Aircraft maker privatization struggles to get off ground

Newsroom 06/10/2008 | 15:59

The privatization of Avioane Craiova is proving to be an insurmountable challenge for AVAS. Last year, the authority cancelled the company's privatization in June due to the lack of bidders: only one company made a privatization offer. This year's bid for Avioane Craiova was not short of interested companies, but AVAS considered the demands of the company declared winner, the Czechs from Aero Vodochody, “unacceptable”. Last week, AVAS issued a press release which stated that, “AVAS will reorganize urgently the privatization process at Avioane Craiova by publishing a new sale offer of the 80.97 percent stake.”
The reason: “AVAS's decision was due to the fact that Aero Vodochody's offer had expired on September 29 and the Czech company had not accepted, during the two months of negotiations, the privatization contract conditions. Aero Vodochody's demands regarding new clauses led to a blockage,” said AVAS officials.
The authority's representatives rejected the following three clauses requested by Aero Vodochody: a state warranty that between the date on which the contract is signed and the property transfer Avioane Craiova will not go bankrupt, AVAS was to put into effect a restructuring program between the contract signing and the property transfer, and potential damages for any problems found in the company of up to 50 percent of the offered price, despite the fact that Aero had carried out its own audit and knew the state of the factory.
AVAS's reaction took analysts by surprise, as there had been no prior signals that the negotiations were heading for deadlock. “AVAS believes that these demands break the rules which govern a democratic country and a free market economy and therefore cannot be accepted by AVAS.”
One day after the surprising announcement AVAS announced that it would publish the new sale offer for Avioane Craiova by October 20 and had already asked the valuator to reassess the company assets as a matter of urgency.
The Czech investor offered EUR 16.3 million for the 80.98 percent stake in Romania's single producer of military aircraft. It beat off competition from Italy's Alenia Aeronautica and local firm INAV. One of the conditions made mandatory in this privatization is that the new owner of the Craiova airplane producer must maintain the company's main current activity.

Deal still up in the air
Aero Vodochody officials express their surprise at AVAS's statements. Company president Hulak said that the Czech firm was interested in extending the availability date which, in his opinion, would have been one of AVAS's options. Hulak told Business Review that the company does not want to drag AVAS into court over this case. “We do not want to fight with AVAS. We still want to do business in Romania and although we were shocked by the press release from AVAS, we do not want to sue anybody or argue through the media,” said the president.
He added: “We offered a fair price for the shares in Avioane Craiova, but we could not take the risk that our investment would be ruined by the unacceptable conditions of the agreement. We did not try to invent something special, we only required what is a
standard during acquisition procedures.”
According to him, during the acquisition preparation and the negotiations the company co-operated with TPA Horwath Quintus and law firm NNDKP.
But the Craiova firm is not the Czech company's only local interest. Aero Vodochody's name is also connected with the privatization process of helicopter maker IAR Ghimbav. Hulak said that the company was focusing on the pursuit of that firm. “We will analyze our experience of the negotiations over the Avioane Craiova deal and carefully consider our potential participation in the next tender for Avioane.
But, above all, we want to concentrate now on the IAR Ghimbav tender,” said the Aero Vodochody president.

Hulak told Business Review that AVAS had released misinformation about the privatization negotiation. “Our conditions were in accordance with Romanian law and international practice. Our demands cannot be considered to have broken any law of a democratic country or a free market. For instance, the warranties between the signing date and the closing date is a standard element in an acquisition contract,” said Hulak.
The Aero Vodochody president added that the Czech company had asked AVAS to insert in the privatization contract standard declarations on the status of the company, which would ensure that all information disclosed to Aero during the due diligence process was true and complete.
“Although we had performed the financial, legal and environmental due diligence of Avioane Craiova, such due diligence was based strictly on the information supplied by the company or by AVAS, and therefore we cannot waive any rights arising from the possibility that we were provided with false, misleading or incomplete information,” said Hulak.
He stated: “For this reason we asked AVAS to be liable for any false, missing or incomplete information – such liability would be agreed strictly within the limits provided by the applicable legislation.”
Regarding the insertion of a restructuring plan for Avioane Craiova, Hulak said this measure “would allow Avioane Craiova to apply for a contribution in order to cover the compensation for the employees who would leave the company as a result of the restructuring following privatization.”
Meanwhile, those who are looking forward to the successful privatization of the Romanian aircraft maker are hoping it is a case of third time lucky.

By Dana Ciuraru

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