Initial reports suggest substantial increase in sector investment (372 words)

Published: 4/18/2001

It appears from press reports that the Russian Government's much vaunted funding for aircraft leasing will provide $291m of funding through the Ministry of Finance after Prime Minister Kasyanov signed a decree authorizing the funding. It is unclear how this will be packaged, but it seem likely to provide a guarantee of the 50%-85% of leases, as previously reported , suggesting funding potentially of between $440m and $550m for new aircraft in 2001. The government will also offer subsidized interest payments for those leasing Russian produced aircraft from Russian financial institutions. The financing, that also covers shipping, is available to all companies involved in transportation registered as such before the 1st of January 2001 and the financing is concluded with a financial institution holding a license with the Russian Central Bank as of 1st January 2001. The subsidies to be paid amount to 50% of the interest to be paid, although the interest paid should not exceed the central bank's rate by 3 points. Funding for the scheme in subsequent years is reported to be a minimum of $12.5m in each annual budget from 2002 through to 2006. The financial institutions have yet to respond to the plans, but financing for the largest players will certainly become easier with expensive short term financing being replaced by cheaper, but still short term financing. The potential of leasing at substantially below the current 25% interest rates however, should prove attractive. For the smaller players the availability of operating leases for new aircraft should stimulate demand, although the continued poor financial health of the market segment may leave other outside as even with these terms and guarantees the risk is considered unacceptable. The size of the initial funding although small by Western standards, should be seen in the context of the market. There were few sales of aircraft last year and it is unlikely that the Russian industry could cope in the short term with a large upswing in demand. Given the cost of a new Tu-204 appears to lie somewhere around $25m. The financing therefore appears appropriate and will deliver a shot to an industry struggling with working capital.

Article ID: 2499