Published: 2/28/2001

Despite the postponement of the presentation of the aerospace industry plan to the Russian Government until the 15th of March, it would appear that the long expected leasing support through sovereign guarantees and changes in leasing law will be integral parts of the programme. The authors of the plan, Alexander Dondukov, Minster responsible for the industry and his colleague Yury Koptev at the Russian Aerospace Agency (RAKA), have been subject to intense lobbying both direct and indirect over the last few months. The pressure has been coming to a head during the last few weeks as each of the components within the industry, users and producers, have been keen for their opinions of the condition and the future of the industry to be heard. The industry as a whole exhibiting unusual collaboration, particularly among the civil aircraft producers, has sponsored two demonstrations outside the White House in Moscow. The demonstrations, of a thousand people, have mustered designers, workers and airline workers from enterprises across Russia and the support of members on the floor of the State Duma. Deputy Prime Minister Klebanov was forced to respond to the protest publicly stating under the glare of TV cameras that the forthcoming plan would contain support for the industry in the form of guarantees. Given the focus of the demonstrators on Aeroflot's failure to buy Russian aircraft, he has also lent government support to the considerable pressure on the airline to buy Russian. However in his statement he did leave the door slight ajar for foreign aircraft imports by stating that the airline did require aircraft that would meet international standards, implying that these were unlikely to be of Russian manufacture. The first of these statements by Klebanov appears to reflect the government's recent increasingly pro-Russian policy echoing comments made by Alexander Dondukov over the New Year, that western aircraft were unsuitable for Russian conditions and Russian aircraft should be bought in preference. Aeroflot for its part has privately fought a long battle not to take Russian aircraft, despite presenting a public view that they would do so if the financing was available and the aircraft could compete in efficiency terms with those of Western producers. To support this stance the airline has recently launched a number of attacks against the aircraft that it is currently committed to buy, the Il-96-300. In particular Aeroflot has cited the performance of the aircraft's PS-90A engines, with high rates of unavailability, as being the primary reason for the unattractiveness of the aircraft. The civil aviation department, the GSGA, which was equally scathing about the aircraft's performance as a result of its PS-90As, supports the Aeroflot view. Undeterred by the Aeroflot view of the aircraft, in an effort that appears to be timed to focus the attention of the government on the plight of the industry, Ilyushin Finance and Atlant Soyuz signed an agreement to lease 10 Il-96-400s and 4 Tu-204Cs, in a bid designed to jump-start VASO. Significantly, the numbers of aircraft would exceed the airframes currently available and would involve the restarting of full production. The success of such a venture, however, is entirely dependent on the provision of guarantees and legal environment that would be attractive to both domestic and international investors into structure capable of providing terms of sufficient length and interest rates to be viable for domestic carriers. For Alexander Rubtsov, General Director of Ilyushin Finance, the provision of guarantees and associated reforms are urgently required by an industry hanging on the brink of complete disintegration in situations, such as VASO. He still believes that the large producers can be revived by domestic demand and that it is simply a question of government support, with the lease guarantees allowing the producers to get the orders through the leasing companies. This in turn gives them the ability to raise the working capital to build the aircraft. This view appears to be somewhat naïve, predicated as it is on considerable domestic purchasing from an airline sector that is still struggling to survive outside the major carriers. The real concern, however, is that the more aggressive intervention of the government may delay the restructuring of the industry as an integrated part of the world aerospace industry. The continued focus on programmes such as the Il-96-300 will not provide the solution to the industry's problems long term. Although in fairness the creation of specialist cargo aircraft such as the Il-96-400 competitive on reliability and importantly price, may provide a strong position in a specialist market. But the odds of the rebirth of Russian industry producing complete major passenger aircraft to compete outside of Russian and the CIS against the likes of Airbus and Boeing are short. In the process the spending of scarce resources in attempting to do so will starve the rest of the industry. The focus of the aerospace industry should be to use the restructuring plans to narrow its base of products, consolidating resources around programmes where the industry could conceivably have a competitive position in areas such as regional/specialist cargo aircraft and providing manufacturing and design services to the better-capitalised international programmes. This has been demonstrated to a limited degree by the defunct deal proposed between Alliance Aircraft and Sukhoi, and recently rumoured to be discussed between Enbraer and Tupolev, as well as subcontracting deals with other producers including Boeing. The industry has the skills, and the association with such partners would improve commerciality and potentially allow Russia to thrive as an integrated member of the global industry rather than as a slowly declining producer struggling to survive in a protected market on the fringes of the wider civil aerospace market.

Article ID: 2383