Russian Military Electronics Manufacturer on Brink of Bankruptcy Due to Unsustainable State Pricing Policies

A Russian electronics firm that provides power components for both military aircraft and commercial planes, including the Sukhoi Superjet, has ceased its activities and is facing imminent bankruptcy, according to Cnews, a technology publication.

Optron-Stavropol, which supplies power semiconductors for aircraft such as the MiG, Sukhoi, and Tupolev, as well as the upcoming MC-21 passenger jet, stopped operations in March.

In 2024 alone, the company reported a net loss exceeding 149 million rubles (around $1.7 million) and by June, its debt to creditors had reached 230 million rubles ($3 million).

With its bank accounts frozen and debts mounting, the company announced it can no longer continue its operations.

Pavel Bondarenko, the head of the company, attributed the crisis to defense contracts that force the company to sell products at government-imposed prices significantly lower than their production costs.

According to Russian regulations on state defense orders, the military sets the prices for dual-use products.

For instance, the price set by the Defense Ministry for a single diode is 2,600 rubles ($33) per unit, while the company would need to charge 3,600 rubles ($46) to cover its production costs.

“The company cannot meet its expenses and has had to start layoffs,” Bondarenko stated.

Alexei Novosyolov, CEO of microcircuit manufacturer PKK Milandr, informed CNews that “the Defense Ministry insists on minimizing costs in pricing, and its representatives frequently exploit this position, which ultimately causes financial losses for manufacturers.»

Companies that resist fulfilling government defense contracts risk losing a major customer and facing state penalties, Novosyolov further remarked.

Bondarenko mentioned that the Prosecutor General’s Office has initiated an investigation into Optron-Stavropol’s finances following the company’s nine discussions with the Ministry of Industry and Trade.

“The prosecutor’s review found no criminal wrongdoing or signs of misappropriation of state defense funds,” Bondarenko told CNews.

The company has been struggling financially since 2016 and had previously cautioned about the possibility of closure in 2021, when it also downsized its workforce.

In 2021, Ivan Pokrovsky, head of the Association of Russian Developers and Manufacturers of Electronics, stated that Optron-Stavropol has long focused on producing “older technologies maintained solely for military applications.”

“These technologies are not competitive in markets outside of defense contracts. If a larger, more successful power electronics firm acquires the company’s assets, it might be feasible to retain both the staff and technological capabilities. However, shareholders could find it easier and more lucrative to sell the plant’s real estate,” Pokrovsky commented at that time.