The Russia government is expected to announce Friday, Aug. 17, the winner of a battle among four contenders for the right to receive state support for a major aircraft-leasing project.

The government held a tender in June in its effort to select a company to run the national leasing scheme it is establishing. Deputy Prime Minister Ilya Klebanov said this week that the plan was a key component of state efforts to breath new life into Russia's ailing aviation sector.

Government and industry officials have cited the lack of an effective leasing scheme as a major roadblock to revitalizing the aviation sector. However, industry insiders also warn, unless a falling trend in passenger volume can be reversed, the outcome of any leasing program is far from predictable.

As part of the activity surrounding this week's Moscow Air Show (MAKS-2001), government officials revealed the names of four finalists to lead the project: Ilyushin Finance, the Financial Leasing Co., the Lider Group and Tsentrolizing.

Industry sources have speculated that Ilyushin Finance – which is associated with Russia's largest aircraft manufacturer Ilyushin – will win the tender because it has the highest charter capital, $126 million, among the contenders and because it has long-established links with airplane manufacturers as well as with airline companies.

According to officials, the government would assume 85 percent of the risk of the leasing program and provide support for up to seven years. It would also double the assets of the selected company and become a major shareholder – up to 51 percent, officials have said. That entity would provide money to manufacturers to build planes before conducting leasing arrangements with interested domestic airlines.

According to Andrei Khitrov, head of the Credit Schemes department at the Economic Development Ministry, some 3 billion rubles ($101 million) from next year's federal budget will be allocated for expenses connected with the project.

To ensure further funding for the project, the government will act as the guarantor for commercial loans and share in debt payments. This, officials say, would relieve the fears of Russian commercial banks, including state-controlled Sberbank, which have suffered through numerous defaults in previous industrial projects that did not have sufficient government support.

In general, many financial observers express skepticism when any government gets involved in a business venture, but analysts in Moscow said that, in this case, it appeared to be a necessity.

"For better or worse, in any deal in which hundreds of million dollars are concerned, both domestic and foreign investors would prefer that the state be involved," said Helen Sakhnova, an analyst with Aton brokerage. "So far in Russia, no leasing company has been operating long enough or has enough resources to manage such a large-scale project as building new aircraft [without government support]."

Once implemented, the project may provide Russian market with as many as 20 new airplanes by 2006, the year that new European Commission ecological standards will be implemented, which will force several models of Russian-made planes out of European skies. The struggling Russian aviation industry built just four civil airliners last year, down from the 150 in 1991,

"After 2006, airplanes built as a part of this leasing program might become the last hope for dozens of Russian commercial carriers operating European flights," said Sakhnova. "We expect that Russia will have to replace some 30 to 50 TU-154 planes with new ones due to the stricter European regulations."

However, Sakhnova said that the long-term success of the leasing scheme is not guaranteed because the demand for new aircraft may not be sufficient due to falling passenger volume. "Airlines, whose profits are not that high anyway, do not change their airplanes every year," she said. "Since the beginning of the economic reforms, most Russians have limited their transport needs to the railway tracks."

She added that the biggest Russian carriers, such as Aeroflot and Transaero, must be convinced to buy domestic planes. "These airlines on many occasions have clearly indicated that they prefer foreign-made planes to domestic ones."

Yury Koptev, director of the federal Aero Cosmic Corp., said at a news conference last week that the leasing plan is part of a bigger effort to reduce the fragmentation of the aviation sector.