Published: 7/26/2001

The Tu-154, for a long time the backbone of the Russian air transport system, has had a volatile few weeks, with one serious crash and the reports of numerous other incidents, none thankfully life threatening. Yet, at the end of the month, Sibir has made clear its intentions, in conjunction with foreign investors, to develop a leasing scheme primarily focussed on the Tu-154, or more correctly the Tu-154M, at least during its start-up phase. The newly announced scheme seems to turns conventional wisdom on its head, in terms of the development of the Russian aircraft market. In the initial stages, it is not focused on new aircraft, which has undoubtedly been the main emphasis of many of those involved in the development of industry financing, but rather on older aircraft reaching their airframe and engine limits before overhaul. The logic is driven by the basic premise that many of Russia's airlines are desperately in need of efficient and reliable aircraft now, but are unlikely to be able to afford new foreign aircraft or to find new Russia aircraft available. Developing a financing structure to address this need appears to offer the hope that the existing fleet can be restored to operation, offer operators the low cost capacity they need and potentially allow the industry the opportunity to build its finances to fund new aircraft in the future. The development is made all the more encouraging since it comes at a time when bidders are being sought for the tender for the government guaranteed leasing schemes for new aircraft, suggesting that a virtuous circle in aircraft financing may be slowly emerging. To date, there have been schemes to provide leasing finance for aircraft in service and, in fact, at some points there appeared to be new companies offering leasing at every turn. Most of these companies, however, have proved to be little more than loan providers at often expensive rates, or simply a piece of fantasy for a regional government that had little finance and lacked the skills to provide a viable leasing option. Some companies, such as Leader Group, have offered unspecified leasing deals to airlines refurbishing aircraft at Aviakor but, in the main, the deals often are elaborate barters, typically involving airlines offering repairing facilities to the aircraft on wet leases, in order to recover the cost of the overhaul. The lease group, which has yet to be named, claims it has seen considerable interest in providing part of the $40m equity investment required, with announcements of letters of intent expected at the Moscow Air Show. The securing of the finance will still be the major challenge, but at least it will be raised against a backdrop of major reforms to Russia's legal and tax system, with an administration prepared to cut through the system to achieve results and resolve situations that have languished for years. This change in atmosphere is evident throughout the direct invest community in Russia, which now regards the market as looking increasingly attractive, although emphatically not without its risk. The use of the Tu-154M as the basis for the scheme is not necessarily predicated on the aircraft's virtues, and many have expressed concerns about the reliability of its hydraulics. It does, however, have the fundamental qualities to make such a scheme work. Over 300 were built and a large number remain in service, spares are easily obtained and, given that overhaul and modification are key to the process, repair and overhaul facilities are both available and experienced in the work. The airlines are also familiar with the aircraft, so making expensive retraining unnecessary and adding to the attractiveness of the Tu-154M for operators eager to get capacity in the air at the lowest possible cost.

Article ID: 2668