- The Washington Times - Thursday, February 22, 2007

MOSCOW (AP) — Talks on a multibillion-dollar deal for Russian state flag carrier Aeroflot to buy 22 Boeing 787s are on hold, and frosty relations between Russia and the United States could be to blame, a Russian airline official said yesterday.

Aeroflot management last year asked the government — the company’s controlling shareholder — to approve a deal to upgrade its long-range fleet by buying 22 Boeing 787s and an equal number of Airbus A350s. Chief Executive Officer Valery Okulov said later that no permission had been received and a deadline for the deal had been missed, though a Boeing spokeswoman said talks were continuing.

Aviation analysts have valued the Boeing order at $2.5 billion.

Aeroflot Deputy General Director Lev Koshlyakov said negotiations with the Chicago company were on hold.

“In respect of this contract, negotiations have not been held for some time,” Mr. Koshlyakov said. “However, this does not mean that we won’t be open to discussion with them in the future. Boeing remains a major producer.”

Boeing spokesman Randolph Harrison said yesterday that “Boeing and Aeroflot continue to discuss placement of Boeing aircraft in the Aeroflot fleet.” He said the company does not comment on specific details of ongoing negotiations with customers.

An unidentified Boeing official was quoted by the Seattle Times in a story published yesterday as saying Boeing wrote off the deal “a month or so ago.”

Observers speculated that the deal had been caught up in politics — with relations between Washington and Moscow having taken a sharp turn for the worse in recent months.

In August, the State Department imposed sanctions on Russian arms exporter Rosoboronexport and fighter-jet maker Sukhoi for their dealings with Iran. Russian President Vladimir Putin said on Feb. 10 in Germany that under President Bush, the United States has “overstepped its national borders in every way.”

“As with any big deal, obviously the political situation has a certain influence,” Mr. Koshlyakov said. “As management we proceed on the basis of economics, though of course our shareholders may have their own ideas about our choice of partner. At the end of the day it’s their decision.”

Mr. Koshlyakov, meanwhile, said talks with Boeing’s main rival, Airbus, were continuing. The Interfax news agency on Wednesday quoted an Aeroflot source as saying a deal for the Airbus A350s would likely be completed later this year. French President Jacques Chirac is expected to visit Moscow next month.

Russia is interested in playing a bigger role in Airbus’ parent company, EADS, where it already holds a 5 percent stake through state bank Vneshtorgbank.

On Wednesday, Mr. Putin told visiting French Foreign Minister Philippe Douste-Blazy and Defense Minister Michele Alliot-Marie that more cooperation “would be interesting and useful, not only for Russian producers but for their European partners.”

However, Airbus is in the midst of a troubled restructuring and has yet to decide whether it will build the A350s in Germany or France.

Meanwhile, Boeing has pulled back on some of the incentives put forth for Aeroflot, according to the Seattle Times.

Boeing’s aircraft financing unit was to have leased used MD-11 freighters to Aeroflot on favorable terms as replacements for aging DC-10 cargo aircraft in a side agreement. Russia now will lease half that number and will pay much more for them, the newspaper said.

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