Russia’s next big aircraft program after the SuperJet is the mid-sized MC-21. Seating up to 211, the MC-21 is seen as a competitor to the Airbus A320 and Boeing 737. Although a technically promising aircraft, market realities make the program hard to move forward.
It seems the development cost of the program is similar to that of western programs. But the reality of Russian/Western politics is making the financials a lot more difficult to work out. UAC, and its IRKUT subsidiary, are becoming creative.
Russian business daily Vedomosti reports that the Russian Ministry of Commerce and UAC, together with leasing companies, and the Russian Ministry of Economic Development are discussing government support for the MC-21 program. They would commit 20bn Rub ($320m at current rates) until 2020 according to three different sources. But this scheme depends on many variables such as the commercial plan and leasing rates during a period of 3-4 years, so the amount in question is undefined. The scheme should be ready by the end of this year.
There is talk of guaranteeing a residual value of 40-50% after twelve years. (Could this be Ilyushin Finance?) This a brave move because aircraft are worked hard and no western OEM guarantees a residual value. Imagine the risk. How can anyone know how crews will fly the aircraft? The variables are hard to price.
Russia’s Ministry of Industry and IRKUT have said they need to offer an aircraft with competitive economics and low after sales service. The neo and MAX already match or beat the expected economics of the MC-21. The current 175 orders are obviously insufficient to achiever break even. There is a plan to produce up to 1,000 aircraft by 2030. Of the 1,000 only 40% would be bought in the CIS and Russia. Exports are a key to achieve this.
Customers looking at Airbus and Boeing, who will soon also be evaluating the COMAC C919, will have to be drawn to the MC-21. It appears the Russian state is going to develop an aircraft leasing facility to provide this attraction. By ensuring that lessors have a guarantee, a lot of risk will be removed. The hope is that the aircraft will prove to be as good as expected, or ideally, even better. Does it look like a reasonable risk for Russia?
Maybe not. China will watch this closely and also create the same financial vehicles for its C919. The MC-21 consists of a family which puts it at an advantage to the C919. Airlines outside Russia that want a technically advanced aircraft could be looking at serious competition to Airbus and Boeing by 2020. If the Russian and Chinese aircraft are only 85% as efficient as the western versions, the risk gap for the financial backers may not be too much. The bet is that the efficiency gap will not be 15% – it could be 5%. If this is indeed what happens, Airbus and Boeing will have to accelerate their next generation single aisle aircraft development to hit the market earlier than 2025.
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.