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Aviation History
1996
1996 - 0035.PDF
Mm TRANSPORT Leasing deals for its 767s puzzle Malev the West are another problem. Andrew Matthews, a partner in the Prague office of legal firm Clifford Chance, oudines the lack of legis lation in the area of aircraft mortgages in the Czech Republic, Poland and Russia, and the inability of registering an interest in aircraft in these countries. He says that Russia is expected to recognise aircraft mortgages in a new civil code now being prepared. He emphasises the need to define legally the rights of the owner in the event of default, along with the need to take account of fiscal matters such as withholding taxes, import taxes and value-added tax. Allen Oliver, vice-president for aerospace at the CIT group, describes CIT's lease of the first McDonnell Douglas DC-10 into the CIS. The aircraft was leased to Moscow-based operator Avcom, which had an agreement with ARIA to operate it in a freighter role. The agreement fell through just as the aircraft was delivered, and so, as Avcom then found difficulty in meeting the lease payments, CIT agreed to take the aircraft back. De-registration was achieved in just 5h. WESTERN AIRCRAFT He says that the operating economics of Western aircraft, including much lower fuel consumption will "...force airlines to acquire Western aircraft", and he is very excited about "this sector of the market". Western financiers often suggest that operat ing leases are well-suited to the region's airlines, although General Electric Capital Aviation Services vice-president of marketing, Patrick Bergin, says that an innovative approach should be taken to finding answers to legal and politi cal requirements. Stephen Vella, managing director of Aircraft Leasing and Marketing, considers used aircraft to be potentially suitable, but a rising market has reduced availability and increased lease rates. "The sea of parked aircraft has almost gone". One difficulty, he says, is that banks show a "...lack of courage to take risks on small and medium-sized airlines in the West, let alone the CIS". One of the major problems facing operators in Eastern Europe is the cost of insuring air craft. Why, they ask, do Soviet-built aircraft attract higher premiums than their Western equivalents? Colin Mahoney, director of aviation-insur ance broker Alexander Howden Aviation, says that it is "...largely because the insurers don't have enough information about the accident statistics and safety records of these aircraft". Operators in Eastern Europe also raise the problem of why airlines, now separated from political domination, and often based in coun tries with stable governments, often applying for European Union membership, have to pay substantial political-risk insurance premiums on top of the lease charges. "It is an expensive extra cost with no value for the payer," says Ziebinski of LOT. Fritz Ott, executive vice-president, corpo rate finance of Austrian Airlines, classes the chief disadvantages of working with Eastern European operators as mainly to do with "cap ital and know how", but he also draws atten tion to "political and economic instability, and the regulatory and legal environment". Fairness should work both ways, he says, ask ing why "Hungary, the Czech Republic and Bulgaria" should need expensive political-risks insurance now? He can outline the strengths of CIS avia tion, however, as being "market and manpow er". He says that it is all to do with "...a pent-up wish to travel, plus no shortage of pilots, excellent technicians and well-educated young people". Eugenius Skerstonas, advisor to Lithuanian Airlines' director general, picks up on this point, saying that there is a need to send peo ple to the West to be trained in these areas, but it is cosdy. Leasing 737s has added to LOT's financial burden Skerstonas also talks about the care which needs to be taken when entering a typical East/West joint venture. It often follows the same pattern, he says: "Initial optimism, fol lowed by a lack of understanding". PARTNERSHIP SUCCESS Chris Foyle, chairman and managing director of UK freight operator Air Foyle, is more opti mistic, however, and points to the success his own company has enjoyed with its partnership with the Antonov design bureau in the opera tion of Antonov An-124 freighters. Rene Glogg, financial director of Zimex Aviation, is equally upbeat about his company's joint ven ture with Avcom in the operation of executive jets from Moscow — a virtually new type of business in the region. He describes the region as a "complex mar ket". It should not frighten away Western part ners, he says, but it is one to be approached with care. He describes the need for senior Western industrialists to travel to tight sched ules, and the advantages of operating a locally based aircraft. "The market is an important growth area for the West, as long as political and economic circumstances allow," he says. • Paul Duffy attended the International Centre for Business Information conference on finance and leasing for Central and Eastern Europe in Prague 1-2 November, 1995. Air Foyle has successfully opened the door to collaboration with Antonov FLIGHT INTERNATIONAL 3 - 9 January 1996 33
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