Antonov Corp. plans JV with China to produce An-70 aircraft
Antonov Corporation, one of the largest airplane producers in the CIS, has
launched negotiations with China Aviation Industry Corporation (AVIC) to create
a joint venture to produce the An-70 aircraft in China. The major aim of this
project is not only to sell existing equipment to China, but also jointly
develop new, deputy chief designer of Antonov, Mr. Gabruk said. At the same
time, Antonov reps believe that the JV should also hedge the risks of Russia
abandoning the An-70 project completely by providing another strategic ally.
Our view: We see this news as generally positive for Motor Sich (MSICH UZ, BUY),
whose D-27 series engine should exclusively propel An-70 aircraft when the
project reaches the serial production stage. Given the fact that the Chinese
market should become one of the most attractive aviation equipment markets in
the next decade, we see this as a great opportunity for MSICH to increase its
sales there. Moreover, Motor Sich has had a successful track record in
cooperating with Chinese aviation producers, leaving us with no doubt as to the
positive outcome of this JV for Motor Sich in the medium term. On the other
side, we see a number of serious potential threats linked with such partnership:
-assembly of Antonov planes in China should give an easy access for Chinese
scientists to MSICH's engines, which might lead to China trying to replicate
them;
-unresolved ownership rights on a whole range of joint Antonov planes projects
between Ukraine and Russia might make it uncomfortable for Antonov to create a
partnership in China while creating a precedent affecting the future of all
Russian-Ukrainian aircraft projects.
Nonetheless, we believe that at present the potential gains from this JV should
outweigh the risks for Motor Sich, which supports our favorable outlook for the
Company. We recommend BUYing shares of Motor Sich with the target price of UAH