By approving a $1 billion loan to Aeroflot, the Export-Import Bank has inadvertently become the latest target in the US airline industry's fight to have the exemption on fuel tax reinstated.

The howls of protest that greeted Exim's decision to grant a $1 billion loan to Aeroflot to buy US-manufactured components for the new 380-seat Ilyushin Il-96M left the bank's officials questioning the motive behind the complaint, especially after years of support for non-US carriers buying US-manufactured aircraft and equipment. 'We are always supporting equipment deals to foreign airlines,' says an Exim source.

The Air Transport Association contrasted the deal, part of the Clinton administration's high-stakes Russia policy, with the White House's insistence that US airlines should not receive a reprieve from a 4.3-cent-per-gallon fuel tax.

Boeing which originally opposed the loan because the Il-96 is a competing product, came out in support after Washington negotiated a condition that Russia lower the high tariffs on the purchase or lease of foreign-manufactured aircraft. Boeing believes the Russian market is worth $70 billion over the next 18 years.

Exim support was sought by Pratt & Whitney, which is providing the engines for the Il-96M programme, Rockwell Collins, which is supplying the avionics, and Sundstrand, which is supplying generators. Exim set up a loan structure to provide 85 per cent of the $1 billion contract price. This amount covers the first 20 aircraft, which Aeroflot will lease from a special-purpose company set up by Ilyushin. The asset-backed deal has sovereign guarantees and is repayable over 12 years.

Mead Jennings

Source: Airline Business