Pobeda cancels one of Russia's largest Boeing 737 orders

Pobeda refused to purchase 20 Boeing 737 MAX aircraft, flights on which are still not allowed in Russia.Instead, the low-cost airline will receive other airliners from the companies of the Aeroflot group

The Pobeda low-cost airline, one of the three largest Russian airlines in terms of passenger traffic (5 million passengers in January-May 2021), has refused to purchase 20 Boeing 737 MAX medium-haul aircraft of the new generation. This was told to RBC by a source close to the leadership of Pobeda, as well as interlocutors in a large Russian leasing company and one of the customers of the Boeing 737 MAX.

Representatives of the Aeroflot group (which includes Pobeda) and the low-cost airline itself declined to comment. The leasing companies GECAS and SMBC, which planned to supply Pobeda with five and 15 Boeing 737 MAX, respectively, refused to disclose details and the status of cooperation.

Why Pobeda abandoned MAX

The canceled contracts are one of the largest orders for Boeing 737 MAX aircraft in Russia. The low-cost airline has agreed to deliver 20 aircraft in 2018, with transportation scheduled to begin in 2019. Pobeda even considered the option of increasing the order to 50 liners, but the government commission for import substitution (since 2015, purchases, including aircraft, worth more than 1 billion rubles) have not been approved for this.

Pobeda to cancel several flights due to Boeing 737 MAX delivery delays
In October 2018 and March 2019, two plane crashes occurred with the participation of the Boeing 737 MAX, in Indonesia and Ethiopia, due to a malfunction of the MCAS (Maneuvering Characteristics Augmentation System, which automatically corrects the position of the aircraft in the air). After that, MAX flights were suspended in the world, including Russia. Despite the correction of problems and the resumption of transportation on this liner in different countries since the end of 2020, the Federal Air Transport Agency has not yet given permission for their use. The process of their re-certification is delayed due to coronavirus restrictions, Alexander Neradko, head of the agency, said in March 2021.

Pobeda refused to lease MAX a year after their deliveries were to begin. Such a delay normally gives the right to withdraw from the contract, ”a source close to the leadership of Pobeda explained to RBC. There was no point in holding on to leasing contracts, he said, due to the lack of a Russian Boeing 737 MAX type certificate and a "giant offer" of MAX at low prices.

The former head of the Aeroflot group, Vitaly Savelyev, who now heads the Ministry of Transport, said back in the spring of 2019 that Pobeda could refuse to buy the Boeing 737 MAX if the American manufacturer does not solve the safety problems of these aircraft. “We have deliveries from Pobeda no earlier than November 2019. By that time, either Boeing will solve the safety problem of the 737 MAX, or we will order another car, ”he said.

“The timing of recertification is determined by the regulator,” a Boeing spokesman told RBC, adding that he continues to work with the Federal Air Transport Agency and customers to return the Boeing 737 MAX to service in Russia. RBC sent a request to the press service of the Federal Air Transport Agency.

Who else ordered MAX

In addition to Pobeda, four Russian airlines had plans to purchase aircraft of the MAX family. Nine liners expected to receive the largest Russian private airline S7. In 2018-2019, she managed to receive two MAX, which are now at the base of the carrier in Novosibirsk and are undergoing regular maintenance to maintain their airworthiness, said S7 Group spokeswoman Irina Dunkova. According to her, the agreement on the supply of new aircraft has been restructured - delivery dates and key terms of the deal have been revised. Now S7 continues to update and increase its fleet with new generation aircraft Airbus A320/321neo.

Utair has a valid contract for 28 MAX, a source close to the airline told RBC. But the delivery time is not defined and can be stretched for several years. RBC sent a request to the press service of Utair. Sberleasing planned to purchase 14 such liners for Ural Airlines. The airline and the lessor declined to comment. Three more Boeing 737 MAX were going to receive the airline NordStar. But this agreement was terminated when a year had passed since the scheduled delivery, a source close to the airline told RBC. According to him, the carrier still expects to upgrade the fleet at the expense of MAX. RBC sent a request to a NordStar representative.

The head of one of the largest leasing companies VTB Leasing, Dmitry Ivanter, told RBC through the press service that one should not expect serious demand for new aircraft in Russia in the next two years. “Whether this particular model (Boeing MAX. -) is interesting, it will be possible to discuss in the future with the resumption of demand and the stabilization of the situation in the air transportation market,” he said.

Due to which aircraft will the low-cost airline develop

Pobeda's refusal to supply MAX occurred against the backdrop of an increase in its role in the Aeroflot group. According to its new strategy, approved a year ago, by 2028 the low-cost airline should become the leader in Russia in terms of the number of passengers carried - 55-65 million people a year. Aeroflot itself (35-40 million), which now occupies the first place in the market, and another company of the group - Rossiya (20-30 million) will transport almost the same amount together.

Aeroflot decided to make Pobeda Russia's largest airline Business

In 2020, amid restrictions due to the COVID-19 pandemic, Pobeda's passenger traffic decreased by 11.7% compared to 2019, to 9.1 million people, while the total traffic in Russia fell by 46%. By the end of 2021, the low-cost airline intends to increase the number of customers by one and a half times, to 13.5 million people, said its CEO Andrey Kalmykov. In January-May, the company has already doubled its transportation compared to the pandemic year. In addition, since May, she began to fly from the second Moscow airport - Sheremetyevo - in addition to flights from Vnukovo.

At the end of last year, the Pobeda fleet consisted of 30 Boeing 737-800 aircraft, and by 2028 it should increase to 170 liners. But the timing of certification of the Boeing 737 MAX in Russia will not affect the implementation of the carrier's plans, because it has already begun to receive Boeing 737-800 liners from other companies of the group - Aeroflot and Rossiya. This was stated in an interview with RBC back in February 2021 by the head of the Aeroflot group, Mikhail Poluboyarinov. “Pobeda already has 30 aircraft in stock, 50 aircraft are being transferred from Aeroflot, and four more will be transferred from the Rossiya airline. That is, already a significant fleet of 84 cars, ”he explained.

According to Poluboyarinov, the supply of new aircraft for the company is "not a problem for the next two or three years." The low-cost airline has already received four aircraft from Rossiya and ten from Aeroflot, as a result, its fleet has increased to 44 aircraft. In 2021-2022, it is planned to transfer another 20 aircraft each.

The head of Aeroflot - RBC: "We expect the market to recover in 2022" Business

When planes move to Pobeda, their configuration changes - 189 seats instead of 158 for Aeroflot and Rossiya: there are no business class, kitchens and wardrobes. “Due to the fact that Pobeda has much more seats (189 versus 158) and much more turnover for obvious reasons, it ultimately has about twice as much passenger traffic,” said Andrey, Deputy General Director of Aeroflot for Strategy and Marketing Panov. On 30 aircraft, even taking into account the pandemic and the complete cessation of flights for two months, Pobeda was able to carry 9 million passengers, or 300,000 passengers per aircraft, Sergey Zaitsev, senior expert in the aviation practice of the consulting company Bain & Company, pointed out. And in 2019, this figure was even higher - 343 thousand passengers. While maintaining the ratio at the same level (300–343 thous.

Now Pobeda is getting a mono-fleet (all aircraft of the same Boeing 737-800 model), which is preferable for a low-cost airline, notes Aleksey Sinitsky, director of research and development at Infomost Consulting. This allows the company to achieve greater efficiency in both maintenance and crews, he points out.