Criteria set rule out most contenders (708 words)

Published: 6/14/2001

Despite Ilya Klebanov, Deputy Prime Minister's confirmation, in May, of the creation of government guaranteed aircraft leasing schemes, little concrete has occurred in the past few months to move the programme along. The tender for providing the structures, originally expected in July 2001, now appears to have slipped, with no new date suggested or announced. The terms of the first leasing projects, to provide financing for between 21 to 25 aircraft for Aeroflot, Transaero, Dalavia and Krasair, also still await further clarification of what the government intends to offer in the way of guarantees, with reports ranging from 50% to 80% of the aircraft's value. In terms of interest subsidies, banks have offered funding at 13%: still above the 11% considered to be the viable level for such structures. Any such funding, however, would require to be voted by the Duma, which already has a heavy legislative programme until it breaks up in mid-July and there is nothing scheduled for a budget amendment. The Ministry of Economics has, at least, developed the criteria for the tender and, according to Igor Zavadsky, from the ministry's Investment Policy Department, the successful participants will have identified leasing prospects where producers have large debts owed to the state and where the leasing company is prepared to provide working capital, in order to reduce the debt. More specifically, the ministry's criteria are as follows: - The leasing company's commitment to the project (the more capital the better) - The amount of state guarantees required (the less the better) - The amount required to subsidize the difference of interest rates (the smaller the better) - Level of collateral available against state financing - Balance sheet strength of leasing company - Tax revenue benefit of project Of the potential thirty lease companies that could participate, it is expected that only three or four will come close to matching these criteria and even then, some of the tipped participants - Ilyushin-Finance, FLK, Leader Group and Aeroplan-Alliance - seem unable to match the explicit or implicit criteria, with the resultant frenzied activity behind the scenes, to try and shape up to meet the government's standards. Ilyushin Finance, particularly, is reported to have virtually no balance sheet, despite some very large proposals for leasing structures with Atlant-Soyuz and, in February 2001, was reported to have signed an agreement with Aeroplan-Alliance (comprising Krasair and Sibir), in an effort to improve its prospects. It was even suggested that the company had offered a shareholding to the government, in an effort to ensure its inclusion. FLK, an oil equipment leasing company, backed by the Tatarstan Government through the state-owned oil company Tatneft and Moscow-based Zenit Bank, has also sought to combine with KAPO, Pulkovo, Rossiya and International Bank St Petersburg, in its bid to find the $100m of capital reported to be required by the government. Less is known about the Leader Group, whose primary interest in aerospace to date has been in providing leasing for Tu-154Ms, produced by Samara-based Aviakor. The buyers of the lease structures also appear to be mixed, in terms of enthusiasm for the schemes. Aeroflot has only reluctantly ceded to the prospect of buying Russian aircraft, because of the threat of having to repay the tax concessions (reported to be $600m) that it has been granted on the importation of foreign aircraft. Atlant-Soyuz, which in February announced its potential deal with Ilyushin Finance, continues to look for structures to finance the $450m replacement of 19 Il-76Ts with 10 Il-96-400Ts and 4 Tu-204s, according to Valery Menitsky, Chairman. Sources still suspect that the 400T, reportedly an Il-96T with Russian engines and avionics, would require at least two years to be certified with Russian engines and the use of the PS-90A would cause considerable loss of capacity, possibly as much as 10 tonnes. The Il-96T airframe is currently the property of the National Reserve Bank (NRB), which has close links with Ilyushin Finance. Rubstov, President of Ilyushin Finance is also Vice Chairman of NRB, so the possible change is not impossible, but could also be one of the many plans to have emerged from the Rubtsov corner over the last couple of years.

Article ID: 2589