Interview with Nikolai Glushkov, first deputy general director, Aeroflot - Russian International Airlines

Published: 11/21/1997

21st November 1997 - Issue 53 Q. What are Aeroflot plans on fleet renewal? In fact almost all our fleet is, to some extent, getting outdated. Many of our airliners are old and unable to satisfy the requirements of modern passengers with regard to comfort. These aircraft should be withdrawn from service in the next few years. We need new wide-body aircraft. In this field we are concentrating efforts on the Il-96 with Pratt and Whitney engines. These are our new indigenous airliners with reliable American power plants. The Il-96M/T project is the most important for Aeroflot. We are now choosing a suitable mid-range airliner to replace our Tu-154s. Tupolev design bureau offers us its new promising design, the Tu-204. Unfortunately, there are no new indigenous short-range airliners available to replace Tu-134s. We are now in negotiations on the first ten Boeing 737-400s. This deal is being worked out. I feel that the Boeing 737 will be a good successor to the veteran Tu-134. Q. How does Aeroflot use the Il-62Ms which have been taken out of trans-Atlantic flights? The Il-62Ms are quitting active service. Some of them have been written off, others are put on inner routes. Hopefully, we will sell some Il-62Ms to those who could make use of them. Q. Does Aeroflot intend to lease two DC-10s in addition to the one currently on lease? Negotiations are ongoing, but we have not signed a contract yet. And there has been a reason for that -during 1996 Aeroflot was developing its new strategy. Q: At Farnborough'96 Aeroflot and Boeing signed a letter of intent for ten 737-400s. It was reported that the deal is estimated at US$400m. However, it is not clear whether those would be leased or purchased. Has the appropriate contract been signed? All I can say is that it is unlikely that anybody, except for the Council of Directors of Boeing and that of Aeroflot, will ever know the exact sum of the contract. It is common practice for deals on deliveries of commercial aircraft. Besides, we have not come to the final agreement on the price yet. Now we are in negotiations on the subject, and the next meeting is planned for February. Definitely, it will be a purchase of ten aircraft. How the payment procedure would be arranged is quite another question. But what is important is that this is a purchase of ten Boeing-737-400s, which are meant to replace Tu-134s on inner routes. Q. Will it be in the form of financial leasing? Yes, certainly. Q. What are the banks involved in this deal? Will the European Bank for Reconstruction and Development participate in it? No, the EBRD will not participate because we did not ask it to. Our adviser is Chase Manhattan Bank, which, probably (we have not signed the contract yet), will also be a provider of financing for the deal. And, of course, US EXIMbank will be involved as well. Q. Could you please clarify the recent deal with Airbus? It is reported that Aeroflot pays US$0.52m a month per an A-310, right? We have not disclosed financial figures regarding this deal to the press. The final figures that we agreed upon are confidential ones. I can only say that when we were signing the agreement on lease of four additional A-310s, we agreed to cut considerably the leasing rates set by previous agreements. Q. Was it a comprehensive pack of agreements? We said that we were ready to conclude a new deal only if the previous agreements could be revised, as well as the very attitude to our company. Now we are a large, well-established customer to Airbus. So, we asked them to reduce leasing payments. Airbus made steps towards us, including on such a serious matter as the political insurance, which used to be a considerable part in our expenses. Moreover, Airbus Industrie helped us carry out the first tender in Aeroflot history for technical servicing of our A-310s. By the way, AeroWorldNet wrote about it. It was a fair fight, and Lufthansa Technic made the best offer and won the tender. Now we have ten A-310s, more than we used to, and this helps us reduce expenses on maintenance of each airframe. Q. In November, Aeroflot placed a firm order on 20Il-96M/Ts. At first Aeroflot wanted to get ten passenger (Il-96M) and ten cargo (Il-96T) aircraft. Why was this ratio changed for 17 and three respectively? When we looked carefully at the Il-96 programme last year, we began to think not only how to obtain requisite financing, but how to arrange return payments to our financiers. We made some calculations and understood that the price for the passenger version was affordable, whereas the price for the cargo version was too high. Our company with only 116 aeroplanes is not big enough to buy new wide-body cargo aircraft in large numbers. This is a hard task even for big operators with hundreds of aircraft in the fleet. Admittedly, the volume of our cargo traffic is relatively high, but we have found our niche on the market. Wanting to be a highly-effective company we decided to buy a small number of Il-96Ts. To be precise, we decided to order only those airframes that were already under construction at Voronezh factory. Q. Who are the Aeroflot financial advisers for the Il-96M/T deal? CityBank and Ernst and Young. Besides, City Bank, or, rather City Corp., is also an organiser of financing for this programme. Q. It is reported that the Savings Bank of the Russian Federation participates in the programme, giving money on certification of the Il-96M/T. Could you confirm this? Money on certification of the Il-96M comes from the Russian Government. The Savings Bank gave money on production of the Il-96-300. Q. Do any other Russian banks participate? Are the interest rates they charge affordable? At the moment there are no Russian banks working with us in the sphere of investment projects. This is due to a number of reasons, not only high interest rates. We, in Russia, do not have banks that would be in a position to grant credits for 10-12 years. Our banks offer credits for one or two years at