Why Adria Airways and Sukhoi deal went wrong?
When, after a year of negotiations with Russian plane manufacturer Sukhoi Civil Aircraft Company (SCAC), Slovenian Adria Airways announced cancellation of its SuperJet 100 order days before planned delivery – the decision might have looked slightly controversial.
What stipulated the sudden deal annulment and how common are the last minute aircraft order cancellations? AeroTime examined the situation and addressed the questions to aviation experts for their take on the issue.
No need for 15 SSJ-100’s?
Adria Airways expected the first of 15 aircraft from Sukhoi to arrive by April 2019, according to the Memorandum of Understanding signed between the companies in November 2018. However, on April 2, 2019, the airline asserted it was unable to finalize the contractual clauses with Sukhoi, blaming the latter for the lack of common vision of further strategic development. Adria also claimed it had growing concerns about SCAC´s commitment to a stable, long-term partnership.
Sukhoi, however, claims the deal was closed upon its initiative. SCAC told AeroTime that responsible financial institutions reviewed Adria Airways financial report of 2018 and recommended canceling the deal in order to prevent possible losses. The recommendation was accepted and the work was stopped.
After partnership with Sukhoi fell through, Adria Airways said it was unwilling to look for a replacement. The airline claimed it was not planning on ordering aircraft from other manufacturers and intended to preserve its current fleet structure.
In anticipation of new aircraft
New aircraft complementing an existing airline’s fleet always entails lengthy arrangements. Even more so, if it is a new aircraft type that we are talking about, says AvCon Worldwide Group Managing Director James Kim. In such case, much more complex preparations are required.
“Pilots have to go through type rating training and cabin crew also have to go through type rating training. Engineers have to go through training for new aircraft type and relevant spare parts should be stocked. If it is a new model coming to the country, the airline and manufacturer have to go through type certification process with the civil aviation authority of the country,” James Kim told AeroTime.
SSJ-100 is a new aircraft type for Slovenian operators. However, Slovenia is a member state of the European Union and the European skies have seen SSJ-100 before. The aircraft type was operated by Brussels Airlines and City Jet in 2016-2018.
Last moment cancellations: side effects
Although aircraft order recall prior delivery is no surprise in aviation business, cancellation so close to the first delivery is very rare, experts say.
If financial commitment has already been made by an airline, this can provoke problems and even cause damage to the airline. To avoid it, the airline can opt for switching aircraft type to a different one produced by the same manufacturer, according to James Kim.
“For example, cancel 4 x B737 Max 8 but change to 2 x 787 so that financial damage can be minimised. Cancellation of the aircraft close to the first delivery day may cause forfeiture of deposit made and penalty may be applied if it is ordered by the airline directly,” Kim explains.
Irreplaceable, or is it..?
Another unexpected twist of this story is Adria Airways’ decision to not look for any replacement aircraft.
“Cancellation of aircraft order without looking for replacement sometimes happens due to change of strategy, route plan, etc., if the aircraft are sourced on lease basis,” explains James Kim. Replacement aircraft order is usually made when an airline purchases planes directly from a manufacturer and has already paid a deposit.
Initially Sukhoi planned to provide planes on long-term leasing basis, financed from the funds of “European financial institutions”, as quoted by Minister of Trade and Industry of the Russian Federation Denis Manturov. As Sukhoi intended to lease aircraft, Adria Airways wasn’t forced to look for any replacement options from the manufacturer. The airline did not appeal to other manufacturers either, saying it is going to concentrate on the current routes and operate the existing fleet so far.
As both companies give different explanations on what has happened to their firm contract, Vice President for Strategy and Development at West Wind Aviation Tomas Chlumecky argues that the situation mostly points at Sukhoi’s problems. The expert believes the backlog for SSJ-100 should be small, if they could get aircraft for Adria Airways so quickly, and questions how many real orders SCAC has.
“Sukhoi is used to cancellations, they have had many airlines go bust before and soon after deliveries. With Interjet and Cityjet returning their aircraft, and now Adria order cancelled, what hope is there for any new orders in Western Europe, North/South America?”, Tomas Chlumecky says.
Adria Airways would have been the only European airline operating SSJ-100’s, after the Irish carrier Cityjet and Brussels Airlines phased out their planes. Currently, SSJ’s are mostly operated by Russian airlines.
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