The procurement process in PJSC Aeroflot and its subsidiaries is organised in line with the best practices, including online bidding. The Group is consistently committed to procurement transparency and prioritises equality, fairness, non-discrimination, and 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 procurement is based on:
- information transparency
- targeted and efficient spending on purchasing goods, works, services, and implementing cost-cutting initiatives
- unlimited access to bidding through eliminating non-measurable bidder requirements
- equality, fairness, non-discrimination, and ensuring that no unreasonable and restrictive business practices are applied towards bidders.
Key procurement objectives are to:
- increase the share of competitive procurement
- increase the share of online procurement
- create the environment which fully and timely responds to the needs of PJSC Aeroflot and its subsidiaries
- support SMEs
- prevent discrimination and unreasonable restrictions on the number of bidders.
In 2017, procurement totalled RUB 448.3 billion. The value of competitive online procurement accounted for 61.1% of the total in 2017, in line with the requirements of the Federal Agency for State Property Management (Instruction No. GN-13/1206 dated 21 January 2011). In 2017 the procurement saved RUB 5.3 billion, net of aviation fuel procurement cost savings through competitive bidding with formula-based pricing and contracts with vertically integrated oil producers.
In the reporting period, the Advisory Board in charge of independent audit of PJSC Aeroflot’s procurement efficiency continued its activities. The Advisory Board includes representatives of public organisations, 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 .
Procurement highlights of PJSC Aeroflot
|Total procurement, RUB million||384,949.3||448,299.9|
|Competitive online procurement (by value), %||56.4||61.1|
|Single source procurement, %||63.9||62.3|
|Savings through competitive procurement (excluding aviation fuel) in 2017, RUB million||1,732.1||5,309.6|
|Average number of bidders||3.30||3.25|
|Procurement from SMEs, %||65.0||89.4|
The key objective of fuel procurement is to ensure timely and uninterrupted fuel supplies to PJSC Aeroflot and its subsidiaries, while maintaining high flight security and maximising the efficiency of fuel pricing.
In 2017, all fuel supply contracts were signed by PJSC Aeroflot based on the results of competitive bidding won by tenderers who had offered the best financial terms and guaranteed the required reliability, including security assurance.
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’s companies and initiates fuel procurement processes. PJSC Aeroflot settles accounts for supplied fuel and fuel storage and refuelling directly with its counterparties. These arrangements cover virtually the entire fuel needs of 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 large-volume purchases.
In 2017, to optimise its fuel procurement expenses, the Company mostly used formula-based pricing. Pobeda airline pursued a flexible fuel procurement policy by purchasing either from PJSC Aeroflot or under direct supply contracts, depending on the terms offered by individual airports.
Optimisation of fuel procurement at PJSC Aeroflot is supervised by the Fuel Commission.
Procurement from small and medium-sized enterprises
Procurement from small and medium-sized enterprises (SMEs) accounted for 89.4% of the total in 2017, having increased notably since the previous year (65.0% in 2016). 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, according to which the annual share of procurement from SMEs may not be less than 18% of the aggregate annual value of contracts awarded to winning bidders.
PJSC Aeroflot liaises with relevant organisations to expand access to the Company’s procurement process for SMEs. To ensure accurate reporting on procurement from SMEs, the Company optimised the list of SME-specific procurement codes, updated SAP data to verify counterparties’ SME status, and arranged for working sessions with SMEs.
PJSC Aeroflot has been recognized by two letters of commendation from RSMB Corporation for its significant contribution to the development of small and medium-sized business.
The Company intends to continue its successful partnership with RSMB Corporation and SMEs and prioritise procurement of innovative and high-tech products from this market segment. Aeroflot scheduled a number of initiatives to facilitate access of SMEs to PJSC Aeroflot’s procurement, including development and approval of subsidiary partnership programmes, organising regional workshops together with RSMB Corporation, and updating the pilot SME partnership initiative aimed at facilitating the submission of proposals for PJSC Aeroflot’s procurement processes.