New chill between U.S., Russia freezes Boeing out of jet order

Boeing has lost a huge potential order from Russian state-owned airline Aeroflot for 22 787 Dreamliners, company sources said.

The deal was all but sealed last June, requiring only the approval of the Russian government. Worth $3.2 billion at list prices, it would have been about $2.2 billion with standard discounts as estimated by aircraft-valuation firm Avitas.

But steadily worsening political relations between the U.S. and Russia have killed it and given Airbus a big, though still-unannounced, win for its A350 rival to the 787.

In an August interview, Sergei Koltovich, Aeroflot's head of fleet planning, said "both Boeing and Aeroflot are trying to make this order happen," but complained that U.S. criticism of Russia was stalling the deal.

Boeing finally wrote off the Aeroflot order "a month or so ago," said a Boeing insider familiar with the negotiations.

The Russian news agency Interfax quoted an Aeroflot source Wednesday saying the carrier will likely finalize a deal to buy 22 Airbus A350s later this year.

U.S.-Russian relations are chillier than at any point since the Cold War. In a blistering speech in Munich, Germany, on Feb. 10 , Russian President Vladimir Putin harshly attacked President Bush's foreign policy, saying the U.S. has "overstepped its national borders in every way."

Ned Laird, managing director of Seattle-based Air Cargo Management Group, said it was a speech "that could have been written by [1950s Soviet leader Nikita] Khrushchev"

Meanwhile, the oil-rich Russians are actively seeking to partner with and invest in Airbus parent company European Aeronautic Defence & Space (EADS).

In October, EADS proposed a joint venture with Russian aircraft-manufacturer Irkut to convert A320 passenger planes into freighters.

Last summer, Russia's state-owned Vneshtorgbank — the former Soviet foreign-trade bank — quietly amassed a 5 percent stake in EADS. And The Associated Press reported Putin told French government ministers Wednesday that Russia is interested in acquiring a larger stake.

The offer is well-timed. EADS is in financial trouble as it seeks to solve its A380 manufacturing problems. And with Airbus set to cut back thousands of jobs, European governments may be less willing to fund A350 development.

But EADS is likely to seek investment first from large suppliers, rather than from another government offering money with political strings attached.

And while Airbus now clearly has the advantage in Russia, Boeing continues to try to do business there.

A side agreement by Boeing's aircraft-financing unit to lease used MD-11 freighters to Aeroflot will partially go forward despite the loss of the big order for new planes.

Aeroflot needs to replace four aging DC-10 aircraft in its cargo unit and was seeking to expand its freighter fleet. As an incentive for the 787 order, Boeing Capital last year offered to lease Aeroflot eight used MD-11s at a favorable price.

Boeing Capital will go ahead and lease just four of those airplanes to the airline, not eight. And a person familiar with the deal said the Russians will now pay much more for their MD-11s.

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