Boris Obnosov: “There are no prerequisites for the purchase of weapons abroad”

Tactical Missiles Corporation is the leading manufacturer of high precision Russian weapons. At the MAKS-2011 salon, KTRV announced the start of serial production of fourteen types of new weapons. The CEO of the Corporation Boris Obnosov in an interview with RR spoke about the situation around the state defense order, and why the directors of defense enterprises cannot be called grabbers and what needs to be done for the Russian defense industry to survive.

- Boris Viktorovich, what is happening with the state defense order now - if we talk about the trends of recent years?

- The trend is undoubtedly changing and changing dramatically. What is spelled out in the state armaments program (LG) before 2020, forces us to seriously revise all our plans. Because if earlier we had 90-95% of exports, and insignificant orders went at the request of the Ministry of Defense, in the last two years the situation has changed dramatically, the share of the GOZ is growing. And if the LG will not be corrected, as it was with the two previous programs (when the ink did not have time to dry and they were already subjected to adjustment and not in a big way), then we must seriously think about how to carry it out. Here, without the help of the state can not do. The main task is the modernization of capacities, the replacement of the machine park and even the expansion of production areas. What is provided for the LG is a significant increase in production - not two or three times, but in 10-15 times! But we do not create pans. We are the developers and manufacturers of precision weapons, and this is one of the most important priorities in the rearmament of the army. This was proven by all the wars of the last time. If in the first conflict in the Persian Gulf - the war in Kuwait - the share of high-precision weapons was 7%, then in recent conflicts it was about 70%.

- The defenders make many complaints against the Ministry of Defense. And the main one, probably, is untimely financing. You agree with these claims.

- It would be strange if we did not have these problems. But this is not a claim, it is the desire to work more closely with the Ministry of Defense. So that the military understand our problems, and we would understand the problems of the Ministry of Defense.
For us, the previous year was revealing. We thought it went smoothly. After all, in many contracts we then received an advance payment up to 80% and received it quite early. And this year the restructuring of the ministry continues, naturally new people come to the financial and economic bloc, the legal bloc, a model contract has been prepared, which everyone should follow. But life is multifaceted and it is impossible for all occasions to provide the only option.
We are concerned that it is already September, and for some contracts we have not received full advance payments. This leads to the fact that products are becoming more expensive. Why it happens? Regardless of when the contract is signed and the advance payment is transferred, no one will remove from us the obligation to fulfill the state defense order by the end of the year. But how to do this if the contract is signed, say, in July or August, and the production cycle for this product is 9 months? I have to take out a bank loan before signing a contract and receiving an advance from the Ministry of Defense. That is, to increase the cost of production. For the state, the price remains the same, only we cannot leave anything for development.
Our GOZ's profitability is already so low - no more than 5%, and if we still take expensive money from the bank to carry it out, then it simply tends to zero. And in some places the directors even go for negative profitability. Why do they do that? First, to save the team. Secondly, the director - at the moment, the person is quite vulnerable. All the lumps can be blamed on him - he did not pay his salary for two months, and people from the prosecutor’s office are already at the door. Closing of accounts begins, and getting out of this whirlwind is not easy.
Therefore, for us, of course, the ideal option is when the contract is concluded in December, and after the New Year holidays we receive an advance payment and get down to work. It is clear that it is not always possible to do so, especially where competitions are held. But for some products, our corporation, for example, is the only performer. Why is it impossible to conclude a contract for such positions in December and to make an advance on time?
We want the sanctions for non-fulfillment of the contract to be objective and reciprocal. If the contract is signed later, then let's transfer the deadlines. The contract was signed in September, 25 November ends the fiscal year, and if you put the products of December 1, you can already submit sanctions - a fine. I do not think that these six days will somehow affect the country's defense capability. This is not a war. And if they do, it is necessary to conclude a contract earlier.

- On whom the timely conclusion of the contract depends?

