Russia: Transaero faces challenges to stay airborn
Russia’s second-largest airline struggles with financial difficulties as ruble depreciation, sanctions hit revenue

Russia’s second-largest airline "Transaero" is struggling with financial difficulties, as ruble depreciation makes payment for leasing arrangements challenging.

According to Vladimir Tasun, president of the Russian Association of Air Transport Operators, Russian airlines suffered losses of RUB 19 billion roubles ($275 million) just in the first quarter of 2015, and more losses are expected this year. "The continuing devaluation of the ruble has dealt a blow to the airlines’ financial position, as they had to pay more for leasing jets."

Transaero is most affected as it has a fleet of 103 aircraft of which 93 jets, consisting mainly of a mix of Boeing 747s, 777s, 737s and 767s are leased, according to reports from the company. Sberbank has offered Transaero a covenant holiday on leasing payments through 1 October, the bank said in a statement on Thursday. This may just help Transaero to overcome its immediate problem to make payments for outstanding charges owed to its air fuel suppliers for the past several months. However, as the summer season passenger demand slows down, the airline is expected to again need to borrow from a pool of domestic lenders to refinance its debt.

The Director of Moscow’s Domodevo airport Igor Borisov has formally informed the Russian Transport Minister Maxim Sokolov that Transaero’s obligations to pay for ground handling services now exceed RUB 187 million roubles ($270,000), the Daily Kommersant newspaper reported on Friday. The management of Anapa airport near Krasnodar oblast’s Black Sea resort has written to Transaero’s management, and to the Federal Air Transport Agency, that from August 25, it may suspend providing ground handling services if Transaero does not clear its outstanding debts.

Sanctions imposed on Russia since March 2014, the depreciation of the rouble, a drop in consumer demand and restrictions imposed on flights over Ukraine airspace are among the factors challenging Russian carriers, Tasun said. Other airline operators have also blamed a downturn in the tourism industry, owing to continuing economic hardship in Russia, for ongoing losses.

Last autumn, the airline’s management applied to the Ministry of Transport for state guarantees so that it could ask for bank loans. Transaero CEO Olga Pleshakova wrote to the government that the airline risked suspending its operations, as it was struggling to pay RUB 2.5 billion ($36 million) to oil company Rosneft and another RUB 2 billion ($29 million) to Gazprom-Aero for aviation fuel.

As a result, in late December 2014, the government has allocated "Transaero" state guarantees in the amount of 9 billion roubles ($128 million). With that, in recent months, Transaero did not succeed much in bringing its debt under control. But, according to the Russian financial daily, Vedomsti, in March 2015, Transaero sought a new state guarantee worth about RUB 50 billion ($711.5 million), and two months later the required sum rose to 70 billion roubles ($1 billion).

Oleg Panteleyev, editor-in-chief of the specialist news agency, pointed out that difficulties in settling outstanding payments with fuel suppliers usually indicate a critical juncture before an airline goes out of business. In Russia ‘such cases are usually seen as a distress signal for a company facing serious financial problems.’

Russian Deputy Prime Minister Arkady Dvorkovich told the TV channel "Russia-24" on Thursday, that the government’s backing for Transaero to help overcome financial problems would be possible only if the airline's management could propose "a clear financial model which would take Transaero out of difficulties." In the absence of an effective strategy, the government may have to settle for having fewer airlines in the market, Dvorkovich said.

In recent weeks, Transaero has been in talks for the establishment of a syndicate of creditor banks, which would help restructure its debts. According to the Russian Business Daily RBK, between January and June 2015, Transaero faced losses of RUB 8.6 billion roubles ($124 million). Meanwhile, Transaero has announced significant discounts on ticket prices to boost a rise in sales. In late March, the airline's net debt amounted to RUB 67.6 billion rubles ($690 million) of which the short-term debt is RUB 43.9 billion ($635.8 million)

Last Modified: 2015-08-26 07:06:33
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