Russian Banks Plan Massive Regional Airline Project

 - November 27, 2018, 9:13 AM

Russia’s two biggest financial institutions plan to fund the creation of a “monster” regional airline to fly from several airports across the country using Sukhoi Superjets and Ilyushin Il-114-300 turboprops among other locally assembled models. The banks, namely Sberbank and VTB, have advanced the plans over the past two months as a means to support local aircraft production and connect “socially important” destinations across the vast territory.

According to project initiators, creating such an airline would require bold managerial decisions and considerable financial resources, including government subsidies to support unprofitable passenger services and to help raise capital for the procurement of Russian-made airplanes in worthwhile numbers. They have already applied to Russian civil aviation authority Rosaviastiya for support, according to agency head Alexander Neradko, who further explained that planners have sought advice about how to shape the project to best serve its purpose. Neradko added that Rosaviatsiya supports the move and is ready to provide its expertise on how to form and manage the network of routes and the fleet.

VTB chairman Andrei Kostin said the new carrier could either form as a startup or from the vestiges of an existing airline. He estimated the initial investment from the banks would total some $1 billion, in the hope that the project would employ the principles of a partnership between government and private interests. While Kostin expressed a conviction that a nationwide system of regional air routes could not operate profitably without government subsidies, he also said that economies of scale favor a large operation.

The idea of a big regional airline is not new. Valery Okulov, the one-time head of Aeroflot and now an advisor with the ministry for transportation, raised the idea early this century. According to an Aeroflot analysis, the current air transportation system centered around Moscow works well for big mainline carriers. But it does not serve the nation well enough because airlines could not profitably serve hundreds of smaller cities from Moscow. The regional airline’s success would depend on bypassing the capital, meaning Russia needs more direct services and hub-and-spoke services based in other cities.

“The would-be regional airline will get a considerable boost when state subsidies are provided,” Neradko said. Such subsidies can resemble those already provided through Rosaviatsiya under existing government orders that support air routes between select regions and indigenous aircraft leasing. 

According to Kostin, the project’s initiators continue to work on a concept. Initially, the airline would carry between 6 and 10 million passengers annually. As of now, it would not involve Aeroflot, which harbors its own expansion plans through the opening of four additional hubs across Russia and employing its growing Superjet fleet to feed in passengers.

Among other national goals, Russian president Vladimir Putin has targeted an increase in the share of regional traffic in the country’s air transport system to 50 percent by 2024.