In a worrying development for Russia’s aviation sector, 30 Russian airlines, which collectively account for more than 25% of domestic passenger traffic, may face bankruptcy in 2025 due to mounting financial pressures, according to the Russian daily Izvestia. 

These airlines, particularly small and medium-sized carriers, are struggling with major debt related to leasing foreign aircraft, a situation exacerbated by the economic fallout from international sanctions. 

Since the imposition of sanctions in 2022, many of these carriers have stopped making payments on leased aircraft, leading to debt accumulation. In response, the Russian government plans to allow these airlines to write off some of these debts in 2025. 

However, this relief will come with a heavy tax burden. The airlines will be charged a 25% tax on the written-off amounts, which could be too much for some airlines to handle, potentially pushing them out of business.

According to Rosaviatsia, more than 30 airlines are engaged in passenger transportation in Russia. The report said that large carriers like Aeroflot, Ural Airlines, and S7 Airlines could weather the storm by purchasing back their leased aircraft using funds from the National Welfare Fund. 

By the first quarter of 2024, these major players had repurchased 165 of the 400 aircraft previously leased. In contrast, smaller carriers, which lack the financial resources to make similar moves, face an uncertain future. 

Issues surrounding aircraft maintenance further compound these airlines’ financial struggles. Most Russian airlines previously leased aircraft registered in Bermuda, Ireland, and Europe. 

After sanctions disrupted access to official maintenance services, airlines were forced to rely on companies from Iran, Turkey, and China, often at much higher costs. 

The average monthly payment for a used Airbus A320 aircraft ranges from US$80,000 to US$150,000. However, aviation experts point out that taxing these unpaid lease amounts as income is incorrect since a huge portion of these funds are now used on the maintenance of these aircraft.

Andrei Patrakov, an aviation expert and founder of RunAvia flight safety service, pointed out that increased maintenance costs severely affect airlines’ financial viability. 

He added that the imposed tax burden on the written-off debts would further destabilize the industry, as it would be recognized as “non-operating income” and taxed as profit. 

Russian industry leaders call for amendments to the Tax Code, hoping to mitigate the damaging financial consequences. They propose using the saved funds to maintain the airworthiness of their fleets, thereby ensuring the long-term sustainability of Russia’s aviation sector. 

Russia’s Struggling Aviation Sector 

Since March 2022, major Western manufacturers like Airbus and Boeing have suspended aircraft parts and maintenance support, severely damaging Russian airlines, including Aeroflot, the country’s flagship carrier.

Since the sanctions took effect, Russia has invested over US$12 billion to sustain its civil aviation industry. This funding has been allocated to aircraft production and airlines’ financial aid. 

Yet, despite these efforts, the industry remains constrained by significant shortfalls in critical resources, including trained pilots and crews and accessible, reliable aircraft maintenance.

The impact of these shortages was felt acutely in late July, when a pilot deficit led to the cancellation of 68 Aeroflot flights out of Sheremetyevo International Airport, with several others postponed, as reported by Aviatorshchina. According to Radio Free Europe, this unprecedented shortage was corroborated by three sources within Russia’s airline industry.

To address these gaps, Moscow has ambitious plans to supply Russian airlines with up to 1,000 domestically produced aircraft by 2030. However, production delays remain a major challenge. 

Sergei Chemezov, head of the state conglomerate Rostec, informed parliament that the mass production of the MS-21 and Superjet New aircraft models has been pushed back, with expected launch dates now set for 2025 and 2026.

In addition to domestic efforts, Russia is looking abroad for support. Reports last month indicated that Russia is in talks with several Central Asian countries, including Kazakhstan and Uzbekistan, to allow their airlines to operate domestic flights within Russia. 

Russian Transport Minister Roman Starovoit confirmed these reports in October 2024.  

This strategy addresses increasing travel demand and the acute shortage of operational planes. If implemented, this approach may offer limited relief but also highlights the deeper challenges confronting Russia’s aviation sector as it strives to rebuild infrastructure and workforce capabilities amid growing isolation from Western aviation resources. 

However, there are concerns that Central Asian airlines may be reluctant to participate, fearing potential repercussions from the West in the form of secondary sanctions.

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