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Creditors Consider UTair Rescue Plan Amid Shutdown Fears

Creditors Consider UTair Rescue Plan Amid Shutdown Fears

The management of Russia’s UTair hopes talks with creditors results in a new rescue plan amid mounting debt pressures and controversial reports about its ability to fulfill passenger obligations. Russia’s fourth-largest airline, UTair last year generated 6.6 percent of the country’s total passenger traffic, following Aeroflot Group, S7, and Ural Airlines. While UTair’s passenger numbers rose by 8.7 percent, to 7.9 million, and corporate revenue rose 10 percent, to 83.6 billion rubles ($1.3 billion), higher fuel prices, a crew deficit, and devaluation of the national currency increased operational expenses by 15.5 percent, to 78.8 billion rubles. Although it turned an operational profit, the heavily indebted group could not pay its obligations in full.

“In order to maintain uninterrupted passenger services (at a 99.18 punctuality rate), the group made a decision in December 2018 to withhold repayments under credits and loans rendered on the seven-year term,” said UTair in its 2018 report.

On the last day of April, UTair published a statement from the president of its passenger airline, Pavel Permyakov, denying rumors it planned to cease operations. “In fact, the airline will perform all flights in the summer timetable,” he said. “The company generates a stable operational profit.” Nevertheless, a portion of its corporate debt went unserved last December. “This does not take into account our current operational activities,” Permyakov argued. “This year, UTair changed its schedule of repayments on debts so as to return to positive financial results.”

Although Permyakov insisted his company never made statements about the possibility of shutting down, he acknowledged that a recent report by “an external auditor” raised the prospect. He downplayed the report as a reflection of typical auditing practice, which requires such a caveat because UTair hadn’t completed the debt restructuring process at the turn of the year.

Following rapid expansion earlier this century, UTair encountered a troubled period in 2014, when consolidated debts reached 56.5 billion rubles. Although Aeroflot and other major airlines advised the Kremlin not to provide financial support to the ailing competitor, the government did issue guarantees that enabled UTair to survive. In 2015, the airline reached an agreement with a syndicate of 11 banks to restructure its debts and grant new credits. One, worth 18.9 billion rubles, lasted for seven years, and a second, worth 24.1 billion rubles, involved a twelve-year term.

Subsequently, the airline withdrew all its Boeing 757s, Airbus A321s, Antonov An-24s, ATR 42s, Bombardier CRJs, Tupolev Tu-134s/154s, and Yak-42s to streamline operations. The fleet now consists of two 767s, nine 737-800s, 38 B737 Classics, 15 ATR 72-500s, and five An-74s. This year’s restructuring effort calls for four more 737s to increase traffic to 8.9 million.

Late last year the Russian government asked market players to assess the financial situation at UTair. A report from Pobeda leadership reached a stark conclusion. “A shortage of financial resources available poses a serious threat to flight safety [and] high risks of an abrupt termination of core activities, which may entail a massive breach of passengers’ rights,” it said. Once released to the media, the report prompted UTair management to approach creditors with a new restructuring plan centered on an altered debt structure and repayment terms on earlier taken credits worth 64.2 billion rubles.

Meanwhile, Russian civil aviation authority Rosaviatsiya characterizes the situation as manageable and resolvable between UTair management, shareholders, and creditors without the Kremlin’s involvement. In an exchange with Russian media, Rosaviatsiya head Alexander Neradko declined to speak about UTair’s financial troubles, choosing instead to praise the airline for “very good operational results in the first months of this year.” He told journalists that the authorities continue to closely monitor the situation, but do not see a need for another rescue package “since the airline is not asking for it.”


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