounds optimistic, not? But at least these are real steps and milestones that Yuzhmash hopes for and must implement in order to survive. In light of all these efforts one statement at the website trigger sorrow. ‘Search for new Customers, taking into account very specific products of Yuzhmash, takes much time’. What have you been thinking about before?

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