Potential leasing structure could provide lifeline (439 words)

Published: 6/27/2001

Things may be looking up for the embattled Il-114, following the announcement by Nikolai Talikov, Chief Designer of AK Ilyushin, that Ilyushin Finance and Transaero-Express, an affiliate of Transaero, are jointly discussing the development a financial leasing structure for the aircraft. According to Talikov, quoted in the Russian press, despite the need for cargo aircraft to provide relief for the flooding in Lensk on the River Lena in Yakutia, the Il-114T, which is currently sitting at Zhukovsky, has been unable to participate, owing to delays in finalising the certification of the cargo modification, due to be completed in autumn 2001. The delays have been attributed to a lack of funding at the aircraft's producer, TAPO. Since its first flight in 1990, the history of the Il-114 has been dogged by a series of problems ranging from crashes to criticism that the aircraft was underpowered with its original Russian power plant. Certified under Russian AP-25 in 1996, the aircraft has found no customers outside the government controlled Uzbekistan Airlines, which also controls the aircraft's producer, TAPO. The installation, in 1997, of the P&W PW127H on the Il-114-100, as a JV between Ilyushin and Pratt & Whitney (P&W) was seen as potential break for the aircraft, resolving as it did the issue of power. But it has still led to little in the way of concrete sales, despite reports of a Memorandum of Understanding for sales to an operator based in Singapore, under which sales were expected to have been concluded, with delivery in 2001. In theory, market demand should exist in this particular segment within Russia and the CIS. There is an increasingly urgent need to replace the ageing and fuel inefficient Soviet era aircraft, but funding is in short supply. The question remains as to how Ilyushin Finance will raise the capital for such a venture given that it does not have a balance sheet of its own and has been forced to look for partners in meeting the capital criteria for the government supported leasing tender, the decree for which was signed on 22nd June. According to Alexander Rubtsov General Director of Ilyushin Finance the discussions that are in the very early stages, related to 5-10 aircraft, but considerable work still has to be done on the price of the aircraft and the provision of funding to such a vehicle. The involvement of Transaero is intriguing, given the airline's interest in developing regional capacity. It could suggest that Transaero would predominantly operate these aircraft, in contrast to its current focus on long haul domestic and international flights, as a means of developing feeders to its flights. Financially it would seem unlikely that Transaero is any position to make any significant contribution, but its involvement may make potential investors feel more comfortable about the viability of the businesses to which the aircraft are being leased.

Article ID: 2612