Transaero Declares “Mayday”

Part 1

Russian airlines are now in deep financial and operational trouble due to the ongoing crisis in the country following the deterioration in the international environment.
Information, some of which is not fully verified, has reached CargoForwarder Global showing that Russia’s main carriers are indeed in dire straits.
In the following, we provide an up-to-date overview - split in two parts - on the serious and deteriorating situation Russian airlines are facing.

Russia’s second largest airline is facing hard times  /  source: UN
Russia’s second largest airline is facing hard times / source: UN

Transaero is in deep trouble!
Transaero, the second largest Russian carrier declared “mayday” just before Christmas by turning to the government and some of its creditors for financial aid.
The carrier states that if aid is not quickly granted, that they may be forced to ground all of their aircraft before the start of the Russian New Year holiday season.
Officials close to the Ministry of Transport were reported as saying that all possible is being considered to prevent flight cancellations and groundings.
What that means - has not been elaborated on so far. Rumor has it that Transaero would receive a state guarantee amounting to around 9 billion roubles and in return would commit to not increasing domestic tariffs during 2015.
It seems in Transaero’s case to be simply due to a massive cash flow problem caused by a lack of travelers willing or able to afford skyrocketing foreign exchange rates for foreign travel as well as aircraft leases and fuel which are charged in USD.
According to reports in the Russian news agency Tass, Transaero’s Director General, Olga Pleshakova, had apparently informed government agencies already in early December that the carrier which runs a mixed fleet of Airbus and Boeing aircraft totaling more than 100 units with a further 33 on order, was running the high risk of having to suspend flights.
It’s not sure whether Transaero is actively negotiating at present with Boeing and Airbus to have their orders deferred or cancelled for four A380 and four B747-8 aircraft which are meant to be delivered in 2015/2016.

Transaero operates two Ilyushin Finance leased freighters TU-204-100C.
Transaero operates two Ilyushin Finance leased freighters TU-204-100C.

Furthermore, the information given to the state by the troubled carrier indicates that by the end of November it had already run up a debt of around US$ 61 million to fuel supplier Rozneft as well as almost US$ 49 million to Gazprom Aero, also for fuel.
Over 90% of the fleet is leased mostly in foreign currency and if payments cannot be continued, then this well ruin the carrier which has been in business since 1991 and which has built up a worldwide route structure.
It seems their troubles don’t just stop there.
The Moscow based airline, with its main headquarters in St. Petersburg, recently completed the move of its operations from Domodedovo (DME) airport to Vnukovo (VKO) where it is said the carrier would receive a 60% reduction on handling costs. It is rumored however that Transaero also owed VKO money in the meantime.
Further reports indicate that Transaero is negotiating a loan of more than US$ 194 million, but that so far the banks have only been able or willing to endorse a much smaller amount. It, along with UTair are said to be in talks with the Russian government in order to gain credit agreements which can ensure that payments, especially for aircraft leases, can be upheld.

John Mc Donagh

Putin Government Grants State Aid to Transaero

This is what the carrier announced today: 
Moscow, December 29, 2014 – “Transaero Airlines expresses its utmost gratitude to the Government of the Russian Federation, the Ministry of Finance of the Russian Federation, the Transport Ministry of the Russian Federation, the Federal Air Transport Agency and State Corporation "Bank for Development and Foreign Economic Affairs (Vnesheconombank)" for their financial support. Transaero Airlines expresses its special gratitude to JSC VTB Bank.
 
The Government has pledged its support to Transaero, one of the backbone companies of the Russian transport industry; meanwhile JSC VTB Bank will assign the necessary credit funds to the airline during this period of drastically changing macroeconomic conditions.
 
Transaero, for its part, entirely supports the price freeze principle, and will not increase airfares on its domestic services in 2015. In addition to this, it will reduce airfares by 5-7% on domestic routes that are served exclusively by Transaero Airlines.
 
In November 2014, taking into consideration the recommendations developed for the airline by the management consulting firm McKinsey & Company, Transaero began to implement a comprehensive set of measures aimed at enhancing its operational efficiency in the rapidly changing current business environment. It is expected that the key measures will be implemented within three to six months.
 
In 2015, Transaero Airlines will continue to focus on enhancing the reliability and accessibility of air transport for Russian residents. Particular attention will be given to flights to Southern resorts within the Russian Federation (Transaero will increase its passenger capacity on those routes), as well as to air services to Russia’s Far East from Moscow and St Petersburg. The airline will continue to strengthen its cooperation with its long-term partners – in the first instance, with the largest Russian travel operators focusing on tourism programmes to destinations in the South of Russia.
 
Transaero Airlines has been developing, operating and, inter alia, overcoming changing circumstances along with its country for 23 years. Transaero will successfully overcome the temporary difficulties caused by the current macroeconomic environment.”

The 1991-founded airline is the second-largest carrier in the Russian Federation. In 2013, the airline carried 12.5 million passengers. Its current fleet comprises 103 aircraft including twenty Boeing 747s, fourteen Boeing 777s, eighteen 767s, forty six 737s, three Tupolev Tu-214 and two Tu-204-100C aircraft.

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Comments: 1
  • #1

    Press Service Transaero Airlines (Monday, 29 December 2014 19:21)



    Dear CFG Team
    In reaction to your article on Transaero Airlines’ situation we decided to send you this comment to underline our view.

    Transaero can confirm it has no plans to suspend any services either before or after the New Year season. Our customers can continue to book flights with complete confidence, and the airline continues its operations as normal.

    As of today, the airline’s own sales for the Christmas/New Year holiday period has seen a 30% growth over the same period of the previous year. Tourist agent sales are also higher than in the previous year.

    Transaero Airlines has an impeccable track record on the bond market. On December 23, 2014, JSC Transaero Airlines made the interest coupon payment on BO-02 bonds on schedule and in full.

    In November 2014 Transaero started to implement a comprehensive programme, over a period of 3-6 months, aimed at optimizing its operations and enhancing their efficiency in accordance with the recommendations made for the airline by the management consulting firm McKinsey & Company.

    Transaero regards as a vote of confidence the state support provided to the airline. In 2015 Transaero will continue to provide air services for millions of its clients on domestic and international routes. The airline plans to launch new scheduled services on the highly demanded routes such as Moscow-New Delhi and Moscow-Prague.

    Press Service
    Transaero Airlines
    intmedia@transaero.ru