Embattled S7 to press ahead with A320 deliveries

Moscow
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Russia's S7 Airlines is to start taking delivery of new Airbus A320 aircraft despite uncertainty over prospects for resolving its financial difficulties.

S7 Group deputy director Sergei Khromov says the carrier is planning to bring in A320s from the manufacturer rather than from the secondary market.

He expects the first of 25 jets, to be built under its agreement with Airbus, to arrive in August, adding: "The completion work on that aircraft should begin in April and its airframe already has a serial number."

But there are grave concerns about the airline's financial performance and ability to make payments to creditors without securing an emerency rescue package.

Raiffeisen Bank, which acts as an agent for S7 in restructuring its debts, has disclosed that they total Rb10.7 billion ($300 million) with almost 90% of loans secured by a pledge of assets.

In a review of the carrier's financial position, the bank says lenders have liens on valuable assets - from aircraft and engines to real estate - currently worth Rb6.1 billion and concludes: "There are no solid mortgageable assets left."

Last month S7 missed a Rb2.3 billion coupon interest payment on corporate bonds. During this year it should remit Rb3,93 billion to lenders and bondholders.

S7's largest creditor, Sberbank, holds a controlling shareholding in the airline as collateral for a Rb3.5 billion loan. It is followed by Vneshtorgbank and Alpha Bank, each with around Rb1.5 billion lent to S7.

The carrier has put in a request for borrowing extra funds from state-owned Sberbank and Vneshtorgbank within the framework of the Government's stimulus package for the airline industry.

Both banks have declined to comment until their common position on the matter is worked out.