Vitaly Vantsev: Aeroflot will survive, the rest is a big question

Co-owner Vnukovo Vitaly Vantsev about the crisis in aviation.
09.04.2020
Origin source
Aviation is one of the main victims of the COVID-19 pandemic: international air traffic has been stopped indefinitely, passenger traffic has fallen by 90%, and falling incomes due to the crisis will not allow the market to recover for a long time. The Bell spoke with Vnukovo Airport Board Chairman Vitaly Vantsev about how the industry is surviving, government measures to support the business and the future of aviation after the crisis. Watch the video version of the interview from April 8 in the special issue “Will the business survive?” on the channel "Russian norms!".

“I will not be bankrupt today - I will be in six months, when it will be necessary to pay the delayed”

- Immediately a question that probably interests the few remaining air passengers. It is clear that we are not epidemiologists, but nevertheless - what do you think, how dangerous is it now to get infected at the airport?

- The airport is the same public space as any others, but maybe more secure. Regardless of the announcement of a pandemic, we constantly carry out disinfection, constant chemical cleanings - we have such a regulation. There are no such cleaning regulations, as in airports, and there were neither in shopping centers nor in restaurants. Therefore, probably, being in the airport itself is not so dangerous. But people, after all, are mainly infected from people - you can’t think of anything new here. Gloves, masks, washing hands as often as possible - all that is told to us on TV.

- What share of passenger traffic have you lost by now? How many flights departed from Vnukovo in April 2019 and how many now?

- We lost somewhere around 95% of passenger traffic, the number of flights fell by 90%. The difference is due to the low load, in addition, flights that are exported by Russians from abroad, one way fly empty.

In absolute numbers - in 2019 in the same period, we had approximately 540 flights per day. Yesterday (Sunday, April 5th. - The Bell) there were 32 flights.

We have closed part of the international terminal. Thank God, it is so built that we can close parts of it. They left three sections of teletraps (out of 31 - The Bell), they serve "export" flights. The rest can now not cover, not heat, respectively, we spend less money on it. But we can’t close the airfield, it works 24/7, we continue to pay for electricity as usual and we keep the services in normal mode.

- And in the money? How much Vnukovo lost in March and how much do you estimate the loss for April?

- For March we have not lost anything, thank God. Still, we worked out half of March. But our situation is as follows. We get money for March in April. And in March - received for February. February was nevertheless not bad, just as the Chinese market collapsed and the European markets began to slowly close. But until March 10, everything was actively flying. Therefore, in March, we have not lost anything yet, but in April we will lose a lot. And in April, in May and in June.

- Can you name about a net minus?

- We estimate the net minus for these three months at 2 billion rubles. It is clear that no one is compensating us for these two billion.

“And do you have some kind of pillow that would allow you to simply say:“ Ok, that's 2 billion, we write them off and work on. ” Or not?

- No, there is no pillow. No one has such a pillow, so that “ok, write off”. We are spending the money that we earn on investment needs. Therefore, it’s so easy to say: “Two billion have been written off and it’s ok,” of course, one cannot say that. But, on the other hand, what to do? We assume that we invested this in the continuation of life, business. We value it like that. Do we have other options? No. Well, that’s why we’ll live like that.

“You have a debt, creditors.” Are you negotiating with them about any change in conditions?

“We are only talking about deferrals.” But they don’t tell us: “Guys, let's not calculate the interest for these three months, since we are not working.” Would it be logical? Yes. But banks tell us: “Sorry, this is just a delay, we will take it all. Anyway, you have to pay sooner or later. ” And if I do not work for three months, I apologize for what will happen when the delay is over? We, it turns out, forgive everyone everything, we must work and pay salaries, but nobody forgives us anything. I will not be bankrupt today, which means that I will be bankrupt in six months when it will be necessary to pay the delayed.

- Today you definitely won’t - aviation is included in the list of affected industries, and you are a backbone company. Both that and another cannot be bankrupt until autumn.

