Russia set to subsidise struggling airlines, bail out bank amid rouble trouble

Moscow is to set to step in to support troubled Russian airlines badly hit by the collapse of the rouble and falling passenger numbers. The Russian central bank also said it was placing the troubled Trust Bank under supervision, with plans to bail it
Moscow is to set to step in to support troubled Russian airlines badly hit by the collapse of the rouble and falling passenger numbers. The Russian central bank also said it was placing the troubled Trust Bank under supervision, with plans to bail it out to avoid bankruptcy. -- PHOTO: REUTERS

MOSCOW (AFP) - Moscow is to set to step in to support troubled Russian airlines badly hit by the collapse of the rouble and falling passenger numbers.

Meanwhile the country's central bank said Monday it had placed the troubled Trust Bank under supervision and would bail it out with 30 billion roubles (S$715 million) to avoid bankruptcy.

Deputy Prime Minister Arkadi Dvorkovitch said Monday he was considering credit guarantees and subsidies worth up to 28 million euros (S$45.27 million) to support struggling airlines.

He told the business daily Vedomosti that two of the top three domestic airlines, Transaero and UTair, were already in difficulty.

"Firstly (we are looking at giving) companies credit guarantees which are very powerful because they give banks an interest in resolving the problem," he said.

"Second comes subsidies for domestic flights. We are ready to widen the number of subsidised routes to make connections viable," he added.

The newspaper said Transaero will begin to benefit from credit guarantees this week.

Airlines have been among the first hit by the currency crisis because of the international nature of their business and the landing charges they must pay in foreign currency.

The price of air tickets has jumped twice by 12 percent and then 14 percent as the ruble has tumbled against the euro and the dollar.

With rising prices, passenger numbers have dropped back sharply in recent months.

On Sunday the TASS official news agency said Transaero, the country's second airline, had asked for state help claiming there was "a risk of flights being suspended before the end of the year because the company did not have the money to pay its sub-contractors."

The company denied it was about to cut flights, claiming there was a campaign to "discredit" it, but admitted that as during the crisis of 2008-2009, public help was needed.

The leading regional carrier UTair is having trouble repaying its debts to Russia's Alfa Bank, which took it to court in early December and threatened to seize part of its fleet. The company claims it is working normally despite the legal action.

The airline made world headlines in November when passengers on one of its flights from Siberia had to get out and push their plane in temperatures of minus 52 degrees Celsius after the parking brake froze shut.

On Monday the central bank did not say if the problems of Trust Bank, whose products are advertised by Hollywood actor Bruce Willis, were linked to the fall of the rouble, which has weakened Russia's financial system.

The bank is ranked number 15 in the country in terms of deposits and 29th in terms of assets.

At an emergency meeting the central bank's leaders approved the rescue plan that also includes being put under a special administrator and the search for a new investor to take over Trust Bank which should be "a major Russian bank".

The Bank of Russia said its injection into Trust Bank should provide it sufficient liquidity to continue operations without any repercussions for clients.

Unable to borrow on Western markets due to US and EU sanctions over Moscow's role in the Ukraine crisis, Russian banks have found themselves pressed by the plunge of the rouble that has lost nearly half its value in the past year.

Rates on the interbank lending market, a barometer of confidence banks have in one another, have shot up in recent days, reflecting wariness and liquidity problems among banks.

Last week the central bank announced a number of technical measures to improve the access of banks to liquidity and the parliament approved a recapitalisation plan worth 1 trillion roubles.

Russia boasts more than 800 banks, many which are small and financially fragile. The Bank of Russia has closed dozens in recent years to try to strengthen the banking system.