ANALYSIS: Ilyushin Finance working hard to place orders

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Source: Flightglobal.com
This story is sourced from Flightglobal.com

Busy times surely lie ahead for Ilyushin Finance. Not only does the Russian lessor have around 100 aircraft to place over the coming years – with a further 50 in the pipeline – but it is also dealing with a major ownership change and potential rebranding as it looks to disentangle itself from its largely domestic origins and grow into a more globalised business.

Ilyushing Finance’s ownership structure has long been seen as something of a millstone, with Russian aerospace giant United Aircraft holding a 49% stake and the state-owned Vnesheconombank (VEB) a further 21%. The plan is for UAC to exit the business, with its shares taken up instead by VEB.

In addition, the remaining 5.44% holding of Russian tycoon Alexander Lebedev is also up for sale as its corporate structure is reshaped. Aleksandr Rubtsov, chief executive of Ilyushin Finance, says the sale of the UAC shares is almost finalised, although it will take a “few more months” to complete. Government approval for the transaction has been given, but several conditions covering the sale have been attached “which need to be removed”, he says.

However, all that is proceeding in the background. The day-to-day focus for Ilyushin Finance is to place the aircraft on its books, which number at least 100, including next-generation narrowbodies from Bombardier and Irkut. That number could be swollen soon too, if Bombardier and Russian holding company Rostec firm their pact to localise production of the Q400 turboprop to a new facility at Ulyanovsk. Unveiled at the MAKS air show in August 2013, the deal is also vital to the tentative commitments from Ilyushin Finance and Rostec-owned Avia Capital Services, each signing for 50 Q400s. Rubtsov hopes the two parties can iron out any remaining differences in the coming weeks.

“There are a few issues still to be solved but I believe they are quite close,” he says, citing potential sales of up to 200 aircraft in the commercial sector and another 150 non-commercial aircraft. “There is a substantial market for turboprops in Russia and the CIS,” he says. “And from a lessor's perspective, the turboprop has not been that attractive, so that market is very interesting for us.”

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Bombardier's CSeries will be an essential part of the company's future strategy

Bombardier

But with the Bombardier deal slow to be finalised, Russia appears to be growing impatient with the delays. Rubtsov reveals that Moscow is “seriously considering” transferring assembly of the Ilyushin Il-114 turboprop from Uzbekistan’s TAPO factory to a Russian facility and resuming production of the aircraft. However, Rubtsov notes that “from a commercial perspective, the Q400 is the more attractive aircraft”, not least because extensive modernisation of the Il-114, including new engines, would be required. Only 13 examples remain either in storage or in service, according to Flightglobal’s Ascend Online database, the majority with Uzbekistan Airways.

“It will take significantly more time. It is on the table because it will protect more jobs in Russia,” says Rubtsov. “The timing is a very important issue. If there is no deal with Bombardier this year, the Russian government won’t want to wait and the window of opportunity is not endless.”

Although those turboprops would add another commercial avenue for Ilyushin Finance, in the meantime, it is basing its short-term strategy on three narrowbody types: the Sukhoi Superjet 100, Bombardier’s CSeries and the Irkut MS-21.

“Over the next five years there is quite a bit of work to be done,” says Rubtsov. “We are not ruling out some widebody projects in the future two to three years, but now we need to do quite a bit of work to get commitments and the aircraft placed.”

Further orders have been ruled out for now as the lessor needs to be careful not to “get overloaded”, or “overstretch our financial resources”, he says.

Deals for its five firm Superjet 100s are close to completion and in addition, it is working with a number of potential clients from Russia and the CIS for some of the 32 CS300s it has on firm order. “We are very active right now,” says Rubtsov.

Describing the Canadian twinjet as a “breakthrough airplane in terms of performance”, Rubtsov is untroubled by the delays experienced by the programme so far and feels leasing deals are just around the corner. “There is a certain degree of caution from airlines over performance; that is why they are delaying their decision even though they think it’s going to be a great airplane.”

The third pillar of its strategy is the MS-21. The Russian twinjet has around “60% commonality” with the CSeries, notably its Pratt & Whitney geared turbofan engines and Rockwell Collins avionics, enabling airlines to operate the two types together with relative ease. Although Rubtsov says the programme is meeting its targets at present and early reports are promising, “of course, the devil is in the detail and we don’t know what kind of teething problems they will find when the aircraft starts flying”.

Its order for 50 of the narrowbodies is for the 180-seat -300 variant, to be powered by the PW1400G engine. However, assuming Irkut launches the higher-capacity -400, with a decision expected later this year, then a further order could materialise, this time using the Russian-made Aviadvigatel PD-14 powerplant. These would need to be slightly uprated to 32,000lb (142kN) thrust from the current 30,000lb level, but Rubstov describes the airframe and engine as “a good combination”.

Rounding out Ilyushin Finance’s portfolio are a number of Russian or Ukrainian types, notably the Antonov An-148 and Tupolev Tu-204. No further orders of either are planned, says Rubtsov, although he is full of praise for the Antonov’s performance in harsh operating conditions and its overall reliability. However, with relations between Russia and Ukraine highly strained, there are real concerns about the programme, which features around 70% Russian content and production located in both countries. Rubtsov says it would be a “major blow” for both countries if it were to falter as a result of the ongoing political unrest.

For Ilyushin Finance, there remains one outstanding issue: what to call itself when the final link with the Ilyushin design house is severed. However, any potential rebranding is on hold until the ownership issues are resolved, says Rubtsov. “It is a rare privilege to decide the name of a company – a privilege of the major controlling shareholder,” he says.