Jun 05, 2020

Russian government ready to invest US$422 million in new far eastern airline

A new initiative from the nation’s ministry of economic development that has been submitted for inclusion in Russia’s national economy bailout plans, is a project for the creation of a new airline to serve Russia’s far eastern federal district, Vedomosti business daily reports.

The project would require a 30 billion roubles (US$422million) injection from the federal funds – a remarkable amount considering the nine billion roubles the government has set aside annually as subsidies for regional air travel, or even as much as the 23.4 blllion roubles sum that has been dedicated to supporting the nation’s entire airline industry as it struggles through the on-going Coronavirus crisis.

The far eastern airline notion dates back to Russian president Vladimir Putin’s January 14 instruction to the government to come up with a plan for a new airline utilising an all Russian-built fleet which would have enough scale to cover the vast underserved territories of Russia’s far east, where insufficient infrastructure hinders the region’s economic potential.

Aurora Airlines, an Aeroflot subsidiary that currently operates in the region, has embarked on working up the concept for the project. Having been initially created for the same purpose and jointly owned on a roughly equal basis by flag carrier Aeroflot and the administration of the Sakhalin region, Aurora fell short of initial expectations. Last year it carried just 1.7 million passengers but, perhaps more significantly, it did so by operating a fleet made up entirely of western-built aircraft – 10 Airbus A319s and 13 de Havilland turboprops of various types.

The suggestion of continuing with the development of Aurora as the all-far eastern airline was previously made in an arrangement which, at some point, would be backed up by a plan to boost its fleet with 20 Russian-built Superjet 100s (SSJs). But Aeroflot, which seemed reluctant to purchase more SSJs for its affiliate, was instead willing to share with Aurora some of the Russian regional jets it currently owns or are on order.

Lately, Aeroflot Group’s desire to spin off its regional subsidiary has become more and more apparent. In one instance it was reportedly offering Rostec, which owns 3.5 per cent of Aeroflot’s shares, to exchange them for Aurora. Rostec, the parent company of SSJ100-maker United Aircraft Corporation, was not in agreement with that plan. And then, when the Coronavirus crisis struck, Rostec came up with a much larger-scale initiative of supplying up to 60 Superjet 100s to its own airline subsidiary Red Wings. On May 13, that plan received the nod from president Putin, who at the same time reminded all parties of his instruction regarding the far eastern carrier.

So now, along with the earlier plan of expanding Aurora and attracting more far eastern regions to take a stake in it, a new proposal is being elaborated involving Red Wings taking Superjets and operating them in the far eastern region.

Aeroflot Group, in the meantime, has reacted by signalling its intentions to spin off the affiliate by offering its share in Aurora to the airline’s co-owner, the administration of the Sakhalin region.

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