Tu-204 and other aircraft planned for fleet upgrade (710 words)

Published: 7/19/2000

Sibir has signed an agreement with the Russian savings bank Sberbank to provide funding of $15.8 m through a loan with a maturity of 4.5 years, to acquire a Tu-204 that the airline is currently operating on lease from Avialeasing. The aircraft, which had previously been in service with Perm Airlines, will be followed by an additional one or two aircraft from Aviastar, according to Vladislav Filev, General Director. The new aircraft are likely to be followed by several Tu-214s that Sibir plans to acquire from KAPO as the airline seeks to upgrade its fleet. According to Andrey Kazmin, President of Sberbank, the bank and its local affiliate will provide $13.8m and $2m of financing, respectively. Kazim would not discuss the deal any further other than that the deal had been granted on competitive terms. Filev, however, stated that although Sibir can pay the loan back within the period, the terms of the loan are less than generous, which in Russia can mean interest rates of 15-20%. For Sberbank this is not their first aviation loan having recently advanced funds to Volga Dnepr for the completion of an An-124-100, but they emphasised that they saw this as a move supporting investment in a 'real sector of the economy'. Sberbank are also not taking a great deal of collateral risk, with Sibir pledging the aircraft and its engines as well as 50% plus ten shares of the airline's outstanding shares against the loan. The first aircraft will bought outright according to Sergey Sopov, Chairman of Avialeasing, and follows a number of deals that the leasing company has undertaken with Sberbank financing, including a $11m loan to Kavminvody in 1997 for the purchase of a Tu-204 from Avialeasing. The reason, according to Sopov, for leasing not being an attractive option lies in the problems with Russian leasing law. One unfavourable aspect of the rules relating to aircraft leasing is that an aircraft is leased free of VAT and property taxes. If the aircraft is returned before the end of the leasing period because the lessee cannot meet payments, the lessor is then required to pay all the VAT and property taxes that are due, pushing up the cost of the aircraft and reducing their attractiveness and viability. According to Sopov, in these circumstances it is almost impossible to lease effectively and Russia will not develop an effective industry as early return of aircraft is a real possibility for every lessor, given the conditions of the Russian market. The only options available to carriers are often therefore outright purchase using valuable capital and limiting fleet growth or expensive borrowing, as leasing is simply priced out of the market by the unfavourable tax regime. Sibir, according to Filev, will operate the aircraft on long haul routes over 5000 km and will generate sufficient funds to pay back the loan within four and a half years. Despite Sibir making losses under Russian accounting of $1.5m last year, Filov says that Sberbank focuses on the 90% cash basis of Sibir's business with a positive cashflow. Looking at these figures, the bank saw that the airline, which is now placed third in the domestic market after Aeroflot and Pulkovo after 6.2% growth in its first quarter passenger figures, has the ability to service the debt. What he did not explain was the high collateral for the debt from what is by far Russia's most successful airline having continued to grow despite an appalling domestic market, particularly in their own regional markets. If Sibir requires these kinds of commitments, is it any surprise that the aerospace industry is toiling to find domestic customers and airline fleets are continuing to age. Sibir is however, bullish about prospects for the rest of 2000 and is expecting to finish the year with a profit and to increase revenues from $87m in 1999 to $100m. This will be helped, he believes, by the interline agreement with Lufthansa, which will bring more foreign passengers to the carrier in addition to its own efforts to acquire transit passengers through Novosibirsk. The airline is already involved in preliminary working on an interline deal with Air China, but was reluctant to disclose details.

Article ID: 1951