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. Last Updated: 07/27/2016

Aviation Rescue Plan Unveiled

bloombergDomestic companies hope to supply more components to giants like Boeing.
The country's airlines have joined forces with the domestic aircraft industry to come up with a plan to rescue the ailing aviation sector, a senior industry official said Tuesday.

Airlines and plane makers are appealing to the government to lower import duties on foreign aircraft, Valery Bezverkhny, head of the Unified Aircraft Corp., or OAK, said at an industry conference. In return for allowing foreign planes to flood the market, domestic manufacturers are willing to boost their share in the production of Boeing and Airbus planes.

"It will be a package deal," said Bezverkhny, who heads OAK, the umbrella company that is bringing domestic aircraft makers such as MiG, Tupolev and Ilyushin into a single company.

Airlines have been complaining for years that high tariffs on foreign planes are hurting business -- especially as Russian manufacturers have been unable to produce modern jets.

Bezverkhny said that the solution lay in a two-pronged approach that will benefit both airlines and manufacturers simultaneously. Plane makers should abandon the idea of continuing old production lines, he said, and combine their energies in producing the Russian Regional Jet. The first RRJ is expected to go into mass production in 2007.

Bezverkhny said airlines should be allowed to import planes duty-free until the RRJ is up and running. "If we do not lift the duties for Western jets we will not be able to sell the RRJ abroad," he said.

Protective duties that add an additional 40 percent to the price of the jet have been a sore issue between the government and airlines.

In the past two years Russia's top airlines have imported 60 foreign jets, most of them aging second-hand models, to reduce import duties.

"If import duties are kept intact, in two to three years Aeroflot will be the only domestic airline and business will go to foreign carriers," said Denis Ilyin, managing director of the Air Bridge Cargo airline, which leased two Boeing 747 freighters last year.

In exchange for agreeing to removing tariffs, the aviation industry is in talks with Boeing and Airbus to increase its participation in making mid- and long-range airliners.

Over the past decade, Boeing has invested $1.3 billion into Russia, employing more than 1,000 engineers and designers who have contributed to the development of jets like the Boeing 787 Dreamliner. Airbus has a smaller presence, running an engineering center with a local partner that employs 100 people.

"We would like to make more than just floor grids --- larger segments of fuselages or whole fuselages," said Bezverkhny, who is also president of Sukhoi fighter maker Irkut Corp., which last year began making components for Airbus jets. "We may also discuss setting up a center for converting second-hand passenger craft into freighters."

Andreas Kramer, senior sales director for Eastern Europe and the CIS at Airbus, said that talks were under way to bring Russian manufacturers into the production of the new Airbus 350."We are talking about 2 to 3 percent of the aircraft -- elements more advanced than floor grids, but not fuselages," he said.

One airline representative, who requested anonymity, was skeptical about the arrangement. "It is unlikely that our industry has anything to trade for allowing Airbus and Boeing onto the Russian market -- our old facilities and drunken workers?" he said.

An overall plan for what the aviation industry needs will be hammered out by the annual Moscow Aviation and Space show in August, Bezverkhny said. The Economic Development and Trade Ministry, which is also involved in the plan, will then present it to the government for approval.