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Eclipse assembly line brings out divided opinions in Russia.

Vern Raburn- president and CEO of Eclipse Aviation recently went on record saying- “Never in my wildest dreams did I think that I would be standing here in Russia and changing how people travel in this country”. Raburn was attending a ceremony marking the launch of a project- which seems just as incredible to many- both inside of Russia and out.

ETIRC (European Technology and Investment Research Center) Aviation- a Luxembourg-based investment company- responsible for Eclipse 500 sales in Europe- announced it would build an Eclipse 500 assembly line in Ulyanovsk- which would produce its first 50 jets as early as late 2009.

ETIRC is planning to invest $130m-$150m into a brand new facility - an exact copy of Eclipse’s Albuquerque site. Although the idea seems extravagant at first glance- several details make it a realistic one. To satisfy growing European demand for VLJs- the line in Ulyanovsk is likely to prove the right choice for the manufacturer.

However- it may be a while- before the Eclipse 500 changes the way people travel inside of Russia. Although the new site will be similar to the one in the US- the difference is that it will be run by a Russian management team. Russian partners of the new company- ZAO (a closed joint stock company)- have not yet been announced- but according to ETIRC officials they will have a significant share.

This fact alone is enough to plant seeds of doubt into some of the more skeptical minds of interested observers. “Eclipse may be a pioneer in many ways”- one Russian bizav market participant- who preferred to remain anonymous admitted- “but it is certainly not the first western company- which- attracted by the country’s rich aerospace heritage and engineering resource- has tried to establish aircraft production jointly with Russian partners.

We have yet to hear of success stories.” Success stories do exist - but in the car manufacturing sector. Considering that the Eclipse 500 assembly line will be built in a conveyor style- the planned annual production capacity of 800 aircraft to be reached by 2011 does not appear totally unrealistic. Local legislation and high import taxes on components- is one of the strongest risk factors for the project.

According to Eclipse- talks are underway with federal officials and local administrators regarding establishing a special free trade zone in Ulyanovsk- an idea which has found support by the Governor of Ulyanovsk- Sergey Morozov.

Ulyanovsk- birthplace of Vladimir Lenin- and home to Aviastar SP- manufacturer of the Antonov An-124- is indeed striving to increase its investment appeal to foreign capital - but the details of tax relief or other privileges for foreign investors have not been declared. The Government of the Ulyanovsk region emphasizes that it will invest ca. $10m into providing engineering communications and infrastructure of the newly created industrial zone- where Eclipse and several other factories will be located- but other conditions have been described in very general terms.

One of the most probable schemes is a dedicated customs zone- which will free the incoming components and raw materials from import taxes- as long as the final product is exported- sold and used outside Russia. Obviously- in this case- for Russian customers- Eclipse 500s will cost an extra 41.6%. Last year’s reduction of import taxes on business jets only covers aircraft with an MTOW of 15-20 tons.

Sergey Morozov- Governor of Ulyanovsk- sees a bright future not only for the production of the Eclipse 500- but for their operations in Russia as well. After a test flight on board of the first Eclipse 500 to land in the country- Morozov enthusiastically painted a picture of hundreds of VLJs changing air travel in Russia.

ETIRC’s chairman Roel Pieper is a little more conservative in his predictions for the local market capacity. “We do not count the Russian market separately from the European demand”- he says. Indeed- Nikolay Nikiforov- ETIRC CIS director adds that there are enough orders from European operators and private owners to keep the facility busy in the short term. There are also several orders from undisclosed Russian customers- he reveals- and the market potential is there. It is precisely this reason that Russia was chosen as production site location- and not China- for example- he asserts.

But a representative of an operator active on the local market expressed doubt that an air-taxi or any other form of commercial operation using VLJs could be a viable project due to demand specifics and lack of regional airport infrastructure. “In regards to general aviation the legislation which would regulate GA flights in Russia is still not in place.”

Elizaveta works with Russia-based aviation publication Air Transport Observer- having previously edited GA magazine Polet. Ms. Kazachkova is also a student pilot. She can be contacted at kazachkova@ato.ru

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