Russian defence industry meltdown as liquidity crisis erupts and lawsuits mount

Russian defence companies are facing a growing number of law suits over unpaid bills, as a liquidity crisis grips the sector. The Kremlin has placed Russia's economy on a war footing and ramped up production of military equipment.

Putin's government is investing a massive US$145 billion (£107bn) in defence spending for this fiscal year, which represents 6.3% of Russia's GDP. Yet despite the huge inflows of cash into the sector, many companies appear unable to pay their bills, prompting suppliers to take them to court. In the most recent case, Magnitogorsk Iron and Steel Works (MMK) filed its third lawsuit in two months against Uralvagonzavod (UVZ).

The state-owned UVZ produces the T-90M tank and reportedly owes MMK 105 million roubles (£995k). The case was filed in the Chelyabinsk Arbitration Court and adds to a growing series of legal actions stemming from Russia's deteriorating war economy.

UVZ is based in Nizhny Tagil and is central to the Kremlin's armoured vehicle production. In total, the company now faces over 160 million roubles (£1.5m) in court claims from suppliers, with earlier suits filed in April and June.

It has been beset by financial problems over a number of years, with reports suggesting its debts already exceeded 880 million roubles (£8.3m) as far back as 2020.

Production at the plant has slumped, with Western sanctions cutting off access to critical components needed for the manufacture of the tanks.

The company failed to meet its output target of 1,000 T-90M tanks last year, managing to produce just 300 units, according to the International Institute for Strategic Studies.

The liquidity problems extend beyond UVZ and have affected other major Russian military-industrial enterprise. Aircraft manufacturer Tupolev - producer of the Tu-160 and Tu-95MS bombers - is also facing a lawsuit for unpaid bills.

In April, the United Engine Corporation (UEC) subsidiary Kuznetsov filed a lawsuit with the Moscow Arbitration Court to recover 425 million roubles (£4m) from the manufacturer.

Moreover, the Khrunichev State Research and Production Space Centre, which produces Russia's ICBMs, faces claims exceeding 211 million roubles (£2m).