- Thanks. Six months nobody will bankrupt us. But six months will end - and then what? We did not work for three months, then we will be recovering for another six months, and all the deferrals have already passed. Where can I get money to return it to banks and to the tax? If we talk about deferrals, then about an installment plan of 10 years. Then it will be elevated, extended in time. For every year there will be an understandable schedule, not so tangibly return. And if right from January 2021 in full, where do we get all this?

I also want to remind. Banks were instructed to support the business, to give money on credit to pay salaries. Even at a zero rate. And now - how will they be considered when they will be issued? At the rate of the minimum wage! That is 12,000 rubles. But at one time we were called for people to live better, their salaries should be higher, right?

If I have an average salary of 40,000 rubles, then of course I took 12,000, thanks a lot. And thanks for that - I’m not saying anything! But after all, another 30,000 I have to get somewhere. Or go for unpopular measures, cut salaries.

“But haven't you gone yet?”

- Not yet. But I think that this will come anyway. There are no miracles in the world. The economy dictates its own. What options do I have left? At least somehow to support people - at least somehow. In full? It is unlikely.

“So you have to cut people?”

- The staff is not cut. Some people were sent on paid vacations, those who already had vacations were sent to idle time. The administrative and managerial staff, whose salaries are quite high - these are top managers - have voluntarily written statements about unpaid leave and are working remotely. Everyone understands the situation we are in. And we remember that with the reduction, you still need to pay three salaries. And what is the point of paying them if you hope that in three months they will all return to work? And to cut not according to the Labor code - then the prosecutor’s office will come. So no one will do.

“The fact that the government will help with real money does not allow life experience to be believed”

- “Vedomosti” wrote that the authorities are considering the possibility of closing the entire flight connection in Russia, the Federal Air Transport Agency denied this. Do you think this is a real possibility?

- If the number of infected people grows exponentially, Moscow will most likely need to be closed as the main center for the spread of the virus - this is an objective fact, there is nothing you can do about it. A big city, a metropolis, a very high population density - there will be many infected. This is inevitable. If the quarantine measures that are being taken now work and people listen to what they are told from the screens, do not go out hanging around the city, perhaps we will be able to avoid this exhibitor. If not, then you have to close. We will spread the infection throughout the country. What's the point of this?

Nobody can actually predict how everything will develop, any talk on this subject is a finger to the sky. But you see - the airlines themselves are closed, because people do not fly, loading on flights drops. Already in the week of March 23-29, almost all airlines flew with a 60–70% load, which is almost at a loss.

- “Victory” is why it completely stopped flying? Does it make sense anymore?


- This should be asked [by the General Director of Victory] Kalmykov, I can only speculate. But I suppose that precisely because of this - what is the point of making operating losses that no one is compensating for? These losses are for the rest of my life by and large. All airlines in the world - Lufthansa, AirFrance, Ryanair, EasyJet - stop regardless of whether they are national carriers or low-cost airlines. They understand that if they now roll up operating losses for themselves, then they simply will never recover further. It is better in this situation to stand on the ground for two months, negotiate with the lessors - we are all in the same boat. Agreeing [on vacation on payments] two months is better than generating debts that no one will ever return to you.

We would also close the airport, but, unfortunately, we cannot do this. We have a joint airfield, a government detachment, an FSB detachment — all this should work constantly. And so in a good way, of course, in a situation where 30-50 flights remain, it probably would not make sense to continue to work.

- Why from regular airlines only “Victory” completely stopped? Why are the rest still flying, albeit in a reduced volume?

- Again, the question is not for me, I can only say as an expert. Ural Airlines, Utair and S7 have a large regional network. Not flights through Moscow, namely direct flights between regions. Those who urged us, by the way, to develop two years ago. Now it is on these routes that there is a load. Again, it’s clear why. People watch TV. What is the point of going to the epicenter of the disease? Everyone is trying to avoid Moscow. But there are still intraregional flights. Although now, if the city closes, quarantine - there, too, the load will drop. People will, I hope, stay home, there will be no flights - there will be especially nobody to carry. And I think that airlines will already make decisions on the need to stop flights in the regions too.

- You said that no one is compensating for the debts that are now being generated. But after all, there is a discussion of measures to help airports and airlines with the government. Is it ready to really help with money?

