Russia’s politically motivated new regional airline project is put on hold

There is no keen interest for the new regional airline project so far

Sberbank and VTB, Russia’s two major state-controlled banks, which last year announced plans for the creation of a joint regional start-up airline, have put the politically motivated project on hold.

The announcement comes on the same day that Duma, the lower house of Russian parliament, approved in first reading a zero VAT rate bill for flights avoiding Moscow, and 10 days after the tragic Superjet 100 Russian regional jet’s deadly crash at Moscow.

Preparations for the creation of a regional airline by Sberbank and VTB have been suspended, states Herman Gref, head of Sberbank and initiator of the project. “There is no due demand yet. We did all the preparatory [work] and if the government returns to this [issue], we will be ready to discuss it,” he is quoted in an Interfax newswire interview. Gref admits that the project was submitted to the Russian Ministry of Transport, but he notes “there is no keen interest so far.”

In its initial stages the launch of the new airline was suggested as early as this year and had an ambitious eventual annual traffic projection of six to 10 million passengers. The proposition’s required investment was estimated at US$1 billion.

The first signs of the endeavour’s uncertainty emerged earlier this year when the banks appeared to be diminishing their likely roles. The capital ownership involvement of either bank has never been on the agenda, Gref stated. “We consider financial instruments, namely leasing, as we own [Russia’s] largest leasing companies [Sberbank Leasing and VTB Leasing] and we are willing to tackle the task jointly with the state – to purchase the fleet, to lease it and so on,” he added.

Russia’s two big banks initiated the prospect of a new regional airline in October 2018 in a plan which, it is widely believed, was triggered by Russian president Vladimir Putin’s public criticism of underserved Russian regions and the low level of the population’s mobility. In his address to the Federal Assembly a year ago, president Putin suggested that, by 2024, more than half of all domestic air traffic should be on direct flights – deliberately avoiding Moscow. Latest data estimates that the figure is currently only 23 per cent.

President’s speech has also motivated Aeroflot placing an order for up to 100 Superjet 100 (SSJ100) Russian regional jets, whilst also announcing plans for the launch by 2023, of a network of domestic operations from three new regional bases across the nation.

From the beginning, Aeroflot, Russia’s national flag carrier, has refused to entertain any participation in the banks’ project.