Kalashnikov Switches to Private Hands in $41Mn Deal

Russia’s largest weapons producer has struggled to be profitable in the post-Cold War years, and now 49 percent of the Kalashnikov Group will be sold to private buyers for nearly $41 million.

Despite three years of trying to overcome Kalashnikov's debts, state shareholder Rostec will sell its 49 percent stake to private investors, Vedomosti newspaper reports. The reported buyers are two businessmen affiliated with the Russian operator of airport link Aeroexpress, Alexey Krivoruchko, and part owner Andrey Bokarev.

Bokarev is also the co-owner of TransMashHolding, a rail and transport company, as well as Kuzbassrazrezugol, a coal company, and Moscow Metro Department.

It was conditional the investors be Russian nationals, and the two men have already pledged to invest an additional $78 million over the next two years to pay off debt of the AK-47 producer, which makes up 95 percent of Russia's light weapons.

Bokarev picked up the shares because he has a "financial incentive" and Krivoruchko sees the investment paying for itself in five years. The two will lead the creation of future joint ventures with foreign partners in producing gunpowder and ammunition.

AK-109 Kalashnikov assault rifle. (RIA Novosti / Vladimir Vyatkin)AK-109 Kalashnikov assault rifle. (RIA Novosti / Vladimir Vyatkin)

The deal was approved by President Vladimir Putin as well as the Ministry of Industry after meeting with Sergey Chemozov, CEO of Rostec.

The public-private partnership is “the most effective model to reform the industry,” according to Chemozov, as reported by Vedomosti. The turn to private investors is part of Kalashnikov’s overall strategy through 2020, developed jointly by Rostec and the Ministry of Industry and Trade

Production output sharply decreased after the end of World War II, and again after the Soviet Union collapsed, and has struggled on the modern market.

The Kalashnikov Group was established in August 2013, after the Izhevsk plant (Izhmash), a former producer of the iconic AK-47 assault rifle was declared bankrupt a year earlier. The Kalashnikov Group was formed in a merger between Izhmash and Izhevsk Mechanical Plant.

The Kalashnikov Group currently operates in Tula, south of Moscow, and Izhevsk, located in the Urals, home of the original designer Mikhail Kalashnikov. Production could triple and reach 1.9 million units per year, and has the potential to boost sales revenue to more than $750 million.

Mikhail Kalashnikov, the designer of the world’s iconic firearm transferred the brand rights to the newly formed weapons venture. The brand is estimated to be worth $10 billion.

Kalashnikov, 93, was a tank commander in World War II, and developed the AK-47 to counter German assault weapons.

Kalashnikov was the head of the design team that AFTER THE WAR designed the AK-47.

Of course another member of the design team at Izmash was the German Hugo Schmeisser.

By August 1945, the Red Army had created 50 StG44s from existing assembly parts, and had begun inspecting their design. 10,785 sheets of technical designs were confiscated by the Soviets as part of their research. In October 1945, Schmeisser was forced to work for the Red Army and instructed to continue development of new weapons.

Schmeisser’s brilliance continued to impress the Red Army, and he, along with other weapons designers and their families, was relocated to the USSR. On 24 October 1946 the German specialists rode a train to Izhevsk in the southern Ural Mountains, where a center of Russian firearms development was located.

Schmeisser was one of 16 Germans for which a special department (no. 58) was created at factory number 74, later known as Izmash. Schmeisser was appointed as one of the five designers of the group, together with Kurt Horn and Werner Gruner (both from Grossfuss) and Oscar Schink (from Gustloff), under the formal leadership of Karl Barnitske (also from Gustloff). There is some evidence that Schmeisser was uncooperative with the Soviets because he received the most negative review by his Soviet handlers in this group of five German designers. In these Soviet reviews, Schmeisser was described as a “practical man”, who invoked his lack of formal training whenever he was presented with any design problems. Initially Schmeisser was given a salary of 5,000 rubles per month, but this was cut after two just months to 3,500 rubles, and a month later to 2,500 rubles. These official Soviet reports match the memoirs of Yevgeny Dragunov, who described Schmeisser as afflicted by chronic lung disease and not engaging in much activity, unlike Gruner, whom Dragunov described as brilliant man, who had contributed considerably.

Schmeisser worked in Izhevsk until 1952 when he and other German specialists returned home to Germany. With short notice, his stay in the Soviet Union was extended beyond that of the other weapon specialists by a half year. He finally returned home on 9 June 1952. Schmeisser died on 12 September 1953, and was buried in Suhl.

Per Wikipedia.

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