20 aircraft in first stage as government-backed scheme moves forward (891 words)

Published: 8/30/2001

The announcement of the winner in the tender for the government guaranteed leasing structures for the Tu-204, Tu-214 and Il-96 has proved to be inconclusive. Instead of a single winner, the ministry has recommended two of the participants: namely Ilyushin Finance and the Financial Lease Company (FLK), with the proposal that the government finances both of the offerings. The conclusion of the government's deliberations is no real surprise, as the two parties recommended represent the current industry players. FLK (controlled by the Tatarstan Ministry of Property through a 50% holding), already leases Tu-214s and Ilyushin Finance actively promotes a scheme for Atlant Soyuz and Aeroflot, besides being a major advocate of the creation of such structures over the last couple of years. Of the bidders originally tendering, Aviation Lease Company Tupolev and Aviakor Leasing were eliminated, as they did not meet the tender's requirements, given that the former could not change its status to that of a joint stock company and Aviakor's interest in financing was the ongoing production of the Tu-154 that did not qualify for the tender. However, the exact terms of the bidders' proposals remain unclear. Ilyushin Finance, in particular, was seen as being vulnerable to the criterion that stipulated that the winner would be the bidder requiring the least capital from the government in the way of guarantees and interest rate subsidies. During the process it emerged with $126m of capital with the assurance that it was largely cash. In the run up to the bidding process, Alexander Rubtsov, General Director of Ilyushin Finance also made several statements which championed a large state interest in the structures and, reportedly, he offered the state a controlling interest in Ilyushin Finance earlier this year. According to Ivan Materov, Deputy Minister of Economics and Trade Development responsible for the tender process, three of the bidders, Ilyushin, FLK and Tsentroleasing asked the state to become a shareholder in the proposed structures, while Central Aviation Leasing Company (Leader Group) requested a 40% interest rate subsidy. Materov said that, however, only Ilyushin and FLK had realistic proposals and in his view will therefore receive public funding, although he is aware that the funding requires Duma approval. However, recent success by the Putin administration in pushing legislative and budget changes through the legislature suggests that anything less than approval is unlikely. Currently the state has allocated $102.2m under the 2001 budget for the structures and $30m in 2002, with some suggestion that a further $30m will be added. The aircraft leasing proposed by the participants included Ilyushin Finance's ten Il-96-300/400s from VASO and ten Tu-204s from Aviastar. FLK proposed ten Tu-214s from Tatarstan-based KAPO. For its part, Leader proposed twelve Tu-204s at Aviastar in the initial stages with a full plan for 84 aircraft. Tsentroleasing (owned by VAL and ZAO INTRA with capital of $26m) presented a plan for the overhaul of the five Tu-204s from the former VAL fleet in the first stage, along with an additional aircraft from scratch, with a further 18-25 aircraft in the later stages at Aviastar. Tsentroleasing represented Sibir's participation in the process, after earlier suggestions that Sibir and Aeroflot would participate jointly with Interros. From the information available, it appears that the first stage of the government-backed leasing schemes will cover 20 aircraft. Ilyushin looks set to receive $80m to deliver to Aeroflot (6 Il-96-300) and Atlant Soyuz (4 Il-96-300/400), although the Tu-204 proposal has been dropped - much to the irritation of Rubtsov, according to media reports. FLK will provide Dalavia with six Tu-214, two to Tretyakovo Airlines and two to Aeroflot-affiliated Versus Holding. For Aviastar, the initial stages of the funding seem to offer little to the Tu-204 producer and it is unclear whether this is a government acknowledgement of the ability of New Community (NC) to provide funding for the plant, despite the arguments currently taking place over funding and ownership. This could suggest that NC may finally gain the control it seeks, but with no accompanying finance. According to Igor Leiko, President of Leader, placed third in the tender, the process left a good impression. He did state, however, that he was surprised that a structure requiring less financing and offering more aircraft could score behind Ilyushin and FLK on the point system applied to the participants. He also commented that he did not feel that Leader's defeat augured well for Aviastar, although added that the committee governing the tender process had said that Leader would receive interest subsidies. Leiko was not specific about the level of such subsidies, but confirmed that the company had sought $10.6m of interest subsidy in the first year, while providing capital for the venture. In contrast to the minister's comments, Leader said it had been prepared to offer an equity holding to both government and Aviastar in its proposed structure. What Leader will do now is uncertain, but its original plan was for 12 Tu-204s in the first three years and 84 aircraft over 12 years, with contracts already signed with Krasair, BAL and Ukrainian Airlines. The two recommended tenders have already discussed the possibility of cooperation and, according to Alexander Rubtsov, intend jointly to purchase parts and components and - potentially - to establish a joint serving company.

Article ID: 2728