- What we are doing the government, we all see on TV, the Prime Minister tells us about it every day from the screen. This is a tax deferral, and everything else. But this is still a delay - this money will have to be paid sooner or later. And they need to be taken somewhere. In a situation where you do not earn two months, and taxes are accumulated. And employers who behave responsibly do not fire people, but send them on paid leave, do not reduce their salaries, because they fall twice. The first time - actually to pay salaries, what needs to be done. And the second time - on social contributions, which reach 40% of the salary.

I’d like to believe that the government will help us with real money, but life experience does not allow it. They promised us at one time to compensate for both [rising prices for] kerosene, and the closure of flights to Georgia, and much more - I will not even remember. Many crises passed when something was promised to us, and then this did not happen. Therefore, in monetary measures - that the government will give us money - I do not believe in this.

But what the government really could do in the current situation is to free us from social contributions at least for these 2-3 months. We appealed to the Ministry of Transport on this issue, he supported us. The government spoke out that contributions for the most affected sectors, including ours, will be reduced from 30% to 7.6%. We very much hope and expect that the government will adopt an appropriate resolution. This will be of great help to us.

You can not exempt from VAT, income tax - they simply will not be due to lack of sales and profits. And social taxes could be abolished, so that we would still be interested in saving our people. And we are interested because we understand that in 2-3 months the situation will turn out anyway, it will be necessary to work, and these same people will be needed to continue working. But in order to save them, they need to pay a salary. If we were told: guys, pay a salary, but don’t pay social taxes, we will give you an amnesty for these 3 months - that would be a great help. If they don’t give money.

In the meantime, it turns out that we are told: guys, you do not pay yet, but pay in six months. And where in six months will I take this money? The fact is that this is only the first stage of the crisis. You need to understand that we are only entering it. Already, the situation is bad, frankly. And when will we enter it, and when will we leave it?

Well, June, let's say the borders opened. I do not really believe in that. But domestic traffic will begin to recover slightly. People quarantine. But what will they fly to? What kind of money? They will now eat them all in three months at home, spend on movies, on anything. And there will be nothing to fly.
 
They say that a full recovery will happen in June - no, it will not. We look at the situation like this - at best in January 2021, we will return to January 2019. This is the best scenario. We will return - and at this moment we will have to pay what we were given a respite for. Where will we get the money? After all, we must tell the truth to each other, and the airline, and we have not lived very well the last 3-4 years.

- And how is this discussion with the government going? Any remote meetings?

- We discuss, exchange letters. We have the International Association of Airports, which is quite active in working with the government and with all ministries, and we are constantly in touch with each other. But one thing is what we ask. Another thing is that they will give us.

- A sad picture, what to say.

- We experienced difficult times - we will survive these too. Another question - of course, it would be nice for everyone to understand what we are experiencing. I see how sometimes people bravely talk about our industry on different channels, which, of course, are not from the industry at all. It amazes me how people get so much optimism - "everything is fine, everything is fine, the airlines can handle it, the airports can handle it." Someone will cope, someone will not cope. But what will it cost? And what will we come in 2021? No one can predict this today.

“Whoever survives will get the lion's share of the market”

- Good. You are an investor in the Azimut airline, which flies on superjets, on Russian technology, for which we have various benefits. Do they promise you anything in this part? Some kind of primary assistance as operators of Russian aircraft?

- No, nobody promises me anything. On the other hand, I probably do not need these promises, because the state subsidizes regional transportation on Russian equipment. The subsidy program, which was launched in 2018, is working - we must pay tribute. They pay both the federal budget and the budgets of local levels, and thank them very much for this. Only thanks to this, in fact, we hold on. If all the agreements and contracts that we concluded with the subjects of the Federation and with the Russian Federation are fulfilled, then, probably, we will not need additional assistance.

As for the lessor, we are more likely to negotiate that if we put the planes on the platform, we would not accrue amounts during this period, but simply lengthen the lease contracts. Roughly speaking, for three months the plane does not fly, only maintenance - what to pay for it. If we have a leasing agreement until September 2024, let us extend it until January 2025. This is a normal scheme, it seems to me.

- That is, lessors are willing to discuss different options?

