Sergey Sopov, Avialeasing - «Авиализинг»
Release Date: 2008-12-19
Mr. Sopov entered the path of aerospace industry almost 20 years ago, when in 1988 he managed the launch of Buran space shuttle at Baikonur. ‘It was my professional starting point and for about fifteen years I have been working in the sphere of aviation. It so happened that Perestroika and transition to the market economy turned so many lives upside down…Heaven only knows where people appeared to find themselves… For example, the owner and general director of Sibir Airline, Vladislav Filev, happened to be my comrade-in-arms, we were in the military together... The Lord works in mysterious ways,” – Mr. Sopov was reflecting in the course of our exclusive interview with him in Moscow.Mr. Sopov, coming from a military and aerospace background, why did you decide to found an aviation leasing company in 1996?
Avialeasing JSC used to be called Permskiye Motory Corporation. Back in 1996, aviation equipment and, moreover, engines, were virtually not sold in Russia. When we came to Perm Engine Company, we had to solve the problem of how to promote and revive it. We referred to the experience of General Electric, as its subsidiary has appeared to be one of the major international leasing companies. The solution was very intelligent: one and the same aircraft could be equipped with the engines by different manufacturers. There was established a company that ordered aircraft by Boeing or Airbus but in either case equipped with GE engines. That placed the engine manufacturer in charge of aircraft distribution and made him less dependent from aircraft building corporations. We understood we had to turn the situation around and instead of selling engines, which were not in demand, promote the aircraft to make the engines marketable as well.
In general, leasing in Russia has always been quite a particular issue, especially during the times when there was no leasing legislation. The activity we were involved in could hardly be called ‘leasing’; it was more in the nature of rent with the sprouts of leasing… Ours was the first successful experience of aviation leasing in Russia. In 1996 we sold the first Tu-204 and the next aircraft was delivered to Kavminvodyavia in 1997. The 1998 brought its ‘famous’ economic collapse and it was just the properly chosen leasing scheme thanks to what we survived. We kept licking wounds though for a year and a half afterwards. As late as 2000 we launched the new project of upgrading Tu-154. Primarily it had to do with the fact that we saw no future for Tu-204 at the market in Russia or abroad.
The Tu-204 aircraft was designed in the USSR to directly replace Tu-154. This mid-range aircraft of the definite payload was to become an updated version of its predecessors. Its maximum take-off weight was 86 ton. But, unfortunately, it happened at the time when the USSR collapsed and market economy emerged: many tourists rushed abroad to see sights, many suitcase traders – to buy goods… and all of them badly needed seven-hour nonstop flights. The management of Tupolev Design Bureau decided to modify the aircraft to extend the flight range. But the wizardry did not occur: the modification resulted in the considerable increase of the aircraft weight up to 103 tons and the necessity to equip it with the engines of higher performance. At last when the aircraft became available it turned out that it did not replace Tu-154. It’s no good cracking nuts with a sledgehammer: the average flight leg for Tu-154 is 110 – 140 minutes, but Tu-204 needs longer distances with the flight leg of 5 to 6 hours. There were no airways in Russia to efficiently operate such aircraft. Within this country just Sibir and Vladivostokavia had such routes, but Tu-204 fell short of Vladivostok direction, thus Tu-204-300 modification appeared. Back in 1997-1998 the capacity of the Russian market totaling to 50 aircraft of Tu-204 type did not allow to arrange the mass production or maintenance of those aircraft.
Production of aircraft has decreased a lot over this period…
If we speak about the current production of Russian aircraft, Tu-204 was designed and took its maiden flight in 1985. Only 42 aircraft of the type have been produced and operated in Russia since then up to these days.
The complete analog of Tu-204 aircraft – Boeing 757 – was taken out of production nine years ago, that’s why it would be wrong to call Tu-204 a commercial product; it’s been a small-scale production far from playing the first violin in the aviation industry.
