#13 - JRL 2006-177 - JRL Home
Moscow News
www.MN.Ru
August 4, 2006
Doomed to Fly Old Planes
Russian airlines have to use second-hand Western planes because they cannot afford new domestically-made ones, which are as expensive as new Western models
By Andrei Zlobin

Early this week, Alexander Rubtsov, general director of the leasing company Ilyushin Finance, announced that this year the state would allocate six billion rubles for the development of aircraft leasing in Russia. On hearing this, people who have been keeping up with news of the recent plane accidents in Russia with sinking hearts, have started hoping that the planes of Russian airlines would now stop crashing upon landing and takeoff. They believed that Russian airlines would now use new domestically-made machines, rather than old foreign ones.

However, Rubtsov added that these billions would be divided between two leasing companies - Ilyushin Finance (or IFK) and Financial Leasing Company (or FLK) - and that these companies would lease planes to Syrian air carriers. They, and not Russian airlines, will get four Tu-204s and three Il-96-300s. By the way, last year IFK leased five planes to Russian customers, and FLK leased only two.

Furthermore, the outlook for the business of aircraft leasing in Russia is gloomy. The state promises to allocate a yearly $250 million for aircraft leasing; however, this sum suffices for building only five Il-96s or Tu-204s a year. In view of the fact that most of the planes of Russian airlines are over 90% depreciated, and often fly after their normal service life, there is a danger that Russian airlines might start using only Western-made second-hand machines.

Meanwhile, the situation with the aircraft fleet is deplorable. Currently, Russian companies own a total of 6,085 planes, of which 1,485 are passenger and 528 are cargo ones. Also included here are 1,964 helicopters, and 46 planes made abroad. The rest of the machines do not fly and are just on the books of the airlines. All Russian-brand civil planes were made 20 to 30 years ago, and their service life has long since expired. Now they are being forced out of international lines for failure to comply with the rigid standards set by ICAO (International Civil Aviation Organization) for engine noise levels, levels of emissions into the atmosphere, and avionics levels.

Over these past years, the manufacture of civil planes in Russia has decreased 12-fold. Wear and tear of the fixed assets of the aircraft construction industry stands at 50%; that of the industry's equipment, at 70%. The aircraft fleet is replenished by only four or five machines a year; with luck, the figure could be five or six this year. Meanwhile, airbus makes 300 planes a year and Boeing makes 290. This being the case, Russian air carriers can only do one thing - buy or lease machines in the West that are already more than two-thirds of the way through their service life - and have a propensity to crash upon landing and takeoff.

Is there a solution to this problem? Officials say there are two options. The first one is cooperation between Western and Russian aircraft manufacturers. Thus far, we have only one example of such cooperation - that between AVPK Sukhoi and Boeing in a project to build RRJ (Russian Regional Jet) planes for regional airlines. The RJJ project was recently renamed Sukhoi SuperJet. Rumor has it that orders have already been placed for 200 SuperJets, although not a single one has yet taken off.

The second option is to create a vertically integrated structure inside the Russian aerospace complex. In the spring of this year, President Putin signed a directive to establish an Amalgamated Aircraft Building Corporation (or OAK). According to the relevant documents, the first stage of forming the corporation should be completed in October or November of this year. OAK will embrace practically the whole of the country's aircraft-making industry - such concentration never existed even under Stalin: In the USSR, by 1953 there were 25 aircraft design bureaus with experimental and serial production plants. OAK will realize seven out of 11 promising projects in the Russian aircraft industry, among which are the building of a Sukhoi SuperJet and of a medium-range plane, MS-21 (by NPK Irkut, Ilyushin, and Tupolev).

The trouble is that thus far all these plans exist on paper only. It looks as if the officials concerned have simply missed a great opportunity to gain a foothold on a vast and potentially highly lucrative market. Moreover, it is feared that it's too late for any super-corporation to straighten out the situation. It could be rectified only by slashing leasing rates and lengthening the leasing period. And the state must allocate the required funds through Investfond for the aerospace complex, for it (the state) will soon be at the helm of the economy once again.

Meanwhile, the Syrians will avail themselves of the Russian aircraft leasing service, for they are the ones who can afford it. OPINION

Yelena Sakhnova, an aircraft market analyst with United Financial Group:

In the opinion of air carriers, old Western planes are more reliable and more economical on fuel than Russian-made ones. For example, a Tu-154 is unprofitable precisely because it consumes too much fuel, and aircraft fuel is rising in price.

Russian airlines cannot afford to buy new Western planes because the import duty is 42%. Curiously, Russian planes are not cheaper than Western ones. For this reason, Russian airlines are compelled to buy very old Western planes.

As for aircraft leasing, the government's program to support it is practically useless: a five-year lease on a Russian aircraft will cost the leaseholder 10% of the aircraft's price per annum, while in the West a 10-year lease will cost five percent of the aircraft's price per annum.