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Ilyushin Finance branches out


Lessor IFC may shortly branch out from selling primarily Russian-built aircraft if changes to its shareholder structure materialise

IFC is owned 48% by Russia's United Aircraft Corp (UAC) and its main mission is to support and finance sales of UAC-built aircraft.

However, says IFC director-general Alexander Rubtsov, this may change - and soon.

While stressing that any decision to divest any or all of UAC's shareholding would require Russian approval, he says he is "not ruling out" such a decision, possibly around the time of the Paris Air Show.

This would be a significant plus for IFC. Although Russian prime minister Vladimir Putin has made clear his desire that the country's carriers - especially Aeroflot - should buy domestically produced aircraft, there remains a demand for foreign equipment among the nation's airlines.

In one area, however, that demand looks like going unfulfilled, at least at the present. Last year, Rubtsov talked of IFC being on the lookout for around 30 small, western-built turboprops for regional carriers. The cost of such equipment, however, has proved a major stumbling block.

Citing a $7m price tag for an unnamed 12-seat western turboprop, he says this is simply outside the reach of Russian regional airlines: "We can't find a customer who's prepared to pay so much for a new aircraft." Asked if the solution is to source second-hand machines, he demurs: "We prefer to buy only new aircraft."

The frustrating aspect, he says, is that demand definitely exists: "There is a demand to fly and there is a supply side that is building an expensive product that can't meet the demand. So, somebody has to subsidise the gap between the cost of production and the cost of a ticket." Such a subsidy would have to come from the Russian federal or regional authorities - "Most likely, both."

Illyushin Finance is bullish about the An-148/An-258 family

Illyushin Finance is bullish about the An-148/An-258 family

On other market sectors, however, Rubtsov is much more buoyant. His company hopes to convert its memorandum of understanding for around 50 Irkut MS-21 medium-size airliners to a firm order "by the end of summer, hopefully by [the] MAKS [airshow]".

He is also bullish about the Antonov An-148/158 regional airliner family. The 75-seat An-148 endured severe criticism from its launch customer Rossiya when it entered service just over a year ago, with complaints over unreliability and slow reaction times by the manufacturer to solve problems. Production plant VASO took the first aircraft back to implement refinements on the machine and Rossiya undertook modifications on other aircraft in its fleet itself.

The situation today, says Rubtsov, is vastly improved. "The 148 is performing much better. Average flight hours now exceed 300 per month, the level we believe is break-even. That's a very significant milestone and very good news after just one year.

"Achieving 300 hours a month is a relatively easy job for a medium-range or long-range aircraft, but for a regional airliner that's flying [sectors of] up to two hours with a lot of cycles, 300 hours a month is very impressive."

The improvement programme covering areas such as engines, auxiliary power units and landing gear has yielded results and considerably improved the aircraft's reliability.

"We've managed to convince the design bureau and manufacturer that they have to streamline the support programme and significantly reduce the reaction time to fix problems and improve the quality of some components."

VASO now guarantees to fix defects with 24 hours and IFC is pushing engine manufacturer Motor Sich "very hard" to similarly improve support for the powerplant and APU. The Progress D-436 engine is "generally very reliable and efficient", he says, "but we did have some minor problems such as bearings."

That said, the possibility of finding an alternative engine for the type, first mooted last year, still remains, with discussions ongoing with several power plant manufacturers. One candidate, not mentioned last year, is the SaM146 used on the rival Sukhoi Superjet regional airliner.

At present, IFC has a mix of 136 firm orders and preliminary agreements for the Antonov types, with around 40% of those firm, says Rubtsov. This figure does not include aircraft bought directly by bodies such as the government's emergencies ministry or for presidential flight.

Around 60 on IFC's order book are for the stretched, 100-seat An-158 and the remainder for the 75-seat An-148. The smaller aircraft, with its longer range, is in higher demand within Russia, a reflection of the considerable distances that airlines have to fly in the huge country. The type is proving particularly popular in South America, he says, with MoUs and preliminary contracts for around 60, mostly the larger An-158.

However, the largest single customer will likely be Aeroflot and IFC is talking with several of the regional airlines, such as Vladivostok Avia and Pulkovo Airlines that are being subsumed within the national carrier.

An indication of the growing satisfaction with the An-148, he says, is that Pulkovo is in the market for a further nine examples to add to its existing six - the best possible evidence, he says, that the aircraft has been produced with the object of making money, not always the prime consideration during the Soviet era.

"As far as our clients are concerned, they are very satisfied with the Antonov's performance; we very much hope the Superjet will be the same."

Talks on the Antonov are also underway with airlines in several CIS nations, notably Kazakhstan and Belarus, he adds. With the aircraft designed to operate in extreme weather, there is also interest from several Siberia-based airlines, although he is careful not to reply directly when asked about interest from rapidly expanding Novosibirsk-based S7. He hopes he may be able to announce further deals at either the Paris or MAKS shows.

"My biggest problem is not with orders but production capacity," he reveals. "At the moment, combined production capacity in Ukraine and Russia is 10-12 aircraft a year. Within the next three years, we need to bring it up to 36-40, to meet market demand."

Despite the Antonov's success over the past year, Rubtsov believes that it will be the SukhoiSuperjet, now in service with launch customer Armavia and about to enter Aeroflot's schedules that will make the first major breakthrough into global markets.

This, he says, is down to the fact that many of its major components are sourced from western suppliers that are familiar to airlines outside traditional Russian markets.

He believes it will be "one or two years before the Superjet achieves major sales because of the cautious approach taken by western airlines" to a Russian-produced aircraft. However, once performance figures are verified by initial users he believes orders will come.

Looking further ahead to prospects for the Irkut MS-21 mid-size airliner, he reports only moderate interest so far from foreign airlines. However, the aircraft is still several years away from first flight.

Turning to the Tupolev Tu-204SM, which has had decidedly sluggish sales, he explains why IFC pulled out of a proposed major deal to provide sole operator Red Wings with 44 further examples of the type.

"We had been talking with Vnesheconombank, the main provider of funds for this deal, and we found out the requirements from Vnesheconombank to support this transaction were quite extensive. We came to the conclusion that it would be better for the bank's daughter company, VEB Leasing, to do the deal instead of us."

IFC had already placed eight Tu-204SMs with Red Wings and it was felt that VEB Leasing, whose parent company is 100% government-owned, was in a better position to take on the degree of risk involved.

He adds that he understands that a deal between VEB Leasing and Red Wings is still moving forward, but is uncertain how quickly it is doing so.