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Shrinking Russia jet fleet threatens Airbus-Boeing order backlog

Thursday, May 14, 2015 - 07:00
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[MOSCOW] Russia's fleet of Airbus Group and Boeing jets is shrinking for the first time in 15 years as carriers hand back leased aircraft - raising the spectre of a wave of order cancellations if the economy continues to stutter.

The number of Boeing and Airbus planes deployed by Russian airlines declined by a net 11 jets between August and April 1, according to Russian Federal Aviation Authority spokesman Sergey Izvolskiy. That's after the combined fleet of foreign models had climbed more than 10-fold in two decades.

Russian airlines are curbing capacity after a slump in the worth of oil exports and sanctions over the Ukraine crisis reduced the value of the ruble almost 50 per cent last year, making flying too costly for many. Passenger numbers fell 2.3 per cent to 17 million in the first quarter, the first decline since 2009, according to the Federal Air Transportation Service.

"I would expect to see Russian airlines returning older aircraft that roll off lease," said Bloomberg Intelligence analyst George Ferguson. Boeing and Airbus will be "pulling out the stops" to hang on to outstanding orders, while Russian carriers could seek sale-leaseback deals on jetliners due for delivery to boost cash flow while still getting the planes.

Fabrice Bregier, chief executive officer of Airbus's plane- making unit, said in a briefing on April 17 that the Toulouse- based company is already in discussions with carriers seeking to defer taking aircraft they've previously ordered.

The Russian aviation industry is taking a double hit from an economic contraction forecast to reach 2.8 per cent this year together with high borrowing costs after the Bank of Russia raised its key interest rate to slow the ruble's slide.

For Boeing's Russian fleet, that's led to a net decline of 10 to 332, while the number of Airbus jetliners has declined by one to 281, Mr Izvolskiy said.

The declines reflect the return of leased jets, according to Alexey Sinitsky, editor-in-chief of Aviatransportnoye Obozreniye magazine, which specialises in statistical coverage of the Russian aviation industry. Leased aircraft tend to be older and less fuel efficient and are also easier to get rid of when a quick capacity adjustment is required.

Other airlines have begun talks on restructuring leasing payments, Sinitsky said.

Including smaller regional aircraft such as those made by Bombardier Inc and Avions de Transport Regional, or ATR, Russian airlines have already cut their foreign fleets by about 100 planes, according to Oleg Panteleyev at website Aviaport.ru.

Returns have been led by UTAir Aviation, the country's third-largest carrier and a major ATR operator, where the fleet is down to 71 planes from 115, spokeswoman Maria Razumova said.

Russia's two biggest airlines, Aeroflot and Transaero, haven't yet reviewed plans to buy new aircraft, according to spokesmen Maxim Fetisov and Sergei Bykhal.

At Transaero, that backlog includes Boeing's 747-8 and the Airbus A380 superjumbo, the world's two biggest passenger planes. Demand for such long-range aircraft is likely to suffer most in Russia as discretionary spending on vacations and other non-essential travel dries up, Aviaport's Panteleyev said.

BI analysts Ferguson and Ian McFarlane said in a May 6 report that Russia's economic woes have "yet to affect the delivery of new aircraft" - two-thirds of which are narrow- bodies - though orders could be "harder to come by." Airlines often stick with deliveries even when demand is ebbing since the new jets are more fuel efficient and can't generally be refused without incurring penalties.

Still, Airbus's Mr Bregier said "a number of airline customers" are seeking deferrals, in which orders remain on manufacturers' books while slipping back months or years.

"It's a situation that I hope is temporary," he said at the briefing in Paris. "We're not in the game of insisting on maintaining every last clause in the contract - we want to help them find solutions and remain their partners of choice."

Boeing, which last June forecast that Russia and former Soviet states would need 1,330 jets worth US$150 billion in the next two decades, is working as usual there, Moscow-based spokeswoman Elena Alexandrova said by e-mail.

Maria Shlyakhtova, a local spokeswoman for Airbus, confirmed a decline in leased planes, mostly linked to UTAir. The carrier has also delayed taking eight planes until 2017.

"Experience shows us that the market will rebound, regardless of the reason for the decline," Ms Shlaykhtova said. "We're sure the Russian aviation market has growth potential."

REUTERS