maximum, which is too short a time for aviation business. Q. It is reported that Aeroflot has expressed the intention to obtain ten Tupolev Tu-204 airliners with Rolls-Royce engines from Egypt's Kato Aromatic. Is that true? We are very interested in the Tu-204 with Rolls-Royce engines. There is no other such aircraft now on our market. In December Tupolev and Kato Aromatic made the first presentation of the Tu-204 at Aerostar hotel in Moscow. According to the parameters announced there, the Tu-204 is a very good machine. However, the financial figures on leasing payments offered to us are serious, and should be a subject for further discussion. At the same time, the plane has not obtained its certificate yet, therefore it is very difficult to say how many and what aircraft we will take. As soon as there is a certified product, we will look at the prices more closely. Then we will decide whether to take those in lease from a western leasing company or to organise leasing of those vehicles with help of our own resources, or, rather, financiers that we would find ourselves. Q. What about the cargo version of the Tu-204 then? One Tu-204C underwent trials at our company in 1995 and early 1996. We do not have the plane in our fleet now, because, according to mutual agreement, Aeroflot is the launch customer for the Il-96M/T, whereas Vnukovo Airlines undertakes initial operations on the Tu-204. Whether we accept this aircraft or not will depend on engines and on-board equipment of the plane. The key question is the Tu-204's economic figures. So far we have not seen any commercial calculations. Q. In other words, Aeroflot is now at the stage of assessment of this aircraft? Yes, certainly. The first serious presentation of the Tu-204 was in December. If you do not know much about a plane, it is difficult to draw up procurement plans. However, we have expressed a strong interest in the Tu-204. Beyond any doubt, it is a very promising design. Q. Speaking of cargo aircraft, what are your plans for the Il-76 freighter? The aircraft is now offered with new engines - PS-90 or CFM-56 - and new avionics. What is your attitude to the updated aircraft? Our attitude is that we are looking very carefully at everything that appears on the market. However, at this moment the Il-76 with CFM-56 engines does not exist. Maybe it will. We need to know economic figures on this aircraft. Genrikh Novozhilov, Ilyushin General Designer, has just returned from a business trip to France. I think we will soon get together - Aeroflot and Ilyushin - to see how economically-viable this aircraft could be. Q. General Electric, CFMI and Rybinsk Motors agreed to set up licence production of the CFM-56 in Russia. Rybinsk says its engines will be offered under a lease arrangement. Will Aeroflot be interested in leasing these? Yes, certainly. But, first an aircraft with those engines should be certified. We need to know how economically viable this aircraft would be. It would be wise to re-engine all the existing fleet (Il-86s and Il-76s). Without this work there is no a reason for us to lease CFM-56 engines. It should be stressed that Aeroflot has not leased engines before. The "power-by-hour" agreement with Perm Motors on the PS-90 is different, we in fact buy time of the engines, paying hourly rates. It is a very specific type of work with engine-makers. Broadly speaking, anything could be a subject for negotiations, but in this case we need something to mount engines on. After we have got it, we will think how we could get appropriate engines. Q. The Il-86 is also a candidate for being fitted with CFM-56s... The situation with the Il-86 passenger airliner is more difficult than with the Il-76 freighter. The Il-86 has been in service for a long time, and, I must say, we consider not only replacement of engines. For the aircraft to remain on the market it is necessary to get up to the level of modern requirements to passenger comfort. In other words, the Il-86 needs a thorough modernisation. Except for installation of new engines, we should improve its passenger cabin, replace avionics and navigation equipment. All this demands serious investment. We made rough calculations and understood that should the work be done, the Il-86 will be a "heavy" aircraft. Now we try to figure out what is better, to invest in modernisation of the Il-86 or buy more Il-96Ms. Q. Is the idea to upgrade old Ilyushins still alive? Offers on those aircraft are being prepared. Please do not think that the idea is dead. The Ilyushin design bureau continue to work on modernisation plans for the Il-86 and the Il-76. Sadly, we have not seen economic calculations on both types yet. The document compiled at Ilyushin earlier revealed to us that both projects promised to be "heavy". However, we are keen to study any ideas on modernisation of our existing fleet. If the modernisation of the Il-86 receives the "go-ahead", then it would be wise to upgrade all the existing fleet, not only the airframes in service with Aeroflot. If we choose to upgrade only our aeroplanes, it would be very costly because we have only 18 Il-86s (in total, 100 airframes were built). Q. GE people say that modernisation of the Il-76 looks more attractive than that of the Il-86. Do you agree? Yes, it is true that the Il-76 project is more realistic than the Il-86. The majority of Il-86 operators are not in a position to afford modernisation. The Il-86 exists in smaller quantities, and, therefore, the cost of modernisation per one airframe will be higher. Q. According to Rockwell Collins, Aeroflot has purchased 27 TCAS sets. Do you plan to continue modernisation of your aircraft with up-to-date avionics? Of course, we do. Our fleet will meet modern requirements. The Tu- 134 does not. The key question here is economics of operation. Without modern collision-avoidance systems Russian aircraft cannot use international airspace, which means losses to our company, or fines, in case of noisy engines. That is why we have to ensure that our aircraft flying abroad meet international requirements.(PF1197.1) (VK)

Article ID: 93