Turbulence ahead for SuperJet

The future of the Sukhoi SuperJet 100, the budding flagship of Russia’s reviving aircraft industry, was called into question, as the Accounting Chamber reported that the project has been severely underfunded through state-run programs.

In addition, commercial loans cannot fill in the gap as the manufacturer, Sukhoi Civil Aircraft, has too large a debt portfolio to take any out.

Branded as the first civilian aircraft developed from scratch in modern Russia, the SSJ-100 consists of more than 60 percent internationally produced components, and has brought Saturn, the Russiabased manufacturer of the SaM146 engine, to its knees.

“The analysis of Saturn’s financial state showed that… the company cannot pay off its loans,” the Accounting Chamber’s report says. “This situation has largely resulted from the serial production of SaM146 engines.”

This diversion of Saturn away from other contracts has driven it into the red simply because it has not been paid – of the 8.4 billion rubles ($261 million) set aside for Saturn by the government, the company has received only 3.4 billion rubles.

Beating competition in cost

Between 2003 and 2010, the federal government spent a total of 16.9 billion rubles ($518 million) on the SSJ-100 project through the aircraft development program, while Sukhoi drew another 27.1 billion rubles ($842 million) in off-budget investment.

View the infographic: Sukhoi Superjet 100 and its competitors. Click to enlarge

The more than $1.3 billion already spent on the SSJ-100 means that the project has outpaced its competitors in cost. The development of similar jets by Canada’s Bombardier and Brazil’s Embraer has required around $600 million each, while only $100 million has been spent on the Tupolev TU-334 since 1992.

In 2011, Sukhoi received an airworthiness certificate for the jet, which took it out of the government’s development program since it was deemed capable of making its own money back. Because of the loss of this funding source, however, the company still needs another 15 billion to 20 billion rubles ($466 million to $621 million) for the investment to pay off by 2014-2015, a source in the Industry and Trade Ministry told Vedomosti, though its indebted state makes it unable to borrow.

“The financial state of the company [Sukhoi] complicates attracting loans from markets,” the Accounting Chamber reported.

Unlikely termination

Still, Oleg Panteleyev, an aviation analyst at the AviaPort news agency, does not believe that the project will be terminated because of underfunding.

“It’s still possible to finance it through other governmentsponsored programs, in particular the program for creating after-sale service systems,” Panteleyev said.

In terms of sales, Sukhoi’s solid contract portfolio for the SSJ-100 currently includes 170 aircraft, with Russia’s Aeroflot, the US’ Pearl Aircraft and Indonesia’s Kartika having each reserved 30 jets. Russia’s UTair and Mexico’s Interjet have agreed to purchase 24 and 15 jets, respectively, and another 100 pieces have been reserved as options. Aeroflot, Sukhoi’s first and biggest customer, has nine SSJ-100s in its fleet, and by the end of the year, Sukhoi plans to produce 23 further jets, with another 21 planned for 2013.

State funding a weak spot

Anatoly Khodorovsky, the deputy director general of the Region investment company, noted in his report based on the Accounting Chamber’s findings that the SSJ loses out to its competitors primarily because it is state-funded, with the government subsidizing credit through state-run lending agencies.

“One should have no doubt that the use of SSJ jets by Aeroflot will be co-funded by the state,” he said. “It’s hard to calculate how much these subsidies will cost our budget.”

The Accounting Chamber’s findings did not come as a surprise to analysts. The SSJ-100 has fallen three years behind schedule, mainly because part of planned allocations from the federal budget had to be replaced by commercial loans.

“This money is more expensive, which affected the project’s overall costs and will affect the recoupment period,” AviaPort’s Panteleyev said.

At the recent Farnborough Air Show, Sukhoi did not conclude any contracts, only announcing that Mexico’s Interjet’s option has been turned into an order, and that the company plans to bring the number of jets on its portfolio to 210 over the next few months, signing contracts with three Asian airlines.

While Sukhoi claims that the jet has relatively low service costs and a fuel consumption advantage over its competitors, the SSJ-100 has had a series of problems in the past few months, most tragically a crash during a demonstration flight in Indonesia on May 9 that killed 45 people on board. The crash, however, was attributed to human error.

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