Il-96 manufactured by Viktor Livanov’s company is also an aircraft of small-scale production; it used to be pretty good in its due time but has come out of date. Abroad Il-96 does not sustain the competition with Boeing and Airbus. In Russia this aircraft was meant to replace Il-86. In the palmy days of USSR the number of Il -86 reached 88-92 aircraft. For today there have been around 40 machines left in the Russian airlines. Saying frankly I don’t see any prospects for these products either.
Today, the transport sector appears to be bottlenecked: the fleet is outdated; there are high customs barriers to import spare parts for the western planes – the measures taken to protect the Russian manufacturers and encourage them to develop at a quicker pace, what’s not happening either. As an expert in this sphere, how do you estimate the role the leasing companies can play to promote the transport sector?
Beyond all doubt leasing is a great deal better developed abroad. All the foreign-made aircraft enter Russia under the terms of operating lease. I for one represent the point of view of the Russian leasing companies. We do have such problems that are not easily solved. It is not enough to sign, for example, a governmental decree just because the Government has suddenly perceived and understood that we’ve got stuck. All the governmental decisions and financial conditions in my opinion are subjective factors. And the objective reasons do exist and cause the current situation in the industry: for me the Russian Federation is a derivative from the USSR.
Say, operation and maintenance systems for Tu-154 aircraft and the ones for a Boeing: these are two different worlds that move along nonintersecting orbits. The products manufactured by the Russian aviation industry depend on the level of production development and available technologies. Even if you were eager to build a Mercedes at the Russian capacities, all the same you would virtually have a Zaporozhets. It’s objective. The first try to break from the morass is Sukhoi Super Jet. But this try has not yet been experienced. All the domestic aircraft, which are currently operated in this country, are neither worse, nor better: they provide the operational safety and passenger transportations the same way… Just the systems, the worlds are different. Think, why all the Russian companies that buy aviation equipment get it registered in Ireland or Bermudas. For this very reason. After you used the aircraft in Russia having got it registered in the Russian Register you can throw it away... not because it was operated improperly, negligently or excessively, but just because it was operated in a different world, within a different frame of axis, according to the Russian requirements. For the prospective foreign owners such aircraft operation is out of control. But the foreign owners wish the aircraft would be operated according to the intelligible rules within the understandable frame of axis, so that after, say, four years of operation in Russia the owners could use the aircraft somewhere in UK. Thus if you get the aircraft registered in Russia no one abroad would take it afterwards; it’s the fundamental cause. There are some additional reasons, for instance, discrepancies in the Russian and Western legislations: how can a foreign owner get his aircraft back from Russia?
You have mentioned Sukhoi Super Jet in respect of which the preliminary contract for 24 aircraft was signed. What was the reason for signing the contract and where can one get the money to pay for it today, in the midst of the financial crisis?
The implementation of this project is due in 2011-2012. It’s still too early to discuss it today; the issue of financing will arise when the time for the deliveries comes. The matter of choice we’ve made in favor of the aircraft is of higher interest, I believe. The Russian airlines have no faith in the domestic industry. The airlines cannot afford the luxury to count on the probability that somewhere in Russia the appropriate aircraft would appear: they have no other way out as to reorient for the new western aircraft. In these terms, the main advantage of Sukhoi Super Jet is that there is nothing Russian about it. That secures availability of spare parts: basically the same spare parts as for Boeing, Аirbus, Embraer and Bombardier aircraft types will work: the market of spare parts is internationally common and the prices are predictable. The same concerns the service support and continuing airworthiness systems. The aircraft was designed according to the western standards; therefore all the respective documentation and technical characteristics are unified. Moreover, the operation regulations are the same as those of Embraer. Thus, with the considerable likelihood ratio one can admit that if the aircraft pass all the tests successfully it will be sold. ‘But what’s gonna be the volume of sales?’ – that’s the question. And it directly depends on the price.
The manufacturers have catalogue prices, but the airlines acquire planes at the current market price; sometimes the discount reaches 30-35%. The official catalogue price pertains in a way to a contractual price or asking price, but it is relevant for leasing companies, banks and airlines as a reference point. When trying to live in the market we forget that the price is not something that you announce but something that they are ready to pay for your product.
