Russia’s Airlines are Crashing

You already know that even in boom times Russia’s airlines were the world’s most dangerous to fly on (see our “air disasters” tag in the sidebar to read all about  it).  How do you think that situation will change now that the airlines are strapped for cash?  The Moscow Times reports:

Aeroflot said Tuesday that profits dropped 55 percent in the first half after prices for jet fuel surged and warned that full-year earnings might be little more than one-quarter of those of 2007.

Net income at the country’s largest airliner fell to $72.2 million from $160.8 million a year earlier. Revenue advanced 28 percent to $2.14 billion as passenger numbers increased 20 percent to 5.4 million, the company said in a statement. Earnings before interest, taxation, depreciation and amortization fell by 34 percent to $216 million. Aeroflot’s fuel expenses jumped 64 percent to $731 million in the half, with operating costs increasing 42 percent to $2 billion. Fuel prices in the country rose 70 percent from November to June, prompting the Federal Anti-Monopoly Service to open price-fixing cases against the five largest oil companies.

“I expected even worse results as high fuel prices have sharply cut profit margins of Russian airlines,” said Alexander Ignatyuk, an analyst at brokerage EnergoCapital. “Aeroflot will only turn the corner when it overhauls its fleet and acquires more fuel-efficient planes, which is still two or three years away.”

The carrier’s shares rose 1 percent on the MICEX, lagging the MICEX Index’s gains of more than 13 percent.

Full-year net income is likely to amount to $85 million, said Mikhail Poluboyarinov, Aeroflot’s deputy CEO for finance. This is a drop of more than 70 percent from $313.4 million last year, when profit increased by 21 percent. The company has “no problems” refinancing its debt and is not planning changes to plane orders, Poluboyarinov said. Aeroflot remains interested in buying a stake in Czech national carrier CSA, while bidding for Serbian carrier JAT Airways is “an open question,” he said. In September, chief executive Valery Okulov said net profit might halve in 2008 to $150 million to $170 million because of record fuel costs.

The financial crisis is now likely to further eat away at the company’s profits, Poluboyarinov said Tuesday. “We forecast that [air traffic] will shrink. It can’t do anything but shrink as corporate clients cut back the number of business trips,” he said, adding that the airline had not yet felt traffic flows ebbing. He declined to give a specific forecast for declining demand, saying this would only be possible in about one month. Separately, the Prosecutor General’s Office said in a statement Tuesday that it found violations of safety and labor regulations by Aeroflot and Sheremetyevo Airport.

Aeroflot and Sheremetyevo failed to carry out sufficient inspections of passengers, baggage or cargo and some aircraft, the statement said. The carrier also gave crews insufficient rest periods, the prosecutors said. Marina Gridneva, a spokeswoman for the prosecutor’s office, said “gross violations of the law” were uncovered, Interfax reported. Security checkpoints for passengers and scanning stations for luggage were not properly equipped with alarms, she said. Aeroflot spokeswoman Irina Dannenberg was not immediately available for comment.

The MT adds that numerous other airlines are also in dire straits:

Nine airlines will be grounded by the end of the week due to overdue debts, aviation authorities announced Wednesday. Three of the airlines — Interavia, Dalavia and Omskavia — had all but suspended flights already, stranding hundreds of passengers. Moscow-based Interavia, which topped the list with an overdue debt of 19.2 million rubles, has not flown since Oct. 9, missing 23 flights as of Wednesday, according to the web site of Domodedovo Airport. Other big debtors include state-owned Dalavia, with 18.4 million rubles in overdue payments, and Omskavia, part of the troubled AirUnion alliance, with late payments of 4.9 million rubles.

The Federal Navigation Authority said the airlines had repeatedly been asked to pay their debts and that, in line with legislation, they had gotten a warning, followed by restriction of services on charter flights and now suspension of services for all flights, Interfax reported. The process of withdrawing Interavia’s license might start on Oct. 26, the report said. An Interavia representative at Domodedovo Airport said hundreds of passengers were waiting for information about when they could expect to fly. “We do not know when the airline’s services will resume,” he said. “We do not know anything except that the airline is deeply in debt and we have not been paid for three months.”

Domodedovo spokesman Ildar Tuzmuhametov said the airport was waiting for the carrier to take action but would not comment on how soon the problems might be resolved or what was causing the delays. He stressed that the delays were an internal problem of Interavia. “Flights of all other carriers at Domodedovo are landing and departing on time,” he said.

High fuel prices have caused problems for domestic carriers, resulting in last month’s government bailout of AiRUnion and the transfer of its stake to state-run Russian Technologies with instructions to form a new carrier. AiRUnion’s assets are being folded into a new holding, together with Atlant-Soyuz, controlled by the Moscow city government and several regional airlines. Russian Technologies said it would take at least nine months to create the holding. The state corporation will repay $100 million of AiRUnion’s estimated $800 million debt and plans to renegotiate the rest. The Federal Navigation Authority said that the other airlines that will be grounded as of Friday are Tesis, Vyborg, Aeroshchit, Irkutsk Bezbokov ASK ROSTO, Ulan-Ude Aviation Plant and Buguruslanskoye Letnoye Uchilishche.

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