- I can’t say everything, but a lot depends on the Ministry of Defense. It often makes demands to which it is difficult for us to adapt. Now the transition to multi-year contracts. Well, if for three years. And if at five? And one enterprise in Dubna received an offer - let's conclude a contract before 2020. In fixed prices. Can you imagine the reality of its implementation? I think it is unreal.
How is a multi-year contract signed today? The fixed price is set for the first year and the deflator is defined - the figure by which we can increase the price of products in subsequent years. It is usually equal to the projected inflation. And if force majeure in the economy, why should I leave this price? I just will not find the money, I will not fulfill the contract. And if metallurgists or powermen considerably raise the prices? This is constantly happening. We are largely dependent on subcontractors, but the Ministry of Defense does not impose any restrictions on them. We work with subcontractors of the second or third level, which raise prices for 30-40% per year. And I can only increase by 8%. In my opinion, the simplest thing is for the subcontractors to install the same deflator as for us. Or give it that way - if you want a contract for five years or up to 2020, let's think up a flexible pricing scheme.
Because for us it is very important to maintain profitability. After all, we are told: “Come on, solve innovative problems, increase the share of your own R & D”. Where does the money come from? They do not grow on trees. The target state program for the development of the defense complex provides for the modernization of the enterprise is allocated 60% of public funds, and 40% the company must allocate itself. For our corporation, it is necessary to upgrade 44 billion for modernization. So, we need to find about 17 billion of our own funds. But in R & D it is necessary to invest part of the money. And on the current activities where to get money? And on salary increase? But otherwise we will lose skilled workers. We have a trilateral agreement with the trade unions and the administration of the Moscow region wage growth for this year - 16%. And the source for all these expenses is one — our profit.
Or another problem: to save people in the factories, you need to build cheap housing. Nothing is done. There is Putin’s order to give us spots for building. But for two years no one allocates anything - because, by law, construction spots can be allocated only through auctions. But I can’t, as a weapons corporation, compete on a par with construction firms. And if I even win the auction, I need to buy this spot. And it is automatic - 300-500 dollars per square meter, and have not yet begun construction. And I need the workers to buy these apartments.
I am told - and you are rich, you buy an apartment for your employees. This is said by people either illiterate or wanting the ultimate death of the defense industry. In my only one head office of the Corporation, 700 families need better housing conditions. In Korolev, the average cost of a meter is 75 thousand rubles. One bedroom apartment - under 4 million. Well, that's all.

- What should the government do in this situation?

- We need to come up with a mechanism for allocating land for cheap housing. Here, Dmitry Anatolyevich was in the Far East, said that the Ministry of Defense should transfer land for construction (objects of the APEC summit - "PP"). In housing construction should do the same. I do not want to be a builder, but this is the only real opportunity to keep people in enterprises. If they give me a building land, I will build a house and sell it at cost without making a penny. And these are 32 thousands and not 75. And in fact, I need not just to keep people in the factory, but in 2-3 times to increase the size of the entire corporation, if I want to execute the state armaments program up to 2020 year. This 20 thousands of new people, new jobs.

- Where do you find money for modernization?

- The state, of course, provides assistance. There was a development program for the defense industry before 2015. According to it, 80% of money for specific projects was given by the state, 20% - the enterprise itself. Under this program, we conducted 27 projects at various enterprises of the corporation. A new program for the development of the defense industry has now been adopted - already before 2020. And there the requirement is not 80-20, but 60-40. We will find this money. The problem is different. Major funding is provided there after the year 2015. Well, it is as always: whether the donkey will die, or the shah. And we need money now. Because we have the peak production increase - 2014 year. And in order to prepare for mass production, you need 2-3 of the year. In 2020, I will not need this money.

- Recently, a contract for the purchase of Mistral. Is this a sign that the Ministry of Defense is reorienting on the import of military equipment?

- There are no objective prerequisites for this. Only if there is a political will - then yes, they will buy abroad. Of course, it is necessary to complete the development of our weapons and produce them in our own country.
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