Flight International - August 18, 2015

40 | Flight International | 18-31 August 2015 flightglobal.com

RUSSIA

SPECIAL REPORT

STEPHEN TRIMBLE MOSCOW

Ilyushin Finance has had a tough year, exacerbated by its

main customer base being forced into fleet cutbacks, and

there are still plenty of challenges to overcome

COMPLEX

DECISIONS

Ilyushin Finance

O

nly a year ago Ilyushin Finance
seemed in a very different position.
A longstanding debate about its
mixed ownership structure was fi-
nally poised for resolution. Negotiations re-
mained active last summer with Bombardier
about a proposal to buy 100 locally-built Q400
turboprops, as the Russian lessor waited for
CSeries deliveries to begin in mid-2015.
But 12 months later Ilyushin’s split-owner-
ship structure has only been adjusted slightly,
with the biggest issue left unresolved. The Q400
deal has collapsed, with Ilyushin Finance now
involved in plans to revive the Ilyushin Il-114
regional turboprop or perhaps partner with Chi-
na’s Xian Aircraft to import or locally source the
rival MA-700. The lessor is also re-evaluating its
order for 39 CSeries aircraft.
Meanwhile, Ilyushin Finance’s key custom-
ers – mostly Russian airlines – are facing a fi-
nancial crisis caused by a depreciating rouble
that is forcing fleet cutbacks just as suppliers –
mainly Russian manufacturers – count on the

lessor to place dozens of orders for Sukhoi Su-

perjets and Irkut MC-21 narrowbody aircraft.

“This is our life,” says Ilyushin Finance

(IFC) director general Alexander Rubtsov,

only half-jokingly.

LACKING CLARITY

Ilyushin Finance was established in 1999 as

Russia’s answer to manufacturer-owned asset

management companies, such as Boeing Capi-

tal Corporation. But it was not created with the

same clarity of ownership as many of its com-

parable Western entities. United Aircraft Corp

(UAC) is the biggest shareholder, with a 49%

stake. Vnesheconombank (VEB) has the sec-

ond-largest stake, at 21%. The split ownership

highlights Ilyushin Finance’s sometimes awk-

ward triple mandate to act as an aircraft lessor,

promote the sale of Russian-made aircraft and

also be a successful business.

“We have been established by private inves-

tors, a government bank and manufacturers of

aircraft not only as a company to make money

but also to promote the sale or lease of newly

developed types,” Rubtsov says.

Some of that complexity was expected to be

resolved last year, with reports of a potential

deal by UAC to divest its ownership stake to

VEB. Ilyushin Finance would lose the corpo-

rate parent of its namesake, but gain a single-

minded ownership structure. As late as last

January, it appeared the deal was poised to be

signed, as UAC’s board of directors authorised

the sale of the 49% stake to VEB. But the deal

was never consummated.

“It never happened because VEB had a

choice either to acquire shares of IFC or to ac-

quire shares of Sukhoi. At that time they opted

for Sukhoi shares,” Rubtsov says.

It once appeared likely that Ilyushin Fi-

nance would be rebranded to reflect its new

ownership structure, but that talk has ceased.

“For us we have a very excellent relationship

with UAC and a very good relationship with

VEB,” Rubtsov says. “So it’s not a very big deal.”

UKRAINE CONCERNS

Rubtsov also downplays the impact of tensions

with Ukraine on the lessor’s position as the larg-

est buyer of Antonov An-148/158 regional jets,

with 16 delivered. Although designed in

Ukraine, they are assembled with 60% content

from Russian suppliers, Rubtsov says.

“We cannot live without each other. We have

industrial links for years and years and years,”

he adds.

The financial situation with Russia’s airline

industry is also not as bad as it may seem, Rubt-

sov says. He agrees the country’s financial crisis

is causing turmoil for domestic airlines. But the

two airline bankruptcies so far – involving Polet

and Vladivostok – had deeper roots.

Russia’s commercial aircraft manufacturing

industry has also received a reprieve. The Su-

perjet entered the year more than $2.5 billion in

debt. But Russian government officials agreed in

March to invest about $1.8 billion, reducing

debt to normal levels. The government also

agreed to provide a further roughly $500 million

to subsidise Superjet aircraft leases.

The Superjet’s declining debt is expected to

spur a round of performance upgrades. But

Rubtsov also has high ambitions for a next gen-

eration aircraft with 135 seats and a new engine.

Ilyushin Finance is also signed up as a major

MC-21 customer, but Rubtsov has concerns

about Irkut’s ability to execute the programme. If

it should falter, Rubtsov is keen to promote a re-

engined Tupolev Tu-204 as an alternative.

The most immediate portfolio decision fac-

ing Ilyushin Finance is how to proceed with the

CSeries. Rubtsov was counting on a financing

package from the Export Development Canada

bank. However, the Canadian government has

prohibited such deals due to sanctions. Rubtsov

is also concerned that CSeries delays erode the

business case for using the aircraft as a stepping

stone for the larger MC-21, which is scheduled

to enter service a year later. ■

Alexander Rubtsov: the

Russian and Ukrainian

industries “cannot live

without each other”