Repeated delays to industrial programs and a change in attitude of Canada’s financial institutions toward funding sales of Canadian high-tech products to Russian clients rank among the main reasons Russia’s biggest aircraft lessor, Ilyushin Finance Company, has begun reconsidering its commercial commitments to the Bombardier CSeries and Q400 turboprop, according to IFC general director and co-owner Alexander Roubtsov.
“We have some better programs for us to focus on, including the MC-21 and the Superjet,” said Roubtsov in an interview with AIN. He said that, after the Kremlin’s recent decisions on additional financial aid to Russian aerospace conglomerate United Aircraft Corporation (UAC) and with the leasing companies ready to place the Sukhoi Superjet and the upcoming Irkut MC-21 with airlines, IFC’s business looks secure. “Today, there is more understanding for us as a leasing company on the MC-21 and SSJ100 than the Canadian projects,” he said. Such “understanding” involves sources of funds available, readiness for quantity production, delivery slots and airlines willing to accept the product.
According to a Bombardier spokeswoman, the reasons for the financing difficulties center not on a change in attitude, but rather official sanctions placed on the Kremlin by Canada in response to Russia’s annexation of Crimea and alleged backing of separatists in Ukraine.
“IFC is a valued customer and they remain in our backlog,” said the spokeswoman. “So, yes, we are working together to overcome any concerns. But there is a challenge ahead of us and, yes, this deal could be impacted by the sanctions that Canada has imposed. Of course, we’re abiding by those sanctions.”
She added that because the deal involves CS300s—the larger of the two CSeries jets slated for first delivery at least six months later than the CS100—Bombardier has some time to look for alternative financing options. She said, “From our perspective, because they are CS300 aircraft, we do have some time to work with the airlines to source third-party solutions...Ultimately it is IFC’s responsibility to get financing for its own aircraft, but we will, of course, work with them where we can.”
Meanwhile, after a bold start with the signing of a memorandum of understanding between Bombardier and Russian state-owned manufacturer Rostec at the 2011 Moscow airshow, negotiations on establishing a second Q400 assembly line in Russia slowed. Financial terms were the first obstacle that proved difficult to overcome. Then came the Canadian trade restrictions on Russian companies. “Today, this project appears to be frozen,” Roubtsov told AIN.
A number of alternative solutions on equipping Russian carriers with modern regional turboprops have now come under consideration. In addition to the re-start of the Ilyushin Il-114, a new Chinese design called the MA 700 has also surfaced as a possibility for purchase. “This is pictured as a modern machine now in development,” said Roubtsov. “We are waiting for the Chinese industry to brief us on this aircraft. If it proves up to our requirements, we will consider procurement. The Chinese solutions look attractive because, unlike Canadian institutions, big national banks have expressed readiness to provide funding on good terms.
“We continue looking for sources of affordable funding for our projects, including those in China,” Roubtsov said. “The recent governmental decisions on funding UAC and its programs, and the SSJ100 in the first place, ensure long-tern funding for both the manufacturer and the leasing companies,” he stressed.
Roubtsov would not commit one way or the other on the chances that IFC would eventually agree to take the CSeries. “We need to look for mutually agreeable solutions, mostly on sources of funding, that would provide viability of the respective project,” he said.
“Right now we are trying to determine the red line we should never cross,” he added. “If the CS300 procurement appears to be on the other side of that line, we will have to give it up.” Replacing the funding promised by Export Development Canada in 2013 and early 2014 with other funding threatens to increase the ultimate burden on IFC and render the CS300 procurement unprofitable. Roubtsov said IFC would decide on the CS300 before the Paris Air Show in June. “We need to face the reality,” he concluded.
Facing that reality appears tougher now, after IFC and Bombardier held a scheduled meeting on the CSeries two weeks ago. The manufacturer hinted at the possibility of yet another delay of CS300 shipments, with the first four aircraft now available to IFC not earlier than late 2017. The latest estimate contrasts with the 2013 promise to commence deliveries in 2015 and the “correction” at the 2014 Farnborough Air Show to do so in the second quarter of 2016. Now, it appears the Russian lessor’s airline can get the entirety of the 32 CS300s on order no earlier than 2020. According to Roubtsov, the lessor finds that schedule unaffordable in view of its increasing financial burden; IFC had to use borrowed funds to pay for its delivery slots. In terms of technical performance, the CS300 has met most of its specifications, despite a slightly higher structural weight than earlier promised.