Deal between Perm/Aviadvigatel and Xinjiang Airlines yet to be completed

Published: 7/10/2000

Despite the extensive coverage of a deal brokered by Aviaexport, between Perm Motors/Aviadvigatel and the Chinese carrier China Xinjiang Airlines for the acquisition of PS-90s for three Il-96-300, the reports of the deal nearing completion appear premature. Negotiations are reported to have been underway since May, but to date have not been concluded between the two parties and the producer VASO, although the Chinese are reported to be enthusiastic. According to sources however, they have been keen intermittently over the past few years since first suggested, but still without any deal being signed. According to sources, even if the Chinese did sign, the question of where the airframes would come from could pose a problem or a sigh of relief from Aeroflot. The six airframes currently available are earmarked for delivery to Aeroflot, although the final deal on the funding has yet to be concluded and is reported to be struggling for completion with the cooling of funding commitments from the Russian banks and the government. Ilyushin Finance Company, reported to own two of the airframes at the VASO facility, is however, very keen to do a deal after the failure of its efforts to bring in external investors to finish the aircraft and the slowness in getting a Russian funding solution in place. It is also reported to be under pressure from VASO for cash, as the airframes were acquired using a note to the factory. Aeroflot undertook to take the aircraft to keep the politicians at bay by maintaining its quota of domestic aircraft in exchange for tariff-fee importing of Boeings and Airbuses, as well as its 'Russian credibility'. The company may greet the situation as a welcome release from its obligations. For Ilyushin and VASO, suspicious that Aeroflot would allow the deal to spin out for as long as possible before taking delivery, the Chinese could offer significantly earlier cash. The original Aeroflot deal was also reported to have some of the characteristics of a clearance sale, with VASO and Rubstov eager to get some kind of cash flow from their inventory of semi-finished aircraft, given the reportedly precipitous nature of finances for both entities. A non-Russian buyer could have reasonably been expected to pay more and probably on better terms. It seems however, that this deal may be nearing conclusion simply because the Chinese have obtained their low price. The question of Chinese Government's stance on the airline buying Russian civil aircraft does remain and some reports suggest that although the deal may be good for the airline. However, the Chinese authorities remain concerned about Russian civil aircraft after a series of Tu-154 crashes and capacity among its airlines and are, in the view of some commentators, are not beyond stopping such deals. If, in the unlikely event of Aeroflot not releasing the aircraft, a Chinese deal would require VASO to start building air frames from scratch, which appears to be an impossible task given the condition and circumstances of the plant. Finance also poses a problem as the capital required would be significant and any external financing available in the short term is from expensive Russian sources. There are no reports to date of any Chinese funding. The use of the existing airframes therefore would be the only viable possibility for supply but even this requires significant amounts of investment for completion. A successful deal would be a shot in the arm for a programme that is in desperate need of such support, but currently the deal looks far from concluded in spite of the optimism of some of those involved.

Article ID: 1918