Government aerospace meeting reveals little, but Ilyushin Finance confident of result(940 words)

Published: 12/8/2000

940 The limited amount of information available from the 7th of November meeting of the Russian Cabinet regarding the future of the Russian aerospace and air transport sectors delivered little in the way of new directions other than to reinforce the view that things are rough! In a briefing after the meeting Yury Koptev, the Director General of the Aerospace Agency said that the Russian air transport industry required 1430 aircraft by 2015 to maintain the current level of service and various other statements relating to the catalogue of woe besetting many operators and producers, a story little changed in the last couple of years. In fact given the reports of recent aircraft availability probably understates the level of crisis. Koptev's expectation of the level of demand in 2001 is for 23 aircraft to be bought in 2001 out of a projected 230 deliveries between 2001 and 2005, following the delivery of four or five aircraft in 2000. The type of aircraft to be delivered was not stated.These aircraft will join a pool of 4,300 aircraft, of which 400 will be “decommissioned” in each of the next five years according to Koptev. We would argue that this understates the case and the operational situation is significantly worse than Koptev states, with many aircraft effectively “decommissioned” long before the expiration of their life limits due to shortages of spare parts and the finance to undertake basic maintenance. The recent merger of various major carriers with a theoretical fleet of 97 operational aircraft has a domestic market share of 8.5%! This suggests that Koptev is not discriminating between the relative prosperity of the top twenty carriers and the myriad of small carriers not operating their fleets of hundreds of grounded An-2s and Mi-8s, although even the largest carriers such as Tyumenaviatrans (TAT), have availability statistics that make sobering reading. One of the features of the Cabinet meeting was the discussion of the Ilyushin Finance proposal for the leasing of Il-96-300s and Tu204/214s to Aeroflot and Transaero respectively. Alexander Rubtsov of Ilyushin Finance (IF) responsible for pushing the initiative, one supposes feels somewhat shocked by the recent decision of at least one of the prime funders of the leasing scheme negotiated by IF at the beginning of the year to pull out of the dollar financing with an eight year maturity and with a coupon of 12%, and offer a five year ruble loan with a coupon of 24%. The change which has been roundly condemned by all corners of the industry led by Koptev's deputy responsible for civil aircraft Yuri Bardin, who condemned the move as destroying the prospects of the Russian large aircraft industry. The terms of the loan are obviously unacceptable to Ilyushin Finance , but they argue that the reluctance of Sberbank to lend in dollars is attributable to the institutions lack of dollars to fund a substantial part of the $170m required in working capital to get the aircraft to a second level of financing, rather than any fundamental unhappiness with the venture itself . Ilyushin will not comment on the role of Vnedshtorgbank reported to be the other “rubliser” of the loan, suggesting that reports that they may be the possible source of Rubtsov's new finance to replace that of Sberbank may have some validity. According to Ilyushin Finance they are close to negotiating a deal for the remainder of the required finance in dollars on the first stage funding with the expectation that the government will provide both guarantees on the lending and also, according to Ilyushin Finance, already budgeted interest rate subsidies. The latter's function being to bring the cost of the proposed new money down from 15% to around 11%, although the first tranche of money is for a very short maturity of 18 months the aircraft are completion dates. The second tranche of financing is to be negotiated at a later date according to Ilyushin, although Deputy Transport Minister Alexander Neradko, has been reported after the meeting, as saying that the specifics of timetables and aircraft deliveries remain to be finalized. When interviewed on the 7th of December Ilyushin Finance remained confident that they had the government's commitment to the scheme and to the guarantees and interest subsidies. Giving the impression that it was business as usual for the company partially owned by Ilyushin with Rubtsov and Ilyushin's General Director Victor Livanov and that the deal proposed of the aircraft in February was on course with some minor adjustments. For the operators due to accept the aircraft however, there still appears to be a general feeling that the airlines are not expecting to take delivery of the aircraft in the foreseeable future. In fact in a recent internal fleet projection through 2001 obtained by Concise, Aeroflot does not even figure the 7 new Il-96-300s in its capacity calculations. Supporting the view often cited, that Okulov primarily see the “orders” as a means of being seen to support Russian aerospace and allow him the opportunity to lease foreign aircraft. The only likely order is for the Il-96T or potentially the conversion of an existing Il-96-300 in the Aeroflot fleet to cargo use to overcome a shortfall in cargo capacity. The story of the creation of lease finance for large Russian aircraft seems likely to continue for sometime, and one can only admire individuals such Rubtsov for their tenacity in pursuit of what appears to be a prize that is increasingly difficult to capture, in the face of government and financial institutions intransigence. Despite it being an essential requirement if the industry has any hope of survival beyond the clearance of partially assembled aircraft at a variety of plants.

Article ID: 2238