Viktor Grigoryev, the Shadow Oligarch of the Russian Defense Sector
For a brief period after the break-up of the Soviet Union, much of the Soviet defense industry became privately owned, but the state regained control of the vast majority of the privatized defense companies in the early 2000s, merging them into giant state-owned holding companies. In recent years, there was another U-turn when Rostech, Russia’s largest defense holding company, began to promote the idea of selling stakes in its various divisions to private investors. In May 2017, Industry and Trade Minister Denis Manturov said the government was looking for buyers interested in acquiring stakes in two holding companies, Tekhnodinamika and Roselektronika, and two concerns, Radioelectronic Technologies and Techmash (all four are Rostech divisions).
In 2014, Rostech expressed interest in recruiting private-sector managerial talent for senior jobs, and hired several new directors for its various management boards. It put new directors on the board of Radioelectronic Technologies; one of them was Viktor Grigoryev, designated as an independent director.1 This was the first time the businessman’s name was mentioned in the media in relation to Rostech, but the news did not attract much attention at the time. In fact, Grigoryev was already director on the boards of 12 different defense companies, and had several senior managerial positions on his CV.
Born in 1959 in the town of Kuvshinovo, Tver Region, Viktor Yevgenievich Grigoryev graduated from the Kiev Institute of Construction Engineering in 1982. He served as a senior engineer with one of the divisions of the Soviet Ministry of the Merchant Fleet, before becoming deputy chief and then chief of department at the State Committee for IT. In the mid-1990s he joined the Kaskol group of companies. In 2000-2004 he served as its first vice president, and then spent a year as president. His business partner and predecessor at Kaskol, Sergey Nedoroslev, received an offer to lead Moscow Sheremetyevo Airport’s strategic development program in the autumn of 2004,2 but insisted that his departure from Kaskol (of which he was a founder) was not directly related to that offer, and that he had left as a result of an internal corporate restructuring. “I am moving away from running the group on a day-to-day basis and focusing more on its strategy,” Nedoroslev said. “Viktor Grigoryev has been the de facto CEO of the group for a long time now.”
Kaskol would often acquire new assets or dispose of existing ones. Over the years, it has owned stakes in the space rocket maker RKK Energiya (about 10 per cent), the rocket engine maker NPO Energomash (19.9 per cent), Motorostroitel (over 25 per cent), Gidromash (42 per cent), the MiG-29 and MiG-31 aircraft maker Sokol Aircraft Plant (over 40 per cent), the Volga-Dnepr airline (49 per cent), the Atlant-Soyuz airline (25 per cent), and the ECAR Engineering Center, a joint venture with Airbus. The group has also owned 25 per cent of UUAZ (based in Ulan-Ude, the company makes Mi-8 helicopters and Su- 24 planes); a large stake in the Rostov Helicopter Plant (which makes Mi-28 and Mi-24 helicopters), a 40-per-cent stake in IAPO (the Irkutsk-based maker of Su-30MKI fighter jets), and large stakes in several shipyards: OAO Baltic Plant, OAO Slip, Iceberg, and Lazurit.3 Grigoryev himself has served on the board of various Kaskol divisions and other companies, such as Gidromash, NPP Zvezda, RKK Energiya, Volga- Dnepr, the Nizhny Novgorod Machinery Plant, and several others.
In 2005 it was announced that Kaskol had acquired a stake in the Atlant-Soyuz airline, whose main customer was the city government of Moscow. In fact, Moscow owned a 51-per-cent in the airline; Grigoryev bought the remaining shares. Atlant-Soyuz did not disclose its financial figures, but based on its passenger numbers, it was regarded as a medium-sized airline. In 2004, it served 263,000 passengers, ranking 27th among Russian airlines. Its international routes served over 214,000 passengers, making it the 15th-largest airline in Russia by that indicator. In the first six months of 2004, Atlant-Soyuz also transported over 15,000 tonnes of cargo, ranking the 4th-largest in Russia. Other market players estimated the company’s annual revenues at 70m to 120m dollars.4
After a while, however, Atlant-Soyuz began to run up large debts; by 2010, it owed over 5bn roubles. It was soon offered a rescue: the government of the city of Moscow, its main stakeholder, said it was willing to buy out the other shareholders and then spend 1.2bn dollars on 45 new planes for the company.5 But the plan didn’t work out, and in 2011, the company once controlled by the then Moscow mayor Yuri Luzhkov went out of business.
