Procurement

Aeroflot Group works with a wide range of suppliers and uses modern, competitive procurement practices. The Group prioritises equality, fairness, and non-discrimination while ensuring that no unreasonable and restrictive business practices are applied towards bidders.

Procurement activities at Aeroflot Group comply with Federal Law No. 223-FZ On Procurement of Goods and Services by Certain Legal Entities dated 18 July 2011, PJSC Aeroflot’s Regulations on Procurement of Goods, Works, and Services, relevant policies of Aeroflot’s subsidiaries, and other procurement-related regulations adopted by the Russian government.

^{* The volume of purchases is calculated as total payments made during the reporting year under contracts signed as a result of procurement processes.
** The savings are calculated as the difference between the initial (maximum) price of the tender and the winning price, excluding tenders where the initial (maximum) price is calculated based on a given rate, tariff, or formula.}

In 2018, Aeroflot Group’s procurement totalled RUB 750.5 billion. Competitive procurement accounted for 30.8% (by value), 86.8% of which was online competitive procurement.

PJSC Aeroflot’s procurement in the reporting period totalled RUB 544.4 billion. Competitive procurement accounted for 40.5% (by value). Competitive online procurement accounted for 88.36%, in line with the requirements of the Federal Agency for State Property Management (Instruction No. GN-13/1206 dated 21 January 2011).

Savings on procurement in 2018 totalled RUB 7.5 billion for Aeroflot Group and RUB 3.5 billion for PJSC Aeroflot.

Procurement from small and medium-sized enterprises

Aeroflot Group seeks to support small and medium-sized enterprises (SMEs). Aeroflot significantly increased procurement from SMEs in 2018, with the total value of contracts signed with SMEs during the year tripling, from RUB 6.8 billion in 2017 to RUB 20.6 billion in 2018.

Procurement from small and medium-sized enterprises (SMEs) accounted for 85.2% of the total in 2018, one of the highest levels among large federal-level customers.This share far exceeds the target set by Russian Government Resolution No. 1352 On Specifics of Participation of Small and Medium-Sized Enterprises in Procurement of Goods, Works, and Services by Certain Types of Legal Entities dated 11 December 2014, recommending that SMEs make up no less than 18% of a company’s total annual value of contracts. Overall, this reflects the priority position of SMEs when selecting suppliers along with the specific needs of Aeroflot’s business.

PJSC Aeroflot also provides support to SMEs and facilitates their access to its procurement. In 2018, the pilot SME partnership initiative aimed at facilitating proposal submissions for the Company’s procurement processes was updated, and the workshop programme for SMEs was extended. To ensure accurate reporting on procurement from SMEs, the Company implemented a series of initiatives:

• Optimising the list of SME-specific procurement codes
• Holding working meetings with SMEs
• Developing subsidiary-specific partnership programmes
• Organising a series of regional workshops for SMEs, arranging meetings with potential suppliers and members of PJSC Aeroflot’s pilot SME partnership initiative
• Participating in conferences dedicated to expanding SME access to the procurement processes of Russia’s biggest customers

Aeroflot’s initiatives proved to be successful and the Company has since been recognised by two letters of commendation from RSMB Corporation – Russian Small and Medium Business Corporation – for its significant contribution to the development of small and medium-sized businesses. In the future, the Company plans on increasing its share of supplies sourced from SMEs in overall procurement contracts, prioritising innovative and high-tech products.

In 2018, Rossiya subsidiary airline launched its SME partnership initiative. Under the initiative, Rossiya has committed to providing methodological support to SMEs on procurement practices, arranging workshops, conferences, and round tables, and notifying SMEs on its current and potential technological needs, planned short-term and long-term procurement volumes, and cooperation terms with maximum transparency. A partnership agreement with RSMB Corporation was also signed in 2018.

The Advisory Board, in charge of independent audits of PJSC Aeroflot’s procurement efficiency, continued its activities in 2018. The Advisory Board includes representatives of NGOs, economists, industry scientists, and well-known procurement experts. Proceedings of the Advisory Board, including minutes of meetings, are published on the Company’s official website at https://www.aeroflot.ru/ru-ru/content/ soveshchatelnyi-organ.

Fuel procurement

The key priority of fuel procurement is ensuring timely and uninterrupted fuel supply to Aeroflot Group’s aircraft while maintaining high flight safety and maximising fuel pricing efficiency. Fuel procurement optimisation at PJSC Aeroflot is supervised by the Fuel Commission.

At the Aeroflot Group level, fuel procurement terms are determined by agency agreements. PJSC Aeroflot makes a consolidated order covering the demand of all the Group companies and initiates fuel procurement processes. PJSC Aeroflot settles accounts for supplied fuel, fuel storage, and refuelling directly with its counterparties. These arrangements cover virtually all fuel needs of the Group’s subsidiary airlines, excluding a small number of Russian airports (less than 2%) which are not contracted or alternate airports as well as airports where fuel procurement is part of integrated ground handling agreements. This fuel procurement system helps optimise aviation fuel expenses through largevolume purchases.

In 2018, we noted an unusual trend of simultaneous growth in global quoted petroleum product prices and the rouble depreciation against the US dollar, which resulted in increased fuel procurement expenses. PJSC Aeroflot implemented the following measures for fuel procurement:

• For procurement with formula-based pricing linked to macroeconomic variables (such as the Platts USD/RUB exchange rate), caps on settlement prices have been introduced so that they cannot exceed the prices of the Schedule & Tariffs Centre under the Transport Clearing House, which are based on the rates and tariffs at the relevant airport within the Russian Federation as at the date of aviation fuel supply (aircraft refuelling)
• Customised management of the most expensive contracts through monthly requests for additional discounts from aviation fuel suppliers

These measures aimed at additional discounts and caps on formula-based prices proved to be quite efficient in the second half of 2018, when calculated formula-based prices linked to macroeconomic variables started growing rapidly.

Since June 2018, PJSC Aeroflot has been actively engaging with ministries, agencies, and oil industry representatives to develop a global programme aimed at jet fuel price stabilisation and airlines’ aviation fuel cost reduction.

In 2018, initial contracts with jet fuel suppliers mostly used formula-based pricing linked to macroeconomic variables (over 50% of jet fuel supplies at Russian airports and 100% of the supplies at the Sheremetyevo base airport). The use of price caps and additional discounts enabled a significant reduction in our overall aviation fuel costs.