International Business : Moscow OKs More Access to Plane Market
One day after the United States said it would subsidize development of a new Russian jet, the Clinton administration announced that Russia has agreed to give foreign aircraft companies, including McDonnell Douglas and Boeing, greater access to one of the world’s largest emerging aircraft markets.
In what amounts to a quid pro quo, Moscow will take three steps seen as crucial to allowing foreign companies to sell airplanes in Russia: It will join the international agreement governing aircraft sales, steadily reduce the current 30% tariff on imported airplanes and increase waivers of these and other taxes.
The move was outlined in a memorandum of understanding completed in meetings in Washington between Vice President Al Gore and Russian Prime Minister Viktor Chernomyrdin and signed Tuesday evening.
The timetable for reducing the tariffs, and for Russia’s accession to the international aircraft agreement, are under negotiation, according to a senior Clinton administration official speaking Wednesday on the condition of anonymity.
Within the U.S. government and the aircraft industry, the pact was seen as dismantling a major obstacle faced by Boeing and McDonnell Douglas, the primary civilian aircraft builders in the United States, in cracking the Russian market.
“The Russian airlines are in very serious straits, and are very anxious to refurbish their fleets with modern aircraft,” said the senior Clinton administration official.
He said Russia is expected to need 1,600 civilian jets over the next 20 years, including 250 large transports within five years, with a total value of $75 billion.
The U.S.-Russian aerospace talks were triggered by a request to the Export-Import Bank for a $1-billion loan guarantee that would support the sale of Pratt & Whitney engines, Rockwell International avionics and other U.S. equipment. That equipment will be installed on 20 Russian-built Ilyushin IL-96M/T airplanes that have been leased to the international arm of Russia’s Aeroflot airline.
The Export-Import Bank approved that request on Tuesday, pending finalization of the sales contract.
Pratt & Whitney and Rockwell hope the 318-seat Russian jet, which is expected to sell for a third less than its Western competitors, will be their ticket into the Russian aerospace market. The two firms already have invested millions of dollars in the IL-96M/T and other Russian ventures, and are considering joint-venture production operations there.
Boeing and McDonnell Douglas opposed the Ex-Im Bank loan on grounds that U.S. taxpayers would be subsidizing a foreign challenger with a proven record of producing and selling aircraft in former Soviet bloc countries such as India and China. But on Wednesday, Boeing praised the bilateral pact as a “balanced agreement that promotes the interests of all parties.”
Dick Dalton, a Boeing spokesman, said the Seattle-based company welcomed the chance to sell its planes in Russia, whose huge land mass and undeveloped transportation system presents vast opportunities. To date, Boeing only has 15 airplanes operating in Russia under lease arrangements.
When asked about Boeing’s concerns about a new foreign competitor, Dalton said: “Boeing aircraft traditionally have proven themselves to be very formidable competitors throughout the world.”
Don Hanson, a Douglas Aircraft Co. spokesman, said penetrating the Russian market will be a “long and difficult process” even with the Russian government’s market-opening measures. He said there are now just two DC-10s operating in Russia.
Bill Whitlow, an aerospace analyst with Pacific Crest Securities in Seattle, said the Russians have the advantage of a large pool of aerospace talent left over from the Cold War. But Whitlow said Russia’s aerospace companies still have a long way to go before they can challenge Boeing, McDonnell Douglas or Airbus Industrie, the European consortium.
Martin Kamarck, acting chairman of the Export-Import Bank, expressed confidence that the loan guarantee benefited all sectors of U.S. aerospace by opening up a critical market to U.S. subcontractors and airframe makers.
Kamarck said the Export-Import Bank’s decision does not set a precedent for the financing of other foreign airplanes carrying a high percentage of U.S. content.