This price will reportedly be much lower than that of Embraer and Bombardier.
This is a tricky question. These products can hardly be compared as the matter comes down to the currency. If I buy an Embraer, which is similar to Super Jet, I should pay dollars to the seller, banks and insurers. If I offer the aircraft to a Russian airline under the terms of operating lease, the airline would pay the lease rates in the same currency I purchased the aircraft for, but they cannot get dollars from passengers for the tickets. When purchased, the foreign-made aircraft is paid in one currency, but when it is operated in Russia, the transportation services are paid for in a different currency, in rubles, so it involves a high risk. I have been working in this sphere for sufficiently a long time to realize that long-term projects involve both strong advantages and serious problems that can bring a company down to its knees and bankrupt.
What has been the reaction of Russian airlines towards SuperJet?
…Muted reaction. How could it be different? Yet we’ve got a paper plane… until we receive the real ‘fighting machine’ the airlines may express just interest, nothing more.
Currently there are many questions to be answered: whether the certification will be smoothly obtained, whether the actual technical characteristics and assigned lives will meet the announced design parameters, how much the spare parts will cost, what the flight hour quotation will be for the airlines … There must be some limiting characteristics: say, for the aircraft to be marketable the flight hour rate should not exceed some definite amount but in practice de-facto it may cost more. Someone should bear those risks. The foreign practice is to ask manufacturers of new products for various warranties and guarantees, for instance, the ones of compliance. Time will tell.
Tu-154, Sukhoi SuperJet… What is the planned line of development for 2009?
I believe that we will mainly focus on Sukhoi SuperJet - there’s just no other alternative. We’ll offer it to the airlines that operate aircraft of the similar class and have a fleet of Tu-134 to be replaced. However, the SSJ aircraft, which is currently undergoing the tests, comprises 98 seats and doesn’t represent the complete and precise replacement for Tu-134 with its 68 seats. However, we signed the preliminary contract with SCAC Company for delivery of 24 SSJ aircraft of 70-seat bi-class configuration and 78-seat mono-class configuration. The aircraft of this capacity are likely to be operated within Russia.
Will the Russian aviation industry specialize on regional aircraft?
Our government probably has a different opinion; I can’t argue with the President who announced that we commit to provide 10-15% of mid- and long-range aircraft market.
Are there any plans for doing business abroad or changing your main profile?
No. The matter is that we are a 100% private company and we’re free to move in the direction we prefer; we may, for instance, arrange an SPV in Cyprus. But, as a private company doing business in Russia, we develop a segment that we are confident of. Unlike state-owned companies, we do have something to lose and we can’t afford to participate in dummy projects. We need the confidence as a kind of insurance because the operational life of our currently leased aircraft will expire by 2012-2013 and we can’t afford probabilistic modalities.
Our readers are not well aware of the current situation in Russia. What can you say about Avialeasing and its main values that have ensured your existence for over 10 years?
The key value is human resources; all the rest will come with time - something that I learned at the space launch site - by this I mean the team that we have created for these 10 years, people who have accumulated experience and have become professionals. This is the resource that is worth much and adds value.
Unfortunately, we keep stepping on the same rake and forgetting that machines without people are worth nothing. Over 15 years we have lost the major part of technologies and know-how that disappear with people who leave. Currently the average age of the qualified workers at plants and factories is 52-60 years.
Another issue is training. There are very few enterprises that realize the value of well-trained professionals and provide training and learning new technologies abroad. I would point out just two enterprises that are the leaders in training of their young personnel; this was one of the reasons why we joined the project with their participation. They are Sukhoi Civil Aircraft and NPO Saturn, the manufacturer of engines for Sukhoi Super Jet. The chief designer of NPO Saturn has trained over 800 people for the last 5 years. That’s the real achievement! What matters to us is that these young but highly experienced people are involved in the project and can create real things. They will alter us one day.
| Company: | Avialeasing - «Авиализинг» |
| Position: | President |
| Country: | Russian Federation |