Boeing awaits Bush-Putin talks

Boeing executives will watch with keen interest when President Bush meets Friday with President Vladimir Putin of Russia because a large 787 order may hang upon the meeting.

A person familiar with the deal says Russia's state airline Aeroflot has all but sealed a contract to buy as many as 22 Boeing 787s listed at $3.2 billion, awaiting only Putin's approval.

Also, Boeing Capital, the company's aircraft-finance division, has arranged to lease eight used MD-11 freighters to Aeroflot so that the airline can launch a new Russian air-cargo carrier.

While the Aeroflot order is smaller than some of the huge orders won last year, it's one of the major wide-body competitions pending. For Boeing to snag the deal would be a blow to Airbus, which hopes to sell Aeroflot its revamped A350.

But everything hinges on politics, as the U.S. and Russian leaders meet prior to the G8 summit in St. Petersburg on Saturday. If Bush and Putin can work out some of the many policy differences that have emerged between the former soulmates, a Boeing deal could be announced as early as the Farnborough Air Show in England next week.

But if Bush were to upset Putin, for example by pushing too hard for democratic reforms in Russia, the deal could fall through.

A person inside Boeing familiar with the negotiations put the chances of a deal being completed at 50-50.

Aeroflot general director Valery Okulov has had the contract on his desk awaiting high-level government approval since June 16, according to an industry insider with information from Aeroflot.

Aeroflot currently has a mixed fleet. On long-haul routes it operates 767s and 777s, as well as an older Airbus A310 and some IL-96s. For shorter routes, it flies Airbus.

One advantage for Boeing: It has been holding valuable early-delivery slots for the Russian airline, while Airbus can't promise to provide any A350s until 2012 at the earliest.

In Moscow on June 21, at the Russia AirFinance conference run by the London-based AirFinance trade group, Aeroflot publicly made clear its preference for the 787.

Sergei Koltovich, head of fleet planning at Aeroflot, presented a financial analysis comparing the fuel-efficient 787 with the airline's existing Ilushyin 96, a Soviet-era jet of comparable size.

"The difference between the IL-96 and the 787 is so great that the IL-96 would not be competitive if we were given them for free," Koltovich told the audience.

The leasing of the used MD-11 freighters, which are hard to obtain, is a key component of the deal. Aeroflot wants to operate an air-cargo subsidiary that can cash in on the growing air-freight business between Asia and Europe.

Ned Laird, managing director of Seattle-based Air Cargo Management Group, said Aeroflot needs "to buy some extra-large wide-body freighter aircraft that can compete not only with the Asian and European carriers but also with AirBridge," a Russian cargo line that's successfully operating four 747 freighters between Shanghai and Europe.

After his first face-to-face meeting with Putin in 2001, Bush famously announced he had looked the Russian president in the eye and got a sense of his soul. The relationship has cooled considerably since then.

Issues such as Iran and North Korea will top the leaders' agenda.

In addition to toning down its rhetoric during the summit, the Bush administration has said it will announce the start of negotiations on a civilian nuclear agreement with Russia, something that country has desired for many years as a way to get into the lucrative business of storing spent nuclear fuel from civilian power reactors.

There also could be a breakthrough at the summit on another Russian goal — U.S. approval for Russia's bid to become a member of the World Trade Organization. Russia has been trying to join the WTO since 1993, and the U.S. is the only country yet to reach a deal with Russia on membership terms.

Laird agreed that closing the 787 deal rests upon political considerations.

Talks on Russian entry into the WTO could be difficult because both political and business leaders in the West have grown anxious about Putin's reassertion of state control over key industrial sectors, which Laird called the "re-Bolshevization" of business.

Putin in February signed a decree combining Russia's six major aircraft design and manufacturing companies into a single entity with solid state control.

Putin "is trying, especially in the aerospace sector, to bring the airline and aircraft [manufacture] business back under government control, because he's classified them as strategic industries," said Laird.

Information from The Associated Press is used in this report.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com