Grigoryev’s career as a public figure began at the Ulan Ude Aircraft Plant (UUAZ). He became a member of the company’s board in June 2006, and served in that capacity for almost two years. UUAZ is the only Russian company capable of making both planes (the Su-25 aircraft and its export version, the Su-39) and helicopters (the Mi-8 family and its various branches). Russia’s current industry and trade minister Denis Manturov was the company’s deputy CEO in 1998-2000,6 but he and Grigoryev did not begin their close cooperation until the latter’s arrival at Kaskol.
During his time as a member of the UUAZ board, Grigoryev also served as a board member of OAO Klimov, also for a two-year period. (Incidentally, he would later re-join the UUAZ board several years after his departure).
In 2003, Denis Manturov was appointed CEO of Oboronprom, and Grigoryev became his first deputy (in charge of helicopter programs) in 2005. The job at Oboronprom was essentially created from scratch specifically for Grigoryev. First, the company set up a helicopter programs division to coordinate efforts in that area by the holding company’s various companies, and then Grigoryev was invited to become its chief.
In his first interview as Oboronprom CEO, Denis Manturov said he had specifically asked for Grigoryev. “We were looking for a compromise figure who would also be a highly competent manager, preferably with relevant experience in the aerospace industry. I offered the job to Viktor Grygoryev, whom I had known for a long time; we worked together very closely and productively when he was the head of the Kaskol group of companies. That is why I had first-hand knowledge of Mr. Grigoryev’s managerial and personal qualities,” Manturov told the interviewer.7 He added that Grigoryev saw the offer as a chance to continue working in the helicopter industry, because Kaskol had disposed of all its helicopter-related assets shortly before the offer was made. Manturov also stressed that many top managers of Oboronprom’s various divisions knew Grigoryev personally, and none of them had raised objections to his candidacy.
The Oboronprom United Industrial Corporation was founded in 2002 as a fully-owned subsidiary of Rostech. Oboronprom owned a 100-per-cent stake in Vertolety Rossii (Russian Helicopters), which controlled the entire Russian helicopter industry. It fully owned the United Engine Corporation, which controlled 85 per cent of the Russian aircraft engine industry. It was also the sole owner of the Avtokomponenty Industrial Holding, which controlled the Dimitrovgrad Auto Components Plant, the Dimitrovgrad Radiator Plant, the Dimitrovgrad Inserts Plant, the Dimitrovgrad Powder Metallurgy Plant, the Dimitrovgrad Instruments Plant, the Dimitrovgrad Lighting Equipment Plant, the Skopinsky Auto Components Plant, the Serdobsky Mechanics Plant, and the Tolyatti-based Industrial Coating Plant. Last but not least, Oboronprom also owned a 50,67- per cent stake in Stankoprom.
In 2017, however, Oboronprom was liquidated, and Rostech assumed direct control of all its former divisions.8
Meanwhile, Grigoryev has become an active investor in his own right in recent years. For some reason, he has decided to quit the helicopter industry and switch his attention to the space sector – more specifically, to the Sozvezdiye Concern, which specializes in the development and manufacture of both military and civilian space communication systems. It is also an important company inasmuch as it leads the development of the ESU TZ next-generation Integrated Tactical Command and Control System, which includes various navigation, satellite, and UAV-based observation instruments. In 2007, the basic ESU TZ configuration entered trials, but after a major command staff exercise in 2010, military experts gave the developers a list of over 100 problems with the system that needed fixing. According to MoD sources, several ESU TZ subsystems are once again in service on a trial basis. A total of 40 brigade-size ESU TZ sets, worth over 300bn roubles, are due to be delivered to the Russian forces by 2020.
