Anna Kravchenko in Moscow -
The Kremlin has pushed Aeroflot, Russia's largest airline, to take over beleaguered Transaero, Russia's second largest, for the symbolic price of RUB1, consolidating its dominance of the Russian market but landing it with heavy debts.
State-controlled Aeroflot had a 37% share of the Russian air travel market in 2013, according to its website. Together with privately-owned Transaero's 14.8%, it would now have more than a 50% market share, but given the slowdown in the tourism business the combined businesses’ market share is probably even more.
At a meeting with First Deputy Prime Minister Igor Shuvalov on September 1, Aeroflot's board agreed to support the purchase of 75% plus one share of Transaero, according to Vedomosti business daily, citing a source close to the meeting participants. Shuvalov demanded that all obligations to Transaero’s passengers and staff be carried out in full, the source said.
Transaero’s stocks jumped 40% on the news to RUB116 per share, while Aeroflot stock went down by 4.3%.
Transaero has two options: its shareholders either agree to external control by Aeroflot, or the carrier faces bankruptcy, Vedomosti cited a federal official as saying.
In theory the deal should be subject to approval by the Federal Antimonopoly Services (FAS). However, as Transaero has been on the verge of bankruptcy for more than a year, the deal is likely to be shooed through. The company’s net loss for the first half of 2015 amounted to RUB8.577bn ($130.1mn), down by nearly a third (30%) from the same period a year earlier.
The airline won RUB9bn ($135mn at the current rate) of state guarantees in December 2014, and was promised further support. Despite the subsidies, its total debt to banks and leasing companies still stands at RUB67.5bn. During Transaero’s negotiations with banks on debt restructuring, it was revealed that it plans to ask for another RUB70bn of state subsidies.
Transaero’s CEO and co-owner Olga Pleshakova was not able to pull the carrier through the crisis, but instead is trying to blackmail the government with the amount of outstanding tickets sold, one of Vedomosti’s sources said.
"It is easier to provide Aeroflot with subsidies and let it fly Transaero’s passengers than to try to save the airline, which is constantly billing the state and blackmailing it with passengers,” one of the officials told Vedomosti.
The company’s troubles started in the end of 2014, when the ruble's decline raised the costs of its dollar-denominated plane leases and cut passenger numbers.
Aeroflot and S7, whose financials were more stable, attempted to squeeze rivals Transaero and UTair out of the market. The companies opposed the government’s plans to support struggling carriers, saying they were ready to fly UTair’s and Transaero’s passengers if the companies exited the market.
Transaero's demise is a blow for the Russian aviation business. The airline was a pioneer and the first start-up commercial airline to appear to compete with Aeroflot and the so-called “babyflots” after the Soviet-era national carrier was broken up at the start of the 1990s.
It got into business by taking on a contract to organise charter flights to Israel to fly Russian jews who wanted to emigrate at the start of the 1990s, paid for by the Israeli state. The Moscow-Tel Aviv route remained the company’s most profitable route for many years, but the company used this core business to slowly build up a network of routes to other countries.
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