The Aeroflot deal for seven Il-96-300s looks very favourable given the requirement to match foreign purchases with Russian acquisitions

Published: 12/8/1999

More details have been provided on the deal signed recently between Aeroflot and the Ilyushin Finance Company (IFC) for the lease of seven Il-96-300s. The aircraft interiors will be made more comfortable and equipment upgraded to the standards of Aeroflot"s B777-200 and B767-300ER. As part of the package, the aircraft will be fitted with 12 first class and 21 business class seats, equipped with individual television screens and satellite telephones. Storage will be increased and some Russian fittings will be replaced with US parts. The cost of the re-fitting the aircraft is estimated to be $1.5m per aircraft. The first aircraft is expected to be ready in mid-2001 and the last aircraft delivered by the end of 2002. For some commentators, Aeroflot seems to have won important concessions in refitting the Il-96-300 airframes that have been waiting for buyers for some time, following years of fruitless negotiations with Ilyushin and VASO. It seems the primary motivation for Aeroflot to close the deal may have been the fact that it is finally being held to the agreement with the Russian Government regarding tariff waivers on imports of US and European aircraft. Under the agreement, Aeroflot was allowed to import foreign aircraft, primarily Boeings, without paying import duties if it acquired a similar number of Russian aircraft. It seems likely that the Il-96-300s may fulfil the Russian purchase requirement. The IFC, founded by Ilyushin, VASO and National Reserve Bank has been granted a state-guaranteed loan by Sberbank to fund the leases on the aircraft. The aircraft in question are currently owned by IFC and it has been granted unspecified tax exemptions by the regional government of Voronezh, where VASO is based for five years, reportedly reducing lease costs for Aeroflot by 30%. The size of the deal- reported to be $170m- suggests that Aeroflot is getting the aircraft cheaply, as it is rumoured that the IFC would have accepted almost any terms to get the work for VASO and some return on the airframes it owns. The cost of the lease to Aeroflot is 12%, substantially below current Russian interest rates of 20%. While the term of the loan is eight years is lower than those in the west, it compares favourably with recent deals in the Russia when lease periods have been set at five years. While the circumstance of this deal may not suggest any fundamental change in financing of aircraft purchase in Russia, it does introduce liquidity into a sector desperately in need of it. Associated articles; www.concise.org. 30th November 1999

Article ID: 1194