UTair’s Losses are Mounting

The Russian passenger and cargo carrier UTair is facing increasing financial pressure. Due to empty coffers the carrier saw no alternative but to postpone the delivery of the Airbus and Boeing planes they ordered.

Russia’s third largest carrier is facing severe financial turbulences  /  source: UTair
Russia’s third largest carrier is facing severe financial turbulences / source: UTair

The total order consists of 20 Airbus A321 aircraft and 40 Boeing 737-800 /-900 New Generation. According to the manufacturer’s price lists the total package amounts to six billion US dollars in accumulated value.

Negotiations with Airbus and Boeing started
Meanwhile, UTair has commenced negotiations with both manufacturers to find a satisfactory way to best solve the problem. The suggestions range from completely stepping out of the deal to reaching an agreement to buy and operate the 60 aircraft at a later date. Different leasing options also seem to be part of the pie and have been recently negotiated. Boeing and Airbus denied commenting on this point. If UTair will be financially penalized by the manufacturers for abandoning the purchase agreements is still unknown. In case a customer is in severe financial trouble the manufacturers are trying to find suitable solutions for solving the problem quietly. However, this often includes some financial paybacks Boeing as well as Airbus demand. This very much depends on the status of the aircraft: if their cabins are finished, it makes it difficult to sell the planes to another airline since they will insist on a different interior inline with their specifications and needs.

20 percent fewer flights
But no matter what the outcome of these business talks might be, fact is that UTair is burdened with an enormous mountain of debt. According to internal but officially unconfirmed sources the carrier has short-term liabilities of up to $800 million, with long-term debts amounting to a further $175.5 million.
The management has now announced a 20 percent reduction of all flights as well as a 10 percent job cut as immediate reaction to these disastrous and increasingly existence-threatening carrier figures.

Painful agony
UTair’s finances went south as result of sanctions imposed on Russia by western countries, the closure of Ukrainian airspace for all Russian carriers and the dramatic devaluation of the ruble against the euro and dollar. A sharp decline in UTair’s passenger numbers and cargo shipments is the result of the Kremlin’s isolationist policy that became obvious with the Russian annexation of the Ukraine peninsula Crimea which still continues today with the unacknowledged but ongoing support of the Ukrainian separatists by the Putin regime.  
The victims of this policy are major Russian carriers, as demonstrated by the agony the country’s third largest airliner UTair is currently facing.

Some tills are ringing
However, part of the truth is also that some Russian airlines are benefitting from the many but very different crises the world is facing. Increasing Ebola relief flights, transportation of equipment on behalf of the anti IRIS coalition to Turkey or Bagdad are just two new sources for quickly upping revenues. A carrier that benefits most is Moscow-based capacity provider Volga-Dnepr. “Their till is really ringing,” confirms a broker that regularly charters capacity provided by Volga-Dnepr’s large fleet of Ilyushin and Antonov freighter aircraft.

Heiner Siegmund    

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