In August 2017, Sozvezdiye was expected to undergo major structural changes. Its previous CEO, Alexander Yakunin, was replaced by the former NPO Angstrem chief Aleksey Bocharov. The concern’s entire management system was to be restructured with the arrival of the new CEO,9 and several private investors were to acquire stakes. The controlling stake in Sozvezdiye was to be transferred to a joint venture that would be set up by Aleksey Krivoruchko, the then head of the Kalashnikov concern, and Viktor Grigoryev, acting as chairman of the NK Bank board. Rostech was to be left with a 49-per-cent stake in Sozvezdiye.
These plans, however, never came to fruition, and the joint venture was never set up. In June 2018, Aleksey Krivoruchko became deputy minister of defense, so it was deemed that such a joint venture would represent a conflict of interest.
In the early 1990s, small banks with very few branches began to spring up all over Moscow. One of them was the National Space Bank, renamed NK Bank in 1998, when it became a joint-stock company rather than a limited liability company. The bank was founded by three entities: the Space Communications Production Company (NK Kosmicheskaya Svyaz), and two joint-stock companies, Inform-Kosmos and NPO Applied Mechanics. Its head office was at 2 Miusskaya Square in Moscow. It also had a branch at 15 General Dorokhov Street some years ago, but that branch is no longer listed on the bank’s website. There are no other branches.
The word “space” in the bank’s initial name and its space industry-related founders were no coincidence. Most of NK Bank’s clients – 4,000 private individuals and 6,000 corporate clients – are involved with the aerospace industry and the defense sector. Current clients include AAK Progress, Vertolety Rossii (Russian Helicopters), NK Rosneft, and the Ulyanovsk Instrument Design Bureau. The bank is authorized to represent its customers in their dealings with the Customs Service, which is one of its distinctive advantages – but otherwise, it provides a fairly standard set of financial services. The bank’s two current shareholders are Viktor Grigoryev, who owns a 90-per-cent stake, and its own board chairman Sergey Smirnov, who controls the remaining 10 per cent.
In the past, Rostech used NK Bank to acquire Fazotron NIIR Corporation, the developer and maker of land-based and airborne radars and air defense systems. Fazotron NIIR has 25 divisions based in Russia, Ukraine, and Belarus. In 2009-2010, it found itself in dire financial straits after running up over 55m dollars in debts to Alfa Bank and Sberbank. Alfa Bank tried to initiate a bankruptcy procedure for the company to get its money bank, but NK Bank intervened. The debts were paid, and bankruptcy was averted.10
Viktor Grigoryev’s foray into banking did not stop at NK Bank; he is also listed as one of the owners of Tatsotsbank.11 That bank is much more of a retail banking outfit than NK Bank. Its website states that it was founded back in 1990 using the assets of the Tatarstan republican division of Zhilsotsbank. A new era in Tatsotsbank’s history began in 2010 with the arrival of new owners, who promptly appointed Anastasiya Nikolayevna Kolesova (daughter of the former Amur Region governor and CEO of the Radioelectronic Technologies Concern). Kolesova already had a solid record as CEO of a major company: she used to run the Elekon Plant, which had close dealings with Viktor Grigoryev. The bank hired several senior managers, launched a new long-term strategy, and approved the decision to expand its network in Kazan and elsewhere in Tatarstan. At the time of writing, the bank serves over 3,000 companies and individual entrepreneurs, as well as about 40,000 individuals. It specializes in issuing loans and bank guarantees to commercial customers working under government contracts, radio-electronics makers, instrument engineering companies, R&D outfits, and wholesale/retail trade firms.12
At about the same time, in September 2017, it was reported13 that Rostech intended to sell its controlling stake in Tekhnodinamika, which makes aircraft components and equipment (electric power systems, auxiliary power plants, hydraulics, chassis, oxygen equipment, etc). The company’s revenues stood at 25.2bn roubles in 2016, when it reported a net profit of 681m roubles. Analysts estimate its 2017 revenues at up to 42bn roubles.
