Multiple Russian Airlines on the verge of Bankruptcy

Airline companies in Russia are collapsing due to the Ruble falling off a cliff this year. The third largest, Utair, is already in default for some of it's loans and has Alfabank proceeding with legal action to seize it's planes. Now the second largest, Transareo, is rumored to have missed loan payments and applied to the government for emergency financing. On Wednesday the government provided loan guarantees of $170 million US to Transareo. Alfabank also temporarily suspended it's legal action against Utair at the same time due to 'government requests' in an effort to not disrupt the upcoming Russian holiday season from Jan 1 to 7. All bets are off in the new year however as the government has warned many changes must be made in the industry.

So what's wrong?
Russian airlines collect about 90% of their income in Rubles but spend about 60% of their costs in foreign currency. The Ruble is down 40% and Airline companies run on razor thin margins at the best of times. Airplane leases of Boeings are in US $'s. Aeroflot, Russia's biggest airline, has already raised prices 10% twice now but is still struggling. Of course these sudden price increases have cut passenger traffic significantly, further reducing Airline revenue.

2015 will be a year of massive disruption in Russia's airline industry. Just like in 2008-9 many regional companies are likely to go bust as well as a larger national carriers or two. Regional companies with no international routes for income are most at risk. Domestic routes will be slashed to bare minimum service levels as planes are returned to lessors and as companies abandon money losing operations.

Fortunately most Russians enjoy a train ride anyway...

www.businessinsider.com...

a reply to: noeltrotsky

But isn't the industry kinda messed up anyway? I mean look at our airlines,they seem to have a lot of issues too. What is with that? Can the airline companies not make a profit? If not, why? I mean airports are pretty busy places. All those people aren't using wings to get around. So a large part of them are getting on those planes and flying. So what is up with airlines that they aren't making money? Here, in Russia anywhere. I mean come on.

Yes the industry is always in throws in different parts of the world. Traditionally government owned airlines will survive as they inject cash in there without worrying about operating at a loss.

As an example during crises like SAARs and 911 Ansett airlines collapsed, United airlines went into chapter 11 to stave off bankruptcy (and they stayed there for years)

Additionally the cost of maintenance is very high and moving that offshore is the only way that most airlines have managed oil hikes.

I read back in October somewhere that Aeroflot is transferring the assets of grounded Dobrolet (2nd) (Moscow) to its new subsidiary called Byudzhetny Perevozchik, (translated as Budgetary Carrier).

I remember thinking it interesting, I'm suspecting they will let Aeroflot flop once all assets are transferred to wipe debt....

a reply to: Dimithae

Profits at the best times in the airline industry are hair thin. There was a show about American Airlines a few years ago, where they sold out an MD-88, including some seats at over $200 for a fairly short flight. Total profit after expenses for that one flight was $38.

originally posted by: Dimithae

I mean airports are pretty busy places. All those people aren't using wings to get around. So a large part of them are getting on those planes and flying. So what is up with airlines that they aren't making money? Here, in Russia anywhere. I mean come on.

A good portion of an airline's profits are generated from cargo transportation, the passengers are sometimes just the gravy. If there is an economic slowdown this would in turn affect cargo loadings.

originally posted by: zazzafrazz
I read back in October somewhere that Aeroflot is transferring the assets of grounded Dobrolet (2nd) (Moscow) to its new subsidiary called Byudzhetny Perevozchik, (translated as Budgetary Carrier).
I remember thinking it interesting, I'm suspecting they will let Aeroflot flop once all assets are transferred to wipe debt....

I remember hearing about the Budget start up Aeroflot was spinning off as well. I thought it a way to get around the Crimea sanctions myself, but now with nobody flying into Crimea due to lack of volume and train service cancelled by both Russia and Ukraine getting to Crimea is a walk or drive yourself type of adventure.

