In a worrying twist for Russia’s airline industry, more than 30 Russian airlines, which collectively handle over a quarter of all domestic passenger flights, are facing serious financial trouble and could go bankrupt in 2025. Most of these struggling airlines are small to medium-sized, with fewer resources to fall back on when compared to larger carriers. And now, a tax plan that was meant to offer relief might end up being the final push that many of these airlines simply can’t handle.
Why Are These Airlines in Trouble?
The trouble started with international sanctions placed on Russia in 2022, which came with heavy financial consequences. Russian airlines, especially smaller ones, rely on foreign planes—primarily from Western companies—to carry out their operations. Typically, they lease these planes, making monthly payments to foreign leasing companies. But since the sanctions, Russian airlines have stopped paying for these leases, leading to an increasing debt load.
To help, the Russian government is planning to forgive a portion of this debt. However, this “forgiveness” comes at a cost: a 25% tax on the forgiven debt. Essentially, these airlines will have to pay taxes on the amount they’re no longer required to repay. For many of these smaller airlines, this extra tax could be too much to handle, potentially driving them out of business.
Big Airlines vs. Small Airlines
Russia’s major airlines—like Aeroflot, Ural Airlines, and S7 Airlines—are better equipped to survive this financial storm. They have already begun buying back their leased planes with financial support from the government’s National Welfare Fund. By the start of 2024, these large airlines had repurchased 165 out of 400 planes that were previously leased.
On the other hand, smaller airlines lack the resources to make similar moves. They can’t afford to buy back their planes and are instead stuck dealing with the consequences of missed payments and debt.
High Maintenance Costs Add Fuel to the Fire
On top of lease debt, maintaining these foreign aircraft has become more expensive. Before the sanctions, Russian airlines could send their planes to official maintenance centers in Europe. But sanctions have cut them off from these services, forcing airlines to turn to companies in Iran, Turkey, and China for repairs and upkeep—at a significantly higher cost. For example, monthly payments for a single Airbus A320 can range from $80,000 to $150,000, depending on the age and condition of the aircraft.
An aviation expert, Andrei Patrakov, highlights that these mounting costs make it incredibly hard for smaller airlines to stay afloat. He also points out that taxing the forgiven debts as “income” makes the financial situation even worse, as it turns non-operational funds into taxable profit.
Russian Airlines Seek Tax Relief
Industry leaders are pushing back on this tax policy, asking the government to change the rules. They suggest that the airlines should use any saved money from debt forgiveness to keep their planes safe and operational, not pay it back as taxes. This change, they argue, would help airlines survive through tough times and prevent major disruptions to air travel in Russia.
Sanctions Force Russia to Rethink Aviation
With Western companies like Airbus and Boeing refusing to provide spare parts or support, Russia has spent over $12 billion trying to keep its airline industry afloat. Some of this money has gone toward developing domestically produced aircraft. But building a fleet of reliable, locally made planes is taking longer than expected. The government initially hoped to launch two new Russian aircraft models—the MS-21 and the Superjet New—sooner, but both have been delayed, with expected release dates now pushed to 2025 and 2026.
Meanwhile, Russia is also looking for help abroad. In October 2024, Russian Transport Minister Roman Starovoit confirmed that Russia is negotiating with Central Asian countries, including Kazakhstan and Uzbekistan, to allow their airlines to operate domestic flights within Russia. The hope is that this cooperation could help meet travel demands and relieve some pressure on the Russian aviation sector.
A Long Road Ahead
While inviting foreign airlines might help Russia’s immediate travel needs, it’s not a perfect solution. Some Central Asian airlines worry that doing business in Russia could make them targets of “secondary” sanctions from the West, potentially putting their own operations at risk.
With mounting debt, high maintenance costs, and limited access to resources, Russia’s aviation industry is in for a rough ride. The government’s plans to produce a homegrown fleet might provide long-term stability, but until then, small and medium-sized airlines are left navigating a turbulent financial landscape. Only time will tell if they can survive the storm.
