Drop US engines and cut the price (320 words)

Published: 10/2/2000

According to Alexander Usachev, the head of marketing and sales with AVPK Sukhoi, which owns the An-38 producer NAPO, believes that a reduction of price for the aircraft from $4m to $3m will boost sales of the aircraft in the Russian market. The lowering of leasing costs as a result of a lower purchase price, according to Usachev, will help overcome the bank's current reluctance to fund such leases as they believe operators will be unable to maintain payments. The effect of lowering the price for operators according to Usachev, will also be to make the aircraft viable on a much larger number of routes giving it broader appeal for Russia's airlines. The profitability of producing the aircraft at $3m as currently configured however, appears a be little more debatable. Usachev argues however, that if NAPO installs Russian engines as opposed to the current Honeywell product, then a profit could be made at a price of $3m. As the combination of lower input costs and a lower selling price stimulating demand, would have the effect of allowing the plant to gain some economies of scale through the increased demand and a better allocation of its costs. Existing Russian operators of the aircraft are happy with its performance according to Usachev, including Khabarovsk-based Vostok Airlines that acquired 3 An-38. The 1998 crisis and connected falls in traffic and prices however, have rendered the aircraft unviable given its current lease payments. This has required the operator to lease its aircraft to provide transport to a Malaysian diving resort. The only other Russian airline that acquired 2 An-38, Alrosa-Avia, owned by the state diamond company, bought the aircraft outright.

Article ID: 2101