Rouble Trouble

Rouble Trouble for Russia’s airlines: A combination of economic sanctions and falling oil prices has sent the Russian rouble into freefall against both the euro and the dollar; and Russia’s airlines have been hit hard. Relatively little has been made public, but information from sources in Russia allows us to summarize the situation for several of the big airlines.

AirBridgeCargo: Of all the Russian airlines, all-cargo carrier AirBridge is perhaps the best-positioned to deal with the crisis. Its operation is largely international – connecting Asia with Europe and North America, rather than carrying Russian imports and exports – and most of its revenue is in dollars or Euros while a considerable portion of its expenses are in roubles. The combination of sanctions and the devaluation of the rouble will not help, but AirBridge is far less dependent conditions in Russia than are the other carriers.

Aeroflot: As is the case for Transaero and Utair (see below), most of Aeroflot’s operating revenue comes from passengers, and, with the fall of the rouble, passengers are now staying home. State-owned Aeroflot posted a RUB3.4 billion loss in the first half of 2014 – equivalent to about US$100 million at the time – and will almost certainly report an even bigger loss in the second half. Given its importance as a political symbol, Aeroflot is in no danger, and in fact has been able to pass on some of its financial pain to other carriers, by keeping all of the approximately US$600 million it collected in overflight royalties, rather than sharing half of it with the government (for development of the country’s Air Traffic Control structure) and some of the rest with Transaero and AirBridgeCargo.

Transaero: Russia’s second-largest airline is heavily dependent on tourist travel, but when Russians stopped traveling, Transearo stopped making money. Absent outside help, Transaero would likely have had to cease operations, but the government has now promised RUB9 billion in loan guarantees, allowing the carrier to keep flying, at least for now. Not clear at the moment is the status of Transaero’s orders for four 747-8 passenger aircraft with Boeing and four A380s with Airbus. Cargo Facts has been told that the carrier cancelled both orders, but this has not been confirmed.

Utair: Rapidly-expanding Utair, Russia’s third-largest carrier, has been hit hardest of all. In the good times of the last five years, the carrier placed orders for sixty new narrowbodies with Airbus and Boeing. But as its business declined in tandem with the decline of the rouble, and Utair is reported to be so mired in debt that it cannot meet its lease obligations and forced to return over forty aircraft to the lessors. Again, we point out that this report has not been officially confirmed, and, like Transaero, Utair may be able to turn to the government of a bailout.

Polet: Perhaps it is odd to include Polet in a list of troubled carriers, as Polet effectively ceased operation earlier this year, when it was forced to return its two An-124s. But in an odd twist of fate, Alexander Lebedev – the ultimate owner of those two giant freighters – was unable to find another home for them and is reported to be back knocking on Polet’s door. Whether this will lead to Polet returning to the skies remains to be seen, but the carrier’s owner says he expects to be flying again in a month.