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Daily Telegraph: Russian balancing act benefits aircraft firms

EXTRACT: Russia’s attempts to use its gas company Gazprom to achieve energy ambitions in Europe and the pressure on Shell to renegogiate the terms of the $20bn Sakhalin oil and gas project are unnerving western investors. The EU has led diplomatic protests about the tactics being used to force Shell to give ground and bring in Gazprom as an investor. President Putin is expected to raise the prospect of increased co-operation between the Russian aerospace industry and EADS as an alternative to building a bigger sharehholding. EADS shareholders are far from enthusiastic about seeing the Kremlin use an investment to force changes.

THE ARTICLE

By Roland Gribben
(Filed: 21/09/2006)

Russia has tried a diplomatic compromise to its aerospace ambitions by announcing that it will split a $6bn (£3.2bn) order for 44 wide-bodied aircraft between rivals Boeing and Airbus. Yesterday’s announcement came as a relief for Airbus which is preparing to announce further delays in the production of the A380 double-decker super jumbo.

advertisementAeroflot, the 51pc state-controlled flag carrier, finalised orders for 22 Boeing Dreamliner planes for delivery between 2010 and 2012 and said it was in fresh discussions with Airbus over orders for 22 of the European manufacturer’s new A350 aircraft with a tentative 2012-2016 delivery schedule. The decision comes against the background of Russian efforts to gain a bigger foothold in the European aerospace market and overcome American objections to its entry into the World Trade Organisation. Russian attempts to gain a seat on the board of EADS, the Airbus parent, after building up a 5pc stake, have been rebuffed by shareholders in France, Germany and Spain.

The Kremlin responded by threatening to suspend A350 negotiations and using Alexander Lebedev, who owns 30pc of Aeroflot, to place a reserve on the Boeing order to head off the risk of a collapse of the $3bn order. The move was seen as an attempt to increase pressure on EADS and win American support for WTO entry. The Bush administration has opposed Russia’s bid because of penal 40pc tariffs on aircraft purchases. But yesterday Valery Okulov, Aeroflot’s chief executive, attempted a classic compromise with the order split. The Airbus element is more uncertain because Airbus has only recently launched the A350 and has yet to win customers, while Aeroflot was in danger of losing its place in the queue for the successful Dreamliner. Russia has effectively abandoned its efforts to develop its own aerospace industry and has set its sights on closer ties with Airbus.

The issue is expected to be raised in weekend talks between President Putin, President Chirac of France, and Angela Merkel, the German Chancellor, where the wider concerns about growing risks to foreign investment and Russia’s economic ambitions are likely to loom large.

Russia’s attempts to use its gas company Gazprom to achieve energy ambitions in Europe and the pressure on Shell to renegogiate the terms of the $20bn Sakhalin oil and gas project are unnerving western investors. The EU has led diplomatic protests about the tactics being used to force Shell to give ground and bring in Gazprom as an investor. President Putin is expected to raise the prospect of increased co-operation between the Russian aerospace industry and EADS as an alternative to building a bigger sharehholding. EADS shareholders are far from enthusiastic about seeing the Kremlin use an investment to force changes.

Boeing already has interests in Russia while EADS has a 10pc stake in Irkut, the only listed Russian aerospace business.

Airbus is finalising plans for an overhaul of the business in the wake of top level management changes and the costly delays to the superjumbo. The 100 days set by Christian Streiff, new Airbus chief executive, to produce a recovery action plan runs out next month. He is said to be adopting a conservative approach to avoid a further loss of credibility. The upshot is that Airbus is only likely to deliver only four A380s next year, half the promised total.

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