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. Last Updated: 07/27/2016

S7 Orders 15 New Boeing Airliners

S7, the country's second-biggest airline, has signed a contract to buy 15 of Boeing's newest long-range jets, with deliveries starting in 2014, the carrier said Tuesday.

The deal, which is the first Russian order for Boeing's 787 Dreamliner, gives the airline an option to buy 10 more of the jets, S7 said in a statement.

The book-value cost of the 25 planes is $2.4 billion, S7 general director Vladislav Filyov said at a news conference. The first seven airliners will be delivered in 2014 under an operating lease agreement, the privately owned S7 said.

In buying the new long-range planes, S7, formerly known as Sibir, will strengthen its challenge on longer routes to Aeroflot, which intends to take delivery of 22 Airbus A350 jets at about the same time.

More airlines will join Aeroflot and S7 in seeking new foreign wide-bodied jets to upgrade their aging and mostly Soviet-era fleets as the booming economy and growing incomes spur demand for travel, analysts said.

"This is the future trend in Russian aviation," said Yelena Sakhnova, an analyst with Deutsche UFG. "Russia doesn't produce this type of planes."

S7 said it had paid the first installment for the purchase with its own resources but would have to borrow from several banks to finance the deal.

"The product is so good that banks are lining up to finance it," Filyov said.

Under existing law, S7 will also have to scrape the money together for a 40 percent import duty on the planes when they arrive.

But it will recoup its investments, thanks to greater passenger numbers and more efficient long-range planes, S7 spokesman Ilya Novokhatsky said.

"We are planning to expand our medium- and long-range routes in Russia and abroad," he said by telephone.

The new planes will expand and modernize S7's fleet, replacing some older aircraft, particularly its nine Ilyushin-86 planes, which do not meet European Union environmental safety standards.

S7 did not say why it had chosen Boeing over Airbus, but Sakhnova of Deutsche UFG said Boeing offered a closer start-of-production date and more certainty in delivery time. Airbus has pushed back the date for its A350s entering service from 2010 to 2013, while Boeing has promised that its Dreamliner will to go into service next year.

Another reason could be the price. The Times of London reported on its web site last month that Airbus had to slash its prices to compete with Boeing, without saying where it got the information. Aeroflot has not said how much it will pay in its intended deal with Airbus. Aeroflot deputy general director Lev Koshlyakov said in March that the carrier had only signed a letter of intent to buy the A350, rather than a firm order, and that the planes would be delivered from 2014 to 2017.

Boeing is still in talks with Aeroflot in the hope of winning that deal but now offering different, apparently less favorable, terms, said Marlin Dailey, Boeing's vice president of commercial sales for Europe, Russia, and Central Asia.

"We are trying to work with Aeroflot but the market conditions today are such that we can't offer Aeroflot the same terms as we offered 1 1/2 years ago," he said at the news conference with S7.

Aeroflot has been weighing the benefits of buying Boeing 787s and Airbus A350s. The deal with Airbus was widely seen as a snub to the United States amid a chill in bilateral ties.

Tuesday's contract is the latest in S7's expansion plans. Last month the airline signed a $705 million deal with Boeing for 10 737-800s and secured purchase rights for another 10 planes. S7 is also looking to buy four A-320 jets and 15 Tu-204SM planes. The airline, in which first deputy general director Natalya Filyova holds a 63.2 percent stake and the government 25.5 percent, now has a fleet of 62 planes, including A310s, A319s, 737-500/400s, Il-86s and Tu-154Ms.

Last July, an Airbus A310 operated by S7 burst into flames after sliding off a runway and slamming into a barrier at the Irkutsk airport, killing 125 people.

S7 carried a total of 4.9 million passengers on international and domestic flights in 2006, behind only Aeroflot, which carried 7.2 million passengers.