Russian state banks may opt for Utair for their regional carrier project

Utair, the struggling top-five Russian airline has large debts, primarily with Sberbank (Utair)

Russia’s major state-owned banks Sberbank and VTB are considering Utair Airlines, the struggling top-five airline, as a potential candidate for their joint regional airline project announced last year, claims Vedomosti business daily, quoting sources close to the banks and Utair management.

Both banks are currently working on the strategy for the project that, it is widely believed, was triggered by Russian president Vladimir Putin. In his last year’s address to the Federal Assembly, president Putin suggested that, by 2024, more than half of all domestic air traffic should be direct flights – avoiding Moscow. It is thought that the president’s speech inspired Aeroflot to place an order for up to 100 Superjet 100 (SSJ100) regional jets and also announce plans for the launch by 2023, of a network of domestic operations from three new regional bases across Russia – at Sochi, Yekaterinburg and Novosibirsk.

The new regional airline project may involve either an existing carrier or the creation of a new one from scratch. The Utair option has appeared on the agenda because of the airline’s huge debts, primarily with Sberbank. In the process, these debts could be converted into shares. Industry experts argue that Utair is never likely to be capable of repaying the loans, and the banks are looking for ways to restructure the financial position. At the same time the investors also realise that launching a start-up could incur irrecoverable investments and both Sberbank and VTB would prefer to maintain partner relations with their airline project, which would mean putting together a business model that offers loans and aircraft leasing facilities. However, their continued involvement as shareholders is also not excluded “if required and if there’s a command from above,” the source adds.

In October, Andrey Kostin, the head of VTB, revealed some details elaborated jointly with Sberbank, regarding plans for the new regional carrier. He pointed out that the airline would focus on direct connections between Russian regions, strategically avoiding Moscow. He also dismissed the suggestion that the banks had been specifically commissioned by the government to develop the airline project. The idea was originally generated by Sberbank chief executive Herman Gref – “and I gave it strong support,” Kostin said. He also mentioned that the new carrier could be created at the premises of an existing airline. Russia’s flag carrier Aeroflot has refused to participate in the project.