Russian airlines & the crisis: UTair donwsizes to save itself

UTair Boeing 767

While the previous article looked at how the economic crisis and the plunging ruble is affecting Russian airlines, this one takes a deeper look at one of the airlines that seems to have been hardest hit by this financial storm, UTair.

UTair is not your typical airline, it grew out of a helicopter business that serviced primarily the oil and gas business in Western Siberia, and, despite commercial aviation now representing the largest share of its revenue, it remains one of the largest civilian helicopter operators in the World.

In the last few years, UTair had been busy expanding its activities, now no longer limited to its original Siberian region, but covering most of the European part of Russia, with a large base at Moscow's Vnukovo airport, and an increasing number of international destinatons. It also started an ambitious fleet renewal and expansion programme adding new Airbus A321s and Boeing 737-800s. It also created a Ukrainian subsidiary (bad timing, but, to be fair, no one could see that one coming, really)

Problem is the company grew a 168B Ruble debt (around €2,25B at the, admittedly unfavourable, current exchange rate).

The problems started to accumulate for the airline in parallel with the economic downturn, with a potential takeover of its commercial aviation business by state-owned airline Aeroflot going nowhere, UTAir defaulted on a bond payment. Other creditors then rushed to get their dues and the result has been a string of court cases and the impoundment (or the threat of impoundment) of some of the company's assets (the most recent case, three de-icing vehicles at Moscow's Vnukovo airport)

The company insists it has a viability plan, that it has started to execute. One of the most notorious aspects of UTair's re-structuring is the down-sizing of its operations: 46 aircraft, or 40% of its fleet, is to go. UTAir plans to keep only Boeing and ATR aircraft in its fleet. There go the brand-new A321s, all of them new from the factory, that have been barely operating for about a year. Same fate for all the Bombardier CRJs (these aircraft are being stored at Teruel airport, Spain, by the way, a place we wrote about some time ago). UTair's Boeing fleet will also be down-sized:  the carrier will get rid of all its Boeing 757-20ss, 6 of its Boeing 737-800s and two of its Boeing 767s. 

34 Boeing 737-500s and 15 ATRs will remain.

 UTair Boeing 757 taking-off from Domodedovo airport Moscow at sunset. It soon won't be happening anymore, as UTair withdraws this aircraft type.

UTair Boeing 757 taking-off from Domodedovo airport Moscow at sunset. It soon won't be happening anymore, as UTair withdraws this aircraft type.

Of course that means UTair won't be taking delivery of the Sukhoi Superjet's it had on order (no good news for UAC, but looks like Aeroflot will make good for this decision by increasing its own order by 20 of the type).

With this fleet reduction UTAir plans to reduce leasing costs by 69B rubles (aproximately €900M) from now to 2025.

Staff numbers will also be cut by 30%, while at the same time looking for efficiency improvements in areas such as revenue management.

In parallel to these measures, UTair is negotiating with its main creditors (Russian banks such as Alfa Bank and Sberbank) a whole new set of conditions, that might involve extending debt maturity by up to 20 years, or even some of its creditors, such as Sberbank, becoming shareholders.

Whatever the outcome of these measures, the downsizing of UTAir could have consequences for the industry's competitive landscape, particularly in Moscow, with competitors better able to cope with dwindling demand or maybe even new opportunities for Aeroflot's low cost carrier Pobeda, that operates also from Vnukovo airport.