Page 110 - RusRPTApr20

9.2.3 Aviation corporate news
Russian budget airline Pobeda has announced the complete grounding of its fleet in April-May. It is to focus on anti-crisis measures. While the market might perceive this negatively, we believe that it is the right solution, for the following reasons: The industry will benefit from this. It will take some 10% of capacities from the domestic segment and raise average yields. The company will benefit from this. Given that it rescheduled all its lease payments from 2020 to 2021, the only large fixed cost it has now is staff expenses. On our calculation, losses from continued operations might be higher than this cost. Separately, the top ten Russian airports stated that their domestic PAX declined 17% y/y, while international was down 44% y/y. Extrapolating these numbers to the industry, we get a 28% y/y decline in total PAX in March, which is in line with our base-case scenario. We reiterate our Buy recommendation for Aeroflot with a 12-month Target Price of RUB100, and ETR of 59%.
Russian airlines could face up to RUB100bn ($1.4bn) in aggregate losses due to the Coronavirus pandemic, RBC daily reported on March 15 citing unnamed industry sources and sources in the state Rosaviatsia agency. As reported by bne IntelliNews, boosting regional interconnectivity was one of the measures of Kremlin in supporting the growth oriented spending drive. In the end of 2019 the state support for air carriers of about RUB40bn was pledged, but now the support package could have to increase considerably. Reportedly, at the recent consultations in the Ministry of Transportation, the losses of the industry from limitation or cancellation or foreign flights could amount to RUB70bn-RUB100bn. Only on the restrictions of flights to China the airlines reportedly lost RUB10.5bn already, out of which national air carrier Aeroflot accounted for RUB6bn. The management of the struggling airline UTAir estimated for RBC daily that the airlines could see up to 20pp shaved off their margins, which would by far beat the previous heavy industry crisis of 2001 when the margins for global carriers declined by 8pp. Not only international flights risk to be compromised by the pandemic. As reported by bne IntelliNews, Aeroflot is postponing the launch of its regional aviation hub in Krasnoyarsk, which was planned to serve both international and domestic destinations.
Aeroflot agreed on instalment of lease payments for 18.5% of its fleet. Dollar-denominated lease payments for 67 aircrafts (18.5% of the fleet) have been moved from April-September 2020 to July 2021. Such an agreement has been reached with VTB Leasing; Kommerstant reports Aeroflot has similar negotiations with other lessors Besides lessors Aeroflot is talks with jet fuel suppliers with the aim to change the payment terms from pre-payment to actual payment as predictability on actual flights processed is low Analysis: Lease payments may total up to $280mn BCSe.
Russian national air carrier Aeroflot Group reported 3.9% growth in passenger volume and 3.7% growth in revenue per passenger - kilometre year-on-year for 4Q19, with the load factor stable at 79.1% versus 79.5% for the same quarter of last year. The company's revenues in 4Q19 from traffic increased by 6% to RUB138bn. The company said it would seek to improve non-traffic revenues and boosted those by 10% year-on-yea to RUB16.3bn, beating the expectations of the BCS Global Markets analysts by 15%. As reported by bne IntelliNews, analysts are increasingly keen on the stocks of Russian national air carrier Aeroflot, seen as taking off for a strong year in 2020. The 4Q19 are "mostly in line with consensus expectations on revenue and Ebitda; show a positive surprise on earnings due to lower finance costs
110 RUSSIA Country Report April 2020 www.intellinews.com