Aviakor and ELK Airlines at loggerheads over settlement of seven year old loan dispute

Published: 1/12/2000

A report in the Samara newspaper, Samarskoye Obozreniye, on a case under review by the Samara Arbitrage Court, illustrates both the complex nature of deals negotiated by producers and operators in order to finance contracts and how they can go wrong. ELK Airlines, an Estonian carrier, is demanding that Samara-based producer Aviakor repays a loan dating back to 1993 with interest, or supply the carrier with a new Tu-154M. The loan, originally $813,000, has now grown to $3.4m, according to ELF. Aviakor contests the claim on the grounds that the loan was made not to the plant, but to an entity that was a shareholder in ELK, which provided funding for leasing two aircraft and bought another for Aviakor. The company claims that the aircraft were then operated by ELK and that it received no revenue from the entity, either in dividend or lease payments. In December 1995, the ELK shareholders then cancelled a large section of Aviakor"s shareholding in the company. ELK contends that this was necessary to cover the loan as a matter of urgency. The judge at the Samara Arbitrage Court, in an effort to reach agreement between the two parties, suggested that a proposal should be made for a settlement. ELK proposed a repayment of the $813,000, with no interest, but to include a minimum of Tu-154Ms on lease. It also proposed that an ELK affiliate should be established in Samara, 50% owned by ELK with the balance held by region and Aviakor, in equal proportion, to lease the aircraft. This is not a great deal different to the original deal in 1993, where the Aviakor stake in ELK shrunk from 33% to 5.36%. The deal to date has not been accepted by Aviakor and is unlikely to be accepted, given the cost of $7m to build a Tu-154M, which is obviously significantly more than the Estonian claims with interest. ELK, one suspects, is merely playing at negotiating, as the terms suggested appear to be wholly unrealistic.

Article ID: 1301