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27 February 2014

Holding: the procurement system has been revised and administrative and commercial expenses materially reduced.

“The transformations rooted in the development strategy, are based on best international practices and are aimed at gradual change of the whole Holding functioning system,” said Maxim Kuzyuk, CEO of Aviation Equipment. “We are committed to become a modern and competitive company that is transparent to investors and integrated to the utmost in the international aviation industry. I am confident that the successful implementation of the strategy will contribute to the growth of financial performance, in particular, revenue and profit indicators, which, in its turn, will allow us to increase the salaries of workers, create new high-tech positions and pay more attention to the development of innovative products”.

The non-aeronautical products share in the holding revenue structure will drop from 36% in 2012 to 23% in 2020. In order to increase capacity utilization and to receive additional revenue the production will be focused on six promising areas – defense industry, rocket and missile engineering, space-qualified hardware, energy industry, oil and gas industry and transportation. At the same time the aviation production rates and volumes will only increase.

For this purpose the Holding intends to increase operational efficiency by substituting the model of direct asset management for development centralization and product areas management. The new scheme will make it possible to perform complete life cycle control of created aviation systems - from their development to delivery to customers and subsequent aftersales service. Nine departments to control the product areas will be created; each department will develop integrator’s competence in the assigned field: alighting gear, power-supply system, paraborne equipment, ground support equipment, safety and life support systems, power units, fuel flow and hydraulic systems, launch installations and actuating units. Another department will focus on non-aeronautical products management as well as on aftersales service of manufactured equipment and systems.

In 2014, Aviation Equipment Holding intends to open a specialized modern Design Center, which shall allow performing remote control of the basic holding design units in several regions with concurrent engineering approach simultaneously used. Centralized management shall reduce the new products development time by 30% while the research and development costs shall be decreased by 1.5 times.

Within the framework of the strategy to enter the global market by 2017, the Holding intends to begin deliveries of Boeing aircraft systems components. In this case revenues in the production sector of systems and units for foreign aircraft will be about 9 bln rubles. Foreign aircraft aftersales service and design of systems and units for them shall also become a priority. According to Aviation Equipment’s forecasts the comprehensive measures shall contribute to the revenue share increase from aviation systems aftersales service in bulk from 2% currently to 14% by 2020.

In order to improve production efficiency of the Holding, the procurement system shall also be completely revised to reduce the cost of purchased goods and services; the administrative and management costs have been reduced, and comprehensive product quality management system established through certification of products and production processes with a view to meet international standards, as well as to carry out the technical doctrine widespread introduction.

In 2014, Aviation Equipment will proceed to a full implementation of Enterprise Resource Planning (ERP) system, used by aviation market leaders to integrate production processes, financial and asset management. ERP is an important component to develop the Holding as a transparent company understood for investors and reliable for international partners, thus increasing value of the company up to 40% and making its system of purchasing, management and resource management easily understandable, fast and efficient as much as practicable for the Holding, its enterprises and partners.

Considerable funds (about 7% of the profit) will be annually allocated to conduct research and development activities. The overall scope of investments in the R & D by 2020 will exceed 29 bln roubles.

Aviation Equipment Holding is specialized in the development, production and aftersales service of aircraft systems and units. In addition the Holding manufactures parts and units for such industries as oil and gas, motor-vehicle construction, transportation and energy. Aviation Equipment includes 35 companies located throughout the country — in Moscow, Moscow region, Ufa, Samara, Ulyanovsk, Omsk, Arkhangelsk region and other regions of Russia. The Holding is a part of Rostec. The key partners and customers are the United Aircraft Corporation, Russian Helicopters, United Engine Corporation as well as Aeroflot, Siberia, UTair, GTK Russia, etc.

The Russian Technologies (Rostec) State Corporation is a Russian corporation, established in 2007 to promote the development, production and export of high-tech industrial products for civilian and military purposes. It includes 663 organizations, 8 holding companies of which have been currently formed in the military industrial complex and 5 holding companies — in civil industries. Rostec organizations are located within 60 territorial subjects of the Russian Federation and supply products to the markets of more than 70 countries. Rostec's revenue in 2012 amounted to 931 bln roubles and net profit – 38.5 bln roubles. Tax deductions to the budgets of all levels exceeded 109 bln roubles.