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With Russian air traffic growing at double-digit rates—with an 11 percent rise in passenger numbers in the early months of 2019—the world’s aircraft finance and leasing community is keen to assist, especially with regional aircraft as the Kremlin wants more routes to be available and to decrease dependence on the Moscow hubs.

 


Traffic growth over the past 10 years has resulted in annual traffic increasing from 25 million passengers in 2001 to 105 million and 116 million in 2017 and 2018, respectively. Even though that rate is expected to slow in 2019-2020 and then keep between 5&nbsp;and 7.5 percent over the next decade, it will remain sufficient to generate a steady demand for new aircraft for both replacement and expansion. This fact keeps Western lessors interested in cultivating relationships with local carriers despite the tightening regime of U.S. economic sanctions on Moscow.

 


Executives from lessors including Avolon, Air Lease, Aircastle, Nordic Aviation Capital, and BNDES spoke at the Aircraft Finance and Lease Russia 2019 event, held April 24 in Moscow—the twelfth such event in a row organized by ATO Events and Infomost Consulting.

 


The lessors all see a role for foreign capital in keeping the Russian fleet renovated and updated. One reason is that, for the foreseeable future, domestic manufacturers and financial institutions will not be able to meet the demand for new aircraft from local carriers.

 


What makes outside investors all the more interested is the fact that Russia is one of the few large countries that have a relatively low national debt burden&nbsp;and is managing it well. Since 2014, Russian banks have reduced their foreign debt&nbsp;from $214 billion to $85 billion, while the corporate debt has dropped from $337 billion to $312 billion, attendees at the conference were told.

 


This was music to the ears of the foreign lessors.

 


Professor Alexander Fridlyand from Gosniiga, the State Scientific Research Institute for Civil Aviation, presented his view on ways to renew&nbsp;the national passenger fleet. He reflected that today this fleet comprises 1055 aircraft of all classes—including 63 commuter airplanes (15-19 seats), 317 regional types (20-85 seats), 382 smaller aircraft (86-140 seats), and 257 larger narrowbodies (141-220 seats), as well as 99 widebodies.

 


In the course of the next five years, Gosniiga&nbsp;expects between 56 and 76 new commuters, 94-114 regional airplanes, 181-223 smaller and 239-305 larger narrowbodies, as well as 95-113 widebodies. Summarizing, Fridlyand said shipments of new aircraft in 2019-2024 would total between 665 and 831.

 


He admitted his prognosis is based on conservative assumptions, while actual figures could be even higher if the Kremlin succeeds in its ambitious plans to expand regional aviation, creating an efficient route network with more point-to-point flights.

 


At the turn of the century, more than 40 percent of the Russian traveling public flew point-to-point, compared to 25-26 percent from 2009 onwards. Most passengers now have to make a connection in one of the three big Moscow airports.

 


Fridlyand explains this by the premature withdrawal of Tu-134, Yak-40, An-24, and other Soviet-era aircraft without replacement with more fuel-efficient types of the given seating capacity.

 


The Kremlin has expresses an intention to have half of all domestic flights bypassing Moscow in five years’ time. At 317, the current fleet of commuter and regional aircraft is not sufficient to make that dream come true. So, ways are being considered how to equip regional airlines with a sufficient number of Let L-410, Ilyushin Il-114, and Superjet SJ100 aircraft on operating lease terms with funding from local banks and lessors.

 


Foreign banks and lessors are eager to help with Bombardier and ATR turboprops, provided their intended operators receive government&nbsp;subsidies that would make&nbsp;it possible to pay rental fees. Gosniiga's&nbsp;Center for Economic Monitoring, Analysis, and Prognosis believes that, if the Kremlin’s plan works, the number of passengers on domestic flights bypassing Moscow would increase from 14 million (or 23 percent) in 2018 up to 32 million (34 percent) in 2024.

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