Krasair and Aviastar in mutually beneficial deal

Published: 7/21/1999

According to a report in Segodnya, Krasair has announced that it recently concluded a long-term agreement with Aviastar for the purchase of ten TU-204s. These aircraft, to be delivered within 5-6 years, will replace the familiar TU-154s. The report affirms that the first aircraft is to be delivered before the end of 1999 and the second in 2000. It adds that Krasair stated that it considers the contract to be mutually beneficial: Aviastar acquires a long-term partner, and Krasair, cheap aircraft. This suggests that Krasair will pay much less than the market price, especially as it will prepay a certain amount. Some have speculated that the first aircraft may cost 50% of the full price (reported to be around $26m for the Russian powered and equipped version, and $38m for the RB211 powered model). Krasair refused to disclose the contract value, on the grounds of commercial sensitivity. However, a significant discount would be in line with previous deals negotiated by the more pragmatic manufacturers, who are opting for an injection of working capital with the hope that profit margins may come at a later stage. Concise has reports that over 20 new TU-204s are sitting at the factory at Ulyanovsk and Kazan. Speculative interest in the aircraft has belied real demand (Concise 2/4/99). This suggests that Aviastar may have made an astute – if not strictly commercial – move. Natalya Bokova, Krasair External Relations Director, insists that the airline intends to finance the deal from "its internal resources". While the purchase of the ten TU-204s by Krasair may well not only be affordable, but also meet a legitimate need, the extent and terms of the contract have, perhaps inevitably, given rise to much speculation and suspicion. Some suggest that the contract is a pre-election gimmick, allowing the syphoning of funds from companies in the Krasnoyarsk region, under the guise of aircraft financing. This means that, while the construction of the aircraft will actually take place, a sizable cut will be "sunk" in the election fund of Governor Alexander Lebed. Lebed's involvement in the project is undisguised. When the contract was announced, it was confirmed that Lebed, Governor of Krasnoyarsk and Yury Goryachev, Governor of Ulyanovsk, had eschewed theoretical state assistance and decided to build the aircraft on a 50:50 basis. Such an agreement provides for a variety of financing options: debts, barter, mutual waiving of regional arrears and the delivery of products by Krasnoyarsk region companies, such as metal from the Krasnoyarsk Aluminum Plant (KrAZ). It is further alleged that the contract will be supervised by Lebed's deputies: Nikolay Verner, a prominent figure in the region and Stanislav Petrushko, Deputy for Economics. Both deputies represent the region on the Krasair board of directors. As the presidential elections draw closer, so these board positions are accumulated. Most people in the Krasnoyarsk region seem to have their suspicions over the renovation of the Krasair fleet. But this may be simply another conspiracy theory unfolding. Krasair is financially powerful enough to pull off such a deal, political strings attached, or not, and Aviastar could stand to benefit in the longer term.

Article ID: 692