Budget carrier in Russia is what they have always been anyway right? What is Aeroflot going to find even older Soviet planes to shuttle people around Siberia? Are they going to make people push the plane to save fuel? Ah, no way! Really???

www.bbc.com...

originally posted by: AugustusMasonicus
A good portion of an airline's profits are generated from cargo transportation,

I thought the best paying routes were international passenger routes. I have no idea how well cargo flights pay though.

a reply to: noeltrotsky

Their fleet age and maintenance never really mattered, hell one of the planes crashed as the pilot let his kids in the cockpit to fly (they had voice recordings of them doing this) then error occurred and both pilots tried to control the plane to safety which caused the crash......

I remember the short haul Aeroflot craft I took in '91 . The metal was 19 years old, and considered young Oh the heating didn't work well either we froze and my friend nearly went hypothermic lol, great days.....I was younger and penny-pinching on tickets for backpacking round the world, no way I would have done that flight even 5 years later.

originally posted by: noeltrotsky

I thought the best paying routes were international passenger routes. I have no idea how well cargo flights pay though.

Here is a good article on airline cargo loadings from earlier in the year and their reliance on the extra revenue to generate profits.

a reply to: AugustusMasonicus

Interesting article.

"Cargo represents just 2.3% of the company’s revenue [United], but, given the thin profits that airlines are running, losing cargo revenues makes it just that much harder to post profits."

"Delta estimates that its cargo operations will generate $1 billion in revenue in 2014, about half what its baggage fees and other service charges generate."

I still have to think Cargo revenue is a bit of an afterthought by the accountants as they try to balance the books.

a reply to: noeltrotsky

United is the exception as I think $1 billion in revenue is not really an 'afterthought'. Additionally, the gist of the article makes it clear that with ultra-thin profit margins cargo loadings are a critical factor in revenue generation.

originally posted by: zazzafrazz
I remember the short haul Aeroflot craft I took in '91 . The metal was 19 years old, and considered young

Oh the heating didn't work well either we froze and my friend nearly went hypothermic lol, great days.....I was younger and penny-pinching on tickets for backpacking round the world, no way I would have done that flight even 5 years later.

If you haven't taken an old Aeroflot flight and openly clapped with everyone else after the plane lands then you haven't really experienced flying! As a calm flier my arms dug into the hand rests as the old Aeroflot tried to land in a strong tailwind with blowing snow in Novokuznetsk...armpit of the world. The engine above my head at the rear of the plane was screaming as the max flaps down finally saved me from a frozen tundra death. I had to walk the tarmac to the bus in the snow but I was pretty happy to be alive and didn't notice the -20 C.

a reply to: Zaphod58

That was a pretty good documentary. www.hulu.com...

a reply to: justwanttofly

Yeah it was. I really enjoyed watching it.

a reply to: noeltrotsky

Airline profits have historically been tied with their country's ecomony. When the economy is down, profits are down and airlines go in the tank. When the economy is good, profits are good and there is no shortage of new start ups.

a reply to: noeltrotsky

LOL! And did you have the added joy of Silver Gaffer tape over the interior seams of the cabin

a reply to: noeltrotsky

I had a Russian Air Force pilot tell me once that on certain aircraft, they sit on the end of the runway, brakes locked, at full power for two minutes. After that time, if all four engines are still running, they take off.

If anyone wants to get a glimpse inside Russian commercial aviation there's a good documentary called Airplaneski!. It interviewed flight crew and passengers of Russian airlines in the 90s after the fall of the Soviet Union. There are a lot of interesting stories to be heard. It's somewhat outdated because it was filmed in the 90s but still worth a watch.

It's in 5 parts on YouTube, the playlist link is www.youtube.com...

a reply to: justwanttofly

Excellent link! The series is dated, but it feels like that when you visit Russia anyway so enjoy it! Without a massive change in course by the Putin government I see much of the same happening again.

originally posted by: noeltrotsky

Without a massive change in course by the Putin government I see much of the same happening again.

And there in lies the problem. Russia is not dealing with just bad leadership. They are dealing with bad leadership that is based on putins ego. In the last decade plus Putin has never made a mistake where so many things go wrong at the same time.

As long as he continues to blame the west, not to mention he is now blaming parts of his own government except himself, nothing will improve for Russians.