Russia’s Utair may have found a way out of its debt trap

Utair Utair insists that selling certain assets will not affect its core operations (Leonid Faerberg / Transport-Photo)

Financially challenged Utair Airlines, one of Russia’s major carriers, may have found a temporary solution to its dire cash situation. In a recent announcement, the airline has proposed that it may sell off those assets which are not linked directly to its core flight operations, and that all of the operating profits earned in the high season will be preserved as a liquidity cushion, and interest payments due in June will be postponed.

The west Siberia-based carrier has negotiated its debt restructuring schemes with its creditor banks and the plan is to gradually pay off the interest by spinning off those assets that are not directly involved in operations. For example, states the airline’s general director Andrey Martirosov, “Utair plans to sell its 50 per cent share in service [and ground handling] company UTG, the ownership of which is not a strategic priority.” The airline is not considering selling those companies in the group that are involved directly in flight operations and generate steady revenue streams.

The changes in payment schedules are necessary to allow for the accumulation of profits to support flight operations, and for the creation of a cash-flow cushion for the coming winter season to continue serving Russia’s most remote communities, says the airline.

Utair is dealing with two seven-year loans – one for 15.4 billion roubles from a syndicate of 11 banks, and the other for 17.4 billion roubles from Sberbank.

The syndicate has credited the airline with 23.7 billion roubles for a period of 12 years. The latest plans include partially settling its outstanding interest for seven-year loans (109.2 million roubles), as well as 12-year loans and lease payments.

According to consolidated financial reports for the entire Utair Group (including the title passenger carrier, its helicopter operator, maintenance companies and subsidiary airports), the airline posted net losses of almost 22 billion roubles in 2018. By the end of last year, its total debts to banks amounted to 59.9 billion roubles. The negative financial results were blamed on a combination of rocketing fuel costs, the degrading macroeconomic situation in the country and the aftermath of the 2014-2015 economic slump.

In the first four months of 2019, Utair served 2.26 million passengers, down 1.2 per cent year-on-year, dropping it out of the top-five league of Russian airlines.

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