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. Last Updated: 07/27/2016

Ivanov Offers Airlines Some Relief

Itar-TassSergei Ivanov, center, visiting the VASO assembly plant in Voronezh on Wednesday. He called for import duties on certain types of aircraft to be scrapped.
A drive to scrap hefty import duties on foreign aircraft gained a powerful supporter Wednesday as First Deputy Prime Minister Sergei Ivanov said it was "normal and natural" to lift duties on those types of planes that are not made in Russia.

Ivanov's comments, during a visit to an aircraft maker in Voronezh, came after Russian carriers signed a flurry of deals to buy Western planes at this week's Paris Air Show.

Russia could lift the 20 percent import duty for types of airplanes that it does not produce, such as several models made by Boeing and Airbus, Ivanov said. "We consider it normal and natural to lift duties," he said during a visit to planemaker VASO. "We are not going to close Russia to international cooperation."

Ivanov did not name the foreign models he had in mind, but said Russia would be unable to produce similar jets in the near future. Ivanov was last year appointed chairman of the United Aircraft Corporation, a state-run holding company created to boost the industry's performance.

The country's leading airlines have long called for the import duties to be scrapped. Economic Development and Trade Minister German Gref has also backed scrapping import duties on certain types of planes.

A decision to cancel import duties, if the government makes it, could apply to some of the recent agreements to buy aircraft from Airbus and Boeing. Carriers are shopping around for new planes to meet soaring demand in the Russian travel market.

Airbus won several fresh contracts from Russian carriers at the Paris Air Show. On Wednesday, it signed a deal to sell to Aeroflot 22 revamped A350 wide-bodied aircraft worth $3.2 billion at list prices, which confirmed a March purchase commitment.

Airbus / AP
A computer image showing a revamped A350 with Aeroflot's colors. Aeroflot signed a deal for 22 planes Wednesday.

Earlier this week, Airbus also won orders from Aeroflot for five A321 planes and from S7 for 25 single-aisle medium-haul A320s. Earlier this month, Aeroflot and S7 agreed to buy 37 of Boeing's 787 Dreamliners cumulatively, with deliveries due to start in 2014.

As well as opening up to foreign planes, Russia must build more of its own aircraft, Ivanov said. It should work to become the world's third-largest planemaker after Airbus and Boeing by 2025, with a goal to reach 12 percent of global sales, instead of the current 1 percent, he said.

In Voronezh, Ivanov oversaw the signing of $846 million worth of contracts by Ilyushin Finance Company to supply Russian cargo planes, such as the Ilyushin 96-400 and the Tupolev 204C, to four domestic carriers.

Airlines that have long lobbied for the lifting of import duties on foreign-made planes welcomed Ivanov's words of support. S7 spokesman Ilya Novokhatsky said it was a strong sign that the government would go ahead with the idea.

If that happens, Russian carriers would only have to pay a value added tax of 18 percent -- also payable now -- on certain imported airplanes, which would put them in an equal position with foreign airlines, he said.

Aeroflot, a longtime advocate of such a measure, hoped that the government would implement Ivanov's vision for aircraft imports, company spokeswoman Irina Dannenberg said Wednesday.

Ilyushin Finance Company, which specializes in the leasing of Russian aircraft, saw the potential lifting of import duties as no threat to Russian producers. They can only make a limited number of the Il-96-400, a wide-bodied long-range plane, and that leaves room for Western competitors, Ilyushin Finance CEO Alexander Rubtsov said by telephone.

In Voronezh, Ivanov said that the Il-96-400 was less economical than its Western counterparts.

It is most likely that the government could lift import duties on long-range Boeing 787s and Airbus 350s as well as medium-range Airbus 320s, said Maxim Isayev, an analyst at Rye, Man & Gor Securities.

Given a lack of competitively priced planes of this class in Russia, a cancellation of import duties would foster greater imports of these aircraft and would not negatively impact the country's aircraft industry, Isayev said.

"Its only positive that the first deputy prime minister stated this straightforwardly," Isayev said.

The country's air travel market is expanding by 10 percent annually, Novokhatsky of S7 said.