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. Last Updated: 07/27/2016

NRB Pins Ilyushin Hopes on Aeroflot Stake

MTThe Voronezh aviation plant relaunched production of the long-range Ilyushin Il-96-300 Saturday for the first time since 1999.
VORONEZH, Central Russia -- Many see little hope the stagnant aviation industry will ever get off the ground, but at least one bank is betting big on it.

In a move it hopes will help pull the industry out of its post-Soviet tailspin, National Reserve Bank is negotiating to buy Millhouse Capital's blocking 26 percent stake in flagship carrier Aeroflot.

"We hope to close the deal soon," NRB deputy chairman Sergei Shakin said Saturday at the Voronezh aviation plant, where industry officials gathered to tout the resumption of production of the Ilyushin-96-300, the nation's premium long-haul aircraft and a poor man's version of the Boeing 767.

Millhouse manages the stake on behalf of Chukotka Governor Roman Abramovich and other shareholders of Sibneft who paid an estimated $120 million for it two years ago, but has been unable to make much use of it.

Shakin declined to provide details of the deal, but he made no secret that he hopes the stake will give NRB enough board clout to influence key decisions of the state-controlled carrier.

Specifically, NRB wants Aeroflot to buy more Ilyushin-96-300s.

The bank, together with Ilyushin, set up the Ilyushin Finance Company, or IFC, in 1999 and two years ago was one of two companies to win a government tender designed to help devastated domestic manufacturers by offering customers state-backed leasing options.

The other company chosen in the tender was Financial Leasing Co., which is mainly owned by the Tartarstan government and works with the Kazan aviation plant, which manufactures mid-range Tupolev Tu-214s.

Under the terms of the tender, each company was to sell a controlling stake in itself to the government for at least 1.5 billion rubles ($47 million), but it took more than a year for the money and equity to change hands, and IFC has yet to sell a single jet.

Now, however, NRB is hoping Aeroflot will make good on a letter of intent it signed in 1999 for six Il-96-300s, which would double the airline's fleet of the craft.

IFC was originally expected to deliver the planes in 2001, but the deal stalled.

On Friday, a group of Aeroflot managers sat down with IFC to discuss how the company wants its planes to be fitted before it will agree to buy them and the two sides seemed closer than ever to a deal.

If so, it would be a huge boost for the future of the Ilyushin-96. Aside from Aeroflot, only one other airline has signed a letter of intent for the jet. Atlant-Soyuz, which is controlled by the city of Moscow, is interested in two Il-96-400s, the cargo version of the craft.

IFC has also signed a protocol agreement with Ulyanovsk-based Aviastar-SP to overhaul and build more than 50 Tu-204 medium-range passenger planes, but that deal has not been finalized either.

Although the government owns the Voronezh plant, or VASO, NRB insisted that IFC manage the government's stake in the plant to insure that the money it invests in restarting production of the IL-96 is protected.

IFC, confident Aeroflot will eventually buy the craft, transferred 180 million rubles to the plant last week, the first tranche in a 2 1/2-year, $300 million program to complete the eight planes for Aeroflot and Atlant-Soyuz, the first set for delivery by the end of 2004.

VASO director Vyacheslav Salikov was jubilant to see production resume at the plant for the first time since 1999. The plant, with some 11,000 workers, had survived on its overhaul business and even had to branch out into other areas, such as building recreational boats.

"Concrete steps have been taken and financial leasing mechanisms were found to allow this concrete project for eight planes to go forward," said Yury Koptev, head of Russia's Aviation and Space Agency Rosaviakosmos.

"NRB chairman Alexander Lebedev is a sensible businessman who has put real money into this plant," said Igor Garivadsky, who handles aviation leasing issues for the Economic Development and Trade Ministry.

"We were here last September and it was a dead zone," Garivadsky said. "The more private capital we have in the aviation industry, the better."

The industry may be picking up, but there is simply no way domestic manufacturers can meet booming demand from airlines.

Economic Development and Trade Deputy Minister Yury Isayev said his ministry is preparing proposals for an April 10 Cabinet meeting dedicated to aircraft leasing to ease import restrictions on foreign craft.

Russia currently charges 46 percent in VAT and import duties on foreign aircraft, making them prohibitively expensive for all but a handful of companies.

The ministry wants to increase import duties on craft older than seven years and bring down duties on imported aircraft components and engines.

Meanwhile, in an ironic twist, it wants IFC and FLC to handle the leasing of foreign jets until their domestic partners can build enough planes to meet demand.

Both industry players and analysts said the plan made no sense.

"Many airlines would jump at the opportunity to import more efficient foreign aircraft, but it will mean the end of the domestic industry," said Yelena Sakhnova of United Financial Group.