Rosavia plans held off as doubts about smaller airlines mount

The government has suspended creation of new state-owned airline, Rosavia, for at least a year, with experts saying that some regional carriers that are supposed to be folded into the airline may not survive until then.

The state wanted to consolidate the Moscow city government's airline Atlant-Soyuz with former members of the bankrupt AirUnion alliance, under the Rosavia brand. Now the plan has been grounded at least for a year. Senior government officials say the airlines aren't technically ready to form a new carrier. Andrey Rozhkov, Analyst at CentreInvest Group, thinks the government doesn’t want to take the risk of launching Rosavia on a faltering air transport market.

“The passenger volume on Russian internal flights is falling by 20 percent every month compared to last year. In such deteriorating conditions airlines become less attractive for merger and need money to support working capital. This means attracting finance, which is so hard to do now.”

Some of the Air Union airlines, such as Krasair and Dalavia have already gone bankrupt. And more of the regional carriers that were going to be part of Rosavia will disappear, according to Evgeny Shago, Senior Analyst at Ingosstrakh Invest.

“It’s easier now for Rosavia to build a new airline from scratch, than to pay somebody’s debts. They may include regional airlines that will survive this year. But the majority won’t.”

That means larger airlines like Aeroflot , Transaero and S7 may increase their market share. In couple of years, Russia could end up with just 10 airlines, of the 200 that exist now.