AK-47 Manufacturer Faces Bankruptcy

Even in his old age, Mikhail Kalashnikov still worries about the invention that defined his life. At a conference on the 60th anniversary of the weapon that he invented in 1947 -- the Avtomatni Kalashnikova (Automatic of Kalashnikov) or AK-47 -- the elderly weapons designer, who is still chief designer for the state controlled company that makes the guns, lamented that, "there are counterfeits all around the world now which are plainly not of the same quality as the Russian example."

The legendary Kalashnikov is a Russian export success story. The guns are used by 60 armies worldwide, account for up to 80 percent of all assault rifles and are known as the weapon of choice for terrorist groups and rebel movements. But the Izhmash Arms factory in the central Russian city of Izhevsk, where Kalashnikovs are manufactured, has long been concerned about forgeries.

According to Izhmash Arms' parent company, the Rosoboronexport State Corporation -- which has a monopoly on supplying Russian arms to the international market -- there are about eight countries in which dozens of businesses are making their own versions of the Kalashnikov. And they are doing this without passing on any licensing fees to the Russians.

And now it appears that the financial difficulties facing the weapons manufacturer have reached crisis point: its very existence is threatened. A businessman in Izhevsk has filed a motion to declare Izhmash Arms bankrupt because of outstanding debts of around 8 million rubles (around €180,000 or $265,000). The case has caused a sensation in Russia because for a long time the Russian armaments industry has been one of the only industries considered competitive on an international basis. And Izhmash, which was founded in 1807 by Russia's royals, is one of the largest firearms manufacturers in Russia.

Kalashnikov Problems of its Own Making

However, arms exports have fallen dramatically over the past year, falling from around $10.8 billion (€7.4 billion) worth of weaponry in 2007 to a mere $3.5 billion (€2.4 billion) in 2008. According to Ruslan Pukhov, director of the Moscow-based Center for Analysis of Strategies and Technologies, every second Russian arms maker is now in danger of bankruptcy. In fact work at one of Izhmash's factories stopped recently due to lack of state orders for their product. "The companies have not had big orders for a long time," the newspaper Gazeta quoted various industry experts. "Izhmash Arms is no exception." A lot of the factories have asked for state aid during the financial crisis, but mostly their requests have been fruitless.

As it is, the problems the Kalashnikov manufacturer faces are partially of its own making. During the Soviet era, licenses for the Kalashnikov were generously granted -- and this had less to do with a desire to make money from the licenses than political motivations. It was all about the use of the automatic rifle as a means of "freeing the people." After the end of the Warsaw Pact though, all the licenses to make the Russian-invented weapon had supposedly come to an end, according to Rosoboronexport. However, those earlier business partners simply continued to make the automatic weapons -- and at the same time, their production ate into the Russian exports.

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