Paul Duffy/MOSCOW
The Civil aviation industries of Russia and its CIS neighbours are in deep crisis. In 1996, only five airliners were delivered from the 22 factories which form the industry. In 1997, the total grew to just six aircraft.
So far this year, only four aircraft have been delivered - one Tupolev Tu-154 to a Russian airline, two Tu-154s to newly formed Slovakia Airlines, as part payment of Russia's debt to that country, and one Tu-204 to engine supplier Perm Motors as part payment of Aerostar's debt, which Perm has leased to a Russian airline. For an industry employing some 2 million people, that is not enough.
The basic problem is financing. With any funds available for lending by Russian banks going to the government on high-interest, well-secured terms, little is available to finance either the industry or its customers.
Demand has been a second problem. The collapse of the Soviet Union in 1991 left airlines with enough aircraft to carry 137 million passengers a year, but continually falling traffic since then has meant that many airliners have been left parked at airports.
Now, these aircraft need major work to remain airworthy - but the airlines do not have the money. Russia's Federal Aviation Service (FAS) calculates that by the end of this year, the number of serviceable aircraft remaining will have fallen below the level needed to carry current passenger volumes, even though traffic is now only at 27% of 1991 levels.
New or additional aircraft will therefore be needed soon. Some will come from re-imports of Soviet-built aircraft serving in other countries, but not many are still available. Some may come from returning to civil service aircraft now used for military activities, but others will either have to be new aircraft from Russian factories, or imports from the West.
Money is also the reason why more Western aircraft have not taken a large share of the Russian market. Despite their higher utilisation rates and lower operating costs, only 38 Western airliners are in operation with four airlines. While a Tu-154 consumes more fuel than a similarly sized Boeing 737-400, the Tu-154 comes at little or no capital cost to the airline.
Additionally, foreign aircraft attract a 30% import duty, to which the 20% value-added tax payable on all aircraft is added, bringing total charges on an imported aircraft to 50% - against 20% for a CIS aircraft. Although this should give local producers an edge, the lack of available finance has prevented industry and airlines from taking that advantage.
Excluding aerial work units performing crop spraying or powerline inspection, there are some 120 Russian passenger and cargo carriers, at least 15 of which are actively seeking finance for new aircraft. Aeroflot is the only carrier in a position strong enough to raise finance without too much difficulty. Transaero's recent substantial losses will complicate its future acquisitions, but other airlines, including Pulkovo (St Petersburg), Sibir (Novosibirek), Baikalavia (Irkutsk), Samara Avia and some Moscow carriers, should present more acceptable risks for lenders.
Last year, one well-managed Russian regional raised Western funding to add a two-year-old Yakovlev Yak-42 to its fleet. But the day before the funds were transferred, the aircraft was sent to another city for a charter flight. While parked overnight, an unidentified crew took the aircraft to Kazakhstan, where it has since remained parked on a military airfield. It turned out that the aircraft had been bought from the factory by a trading company, which had leased it to a Kazakhstan airline with an option to buy. The Kazakhis thought they had bought it, but the owner claimed their payment was interest on arrears and repossessed the aircraft to sell to the new customer, so the Kazakhis stole it back. A debacle such as this does not build foreign confidence in funding Russian aircraft.
Such events, which are compounded by low profitability and poor balance sheets, mean that Western financiers are in no hurry to look for Russian business. Despite this, some finance deals are expected to be announced before the year-end, for fleet renewal and project funding.
In the past four or five years, many attempts have been made in Russia and Uzbekistan to set up leasing companies. In virtually every case, the missing ingredient was money. Little regard has been paid to the fact that aircraft lessors are essentially banks lending money in the form of an aircraft to an operator and, without a sufficient supply of capital, a leasing business cannot be set up.
A leasing business requires an adequate legal basis, and this is lacking in Russia. Despite the preparation of a new aviation code, it is still difficult for a lessor to take back an aircraft when payments are in arrears, unless the operator concurs. If an airline goes out of business, it can take a lessor at least six months to find another.
The Russian Air Register, and those of most other CIS countries, does not record mortgages, or other evidence of title, which are needed to prevent a sale taking place without the actual owner (or financier) being advised of it. In practice, Russia's FAS will note the registration with reference to the central mortgage register, but this is a concession, not a legal requirement.
Amazingly, seven years after the break-up of the Soviet Union, it is neither the design bureau nor the production factory which sets the price of a new aircraft, but the Russian Ministry of the Economy (which took over the role of the Soviet Ministry of the Aviation Industry), in conjunction with the FAS. The expectation that foreign carriers will pay a higher price than Russian or CIS airlines prevails.
One added Russian complication concerns ownership of factory aircraft. With few deliveries, and no cashflow in recent years, most manufacturers have had to find other ways to pay their debts. Some have branched out, opening production lines for televisions and other consumer durables. Some have begun to overhaul the airframes or engines previously built by the plant. Others have paid suppliers with partially or completely built aircraft. Before an aircraft can be financed, therefore, the owner of its title must be checked. It is not enough to assume that the manufacturer is entitled to sell the aircraft.
Given these circumstances, it is no surprise that Russian and CIS aircraft programmes are behind schedule. The Tu-334, expected to fly in 1992 and enter service in 1994 is, because of money problems, yet to fly, while the Yak-242 is experiencing similar delays. The Il-96M, which made its first flight in 1993, is uncertificated, although the Il-96T freighter version has now received Russian approval.
Although certificated in the CIS, the Il-114 has not yet found a customer. The An-38 was approved at the same time, in April 1997, and three examples have been delivered with the help of US financing.
The stretched Ilyushin Il-76MF freighter has made little apparent progress in the four years since its first flight. Beriev has no paying customers for its Be-32 feeder airliner, nor has Sukhoi for its twin-turboprop S-80, rolled out in May, but yet to fly. The Be-200, a twin-turbofan amphibian planned for passenger, cargo and firefighting roles, is in the same situation
The only CIS designer to achieve notable civil results this decade is Ukraine's Antonov. Its An-38 is now in service; the An-124-100 has been certificated to civil standards and 22 are in use; the An-70 propfan transport and An-140 regional airliner are in flight testing; and work has begun on the An-74-300, a version with engines mounted under, rather than over, the wing. The bureau is working also on the -400, a stretched An-74 which it plans to make available in passenger and cargo versions. While its An-32 twin-turboprop transport has sold well in Africa, Asia and Latin America, Antonov has survived in part by using money earned from its joint venture with the UK's Air Foyle to market cargo services using An-124s.
Almost every one of Russia and the CIS' aviation companies is having serious money problems. Only Antonov has found any answers - and it needs more. If realistic solutions cannot be found, time will run out and Russia and the CIS' most prominent industry will die.
Source: Flight International