- Lessors with us in the same boat. We still have to negotiate with each other. We understand their problems, they understand ours, understand that, no matter how grandiloquent it sounds, we are their breadwinners. While we fly, we pay. The final breadwinners, of course, are our passengers. But for the lessor, this is us. If airlines do not survive, nobody will need their planes.

- Do you think there will be big casualties among airlines following the crisis?

- Hard to say. Surely there will be some sacrifices. In any crisis, someone suffers anyway - and this is a crisis that we have never encountered in the past 30 years. For all that was - and we have experienced a lot since the end of the 80s, we saw a lot of things. But such an overlay is the first time. Here, at the same time, both the closing of markets and the fall of the global economy, in general, all together. Our economy, by the way, feels much better than the global one, because in 2014-2015 we received a good vaccination. Thanks to her, we still look pretty good against the general background.

- And who has the worst deal with charter companies?

- Hard to tell. Just charter companies, perhaps, feel better. They immediately put their fleet on the joke and are negotiating with lessors. They have a customer - a tour operator. There is a load - they fly, no - they do not fly. And regular ones sell their flight, and now they have, say, 50% of the load. And the company faces a choice: to fly, conditionally, with 80 passengers on board or not to fly? Fly - bring operational minus. It will not fly - you need to return the money to people who, again, have nowhere to take, because everything has already been paid for with this money.

In the current situation, no one is good. Who is better, who is worse - we will already evaluate by the results, somewhere in July, in August. He who survives will survive, he who does not survive, he will not survive. But I can say who will come out alive from this crisis guaranteed.

- Who?

- Aeroflot together with Russia and Victory. But everyone else is a big question. And in what condition they will be released is also a big question. With what debts and obligations.


- Why Aeroflot? Will support the state?

- This is our national carrier. Probably the only one who, if necessary, will pour money is Aeroflot. I think that he will compensate for the losses that he is currently winding up for himself. After all, he now continues to fly, in fact, for the sake of the state, for the sake of officials, in order for diplomats to get to destination countries.

Whoever survives, of course, will get himself the lion's share of the market in this situation. Although the market itself will tighten. At least for a year.

- How much?

- In the next three months, it will fall by 90%. Of those flights that were, 10% remained. Then, even if everything opens in June, there will be no quick recovery. Turkey will open in the summer - and who will fly to it? Europe will open - and who will fly there? Only if on business.

At the end of the year, I think the market will lose 50 percent. If last year we transported, roughly speaking, 110 million people - this year, God forbid, we transport 60 million.

“Can you imagine how aviation will change after this crisis?” And as a business, and from the consumer side? After all, some new restrictions on travel between countries may appear, there will probably be some other changes.

- I do not think that the industry will change much. This is not our first crisis, we have already experienced a lot of them. The industry has long since learned to live and fight these crises. After each new crisis, everyone was already counting much more accurately, looking to the future more calculated, and not at random, as in the first times.

2008 - then, yes, indeed, there was a serious blow and shock. Because everyone is used to living on growth. Learned to fly on foreign aircraft. Before that, I flew, I recall, on the remnants of the Soviet Aeroflot, Tu-154, and Il-86. And from 2005-2006, they began to take foreign equipment, everything was so rosy and good - only everyone forgot that you need to pay for it constantly. When it all flies and the passenger flow is growing, then it is fine and good. And when it rises at one moment, it turns out that it is impossible to contain it. Here comes bankruptcy.

After 2008, everyone already understood this and began to recount for themselves how to live on. It was 2015. And the closure of markets - Ukrainian, Turkish and Egyptian. And after that there was a recovery. But this time it all coincided. This moment will be difficult.

It is more interesting how not only aviation, but the whole world will change - I want to look into the world of September 2020. What will happen to Europe? How will relations between large countries change? But, I'm afraid, nothing will change, unfortunately, - although in theory it should have been. Now everyone seems to have one enemy - the coronavirus. And then, as we see, and basically everyone is trying to cope with it alone. But I think that all this will quickly be forgotten and everything will return, unfortunately, back to square one. And it will be sad for everyone, for the economy of all countries.

- What to do, let's hope for the best.

- But to prepare for the worst, as they say.

Business