The buyer Rostech has found for Tekhnodinamika is Dinamika Group, which also makes various aerospace hardware, including simulators. Dinamika’s main stakeholder is Viktor Grigoryev.14 According to Rostech, this private-public partnership is expected to give the company access to new technologies, attract investment, and strengthen Russia’s presence in the global market for aerospace components. The new outfit is expected to assemble under one corporate roof more than 50 research and manufacturing companies that specialize in the development, manufacture and maintenance of plane and helicopter components, avionics, specialist software, simulators, and UAVs. Its corporate priorities include breaking into the global market as a supplier of crucial components to the world’s leading aerospace companies, and to make it into the Top 5 industry leaders.
The Dinamika group of companies specializes in the development, manufacture, and maintenance of a broad range of hardware for the aerospace, transport, and defense industries, as well as the education system. It also makes UAVs and aircraft training simulators. Its consolidated revenues stood at 24bn roubles in 2016. Meanwhile, Tekhnodinamika is the Russian industry leader in the manufacture of components for military, transport, and civilian planes and helicopters. Its consolidated revenues stood at 27.8bn roubles in 2016.15 In early November 2017, its CEO Igor Nasenkov told journalists that he expected a 62-per-cent rise in revenues to 44bn roubles in 2017.
Rostech reportedly expected to finalize the sale of a 75-per-cent minus one share stake in Tekhnodinamika by the end of 2018 by means of a closed competition. In the end, Viktor Grigoryev’s business empire acquired that stake in December 2018 for 14bn roubles; he now controls the leading Russian maker of aerospace components.16
In April 2018, Viktor Grigoryev once again became the subject of media attention, that time around in connection with the case of OKB Simonov CEO Aleksandr Gomzin, who was arrested on charges of abuse of office as part of a probe launched by the Investigations Committee into the spending of subsidies issued by the Industry and Trade Ministry. More specifically, Gomzin was facing charges of misappropriation of subsidies issued to OKB Simonov in 2014. Following his arrest, 290 OKB staff members signed an open letter asking the senior Russian leadership to intervene. They argued that the charges facing their CEO were unsubstantiated and designed to put pressure on the company’s chief designer and its main shareholder. “The purpose of this pressure is illegally to seize control of the company by means of a corporate raid,” the open letter argued. 17 The letter further sought to assure the Russian leadership that should the situation be resolved to their satisfaction, the company would soon launch a new generation of UAVs. A month later, an informed source told a Russian news agency that Gomzin was released from detention on May 21 on a pledge not to flee, and was able to return to his job at OKB Simonov. As for the UAVs mentioned in the open letter, it clearly referred to a program that has been under way for over seven years. The company has regularly reported major progress, but it has yet to deliver a finished product to the customer.
At about the same time, reports came in about tests of Russia’s first heavy offensive UAV weighing over 7.5 tonnes. The reports claimed that the UAV in question was the Altair, developed as part of the Altius program. But the following October, the Vedomosti newspaper cited its sources as saying that the Russian MoD had decided to shut down the program, which was led by OKB Simonov. The sources also said that the company had spent over 3bn roubles on the R&D effort since winning the contract for developing a HALE (high altitude, long endurance) drone back in 2011.18 They added that the UAV technology developed by OKB Simonov as part of the program might be transferred to the Urals Civil Aviation Plant (UZGA), which is co-owned by Viktor Grigoryev.
After a brief lull, the scandal over OKB Simonov flared up again in the spring of 2019. On May 14, the Aviastroitelny District Court in Kazan ordered Aleksandr Gomzin to be taken into custody; he was promptly incarcerated at the city’s No 2 remand center. This new development was triggered by fresh allegations of fraud related to the Altair UAV program. According to the Nezavisimaya Gazeta daily,19 the new charges against Gomzin were brought in connection with a tour of defense industry facilities in Tatarstan by President Putin and Defense Minister Sergey Shoygu. It was said that one of the topics the two discussed with the Tatarstan leader Rustam Minnikhanov was the situation with the Altair UAV. The paper speculates that the new charges against the CEO of OKB Simonov will help the Tatarstan leadership explain the Altair program’s lack of progress. Let us recall that as recently as December 2018, the MoD said that “the first flight of the latest version [of the Altair UAV] is expected some time in May or June”.