Home / Airline news / The Ministry of transport offers to sell the airline “Russia”

Минтранс предлагает продать авиакомпанию "Россия"

If “Aeroflot” will sell the airline “Russia” it will increase competition in the market and help regional airports, said in a letter to the Deputy head of the Ministry of transport to Deputy Prime Minister Arkady Dvorkovich. But “Aeroflot” opposes the transaction, says RBC.

Sale of the controlling package of shares or “qualified majority” (2/3 or 3/4 of votes), airline “Russia” “can enhance competition in the transport market and create conditions to improve the offer of transport to and from regional airports and the formation of a hub model in Pulkovo airport,” reads the letter, Deputy Minister of transport Valery Okulov, sent to Deputy Prime Minister Arkady Dvorkovich.

Okulov before joining the Ministry of transport in the spring of 2009 was the head of Aeroflot, which owns 75% minus one share in “Russia” (more 25.1% — in the administration of St. Petersburg), which is based on three regional carriers — “Russia” and “Donavia” and “Orenburg airlines”. Dvorkovich instructed the Ministry of transport to prepare for the October 10 proposal on the possibility of sale of “Aeroflot” it “daughters”, reported “Vedomosti”. Representatives of the Ministry of transport and Dvorkovich refused to comment on the letter. But just at this day, the press service of the Ministry reported that in the government proposals “on the optimization of activities” and “Russia”.

“We consider it appropriate to amend the long-term development program of Aeroflot group with the purpose of harmonizing objectives of the airline “Russia” and regional airports,” writes the eagle’s gift, citing in the letter the positions of all stakeholders. The fact that the strategy of “Aeroflot” contrary to road map for developing competition and improving Antimonopoly policy, approved by the government in December 2012, he points out, by 2025, the airline “Aeroflot” should take no less than 32% of transfer passengers at its main hub in Moscow, and in front of “Russia” is the task of “priority development” on the Moscow market up to 2021 with growth in the share of transit of up to 20%. Despite the fact that “Russia” is based in Pulkovo, and in 2014 it reduces the number of aircraft (over two years decreased from 38 to 31), departing from St. Petersburg airport, transferring them to Vnukovo, to the letter.

According to the FAS, Aeroflot is the largest airline in Russia, and “Russia” together with the “Orenburg airlines” and “Donavia” ranks third with a market share of 9.8 per cent (the second-ranked S7 — 11.2 per cent). In January—August, 2016 “Russia” carried of 5.12 million, while “Aeroflot” — 19 million, and S7 — 6.5 million In the case if “Russia” will become “new independent carrier”, it will lead to the development of competition, increase the availability of this type of service, as well as “give additional impetus” to the development of airports, transfers Okulov, the position of the Antimonopoly authority (FAS representative does not comment on it).

“Most of the management positions in the airline “Russia” is a former management “Transaero”, which has sufficient management experience to tough competition with “Aeroflot”, — says a source close to the airline “Russia”. “The General Director “Russia” Dmitry Saprykin — comes from “Aeroflot”, but he is perceived by management and employees “of Russia” and its self — independent leader,” he adds.

The Ministry also considers “economically viable” sale of a controlling stake, “Russia”, because, according to the Department, “Aeroflot” effectively runs the company, says Deputy Minister of transport. The representative of the Ministry confirmed this, adding that the decision on privatization is taken by the government.

For a decision on the sale of “Russia” it is necessary to estimate its cost, to conduct an analysis of the potential demand from investors and economic feasibility of such a transaction, and to develop measures to increase the company’s value, said the expert Council under the government. In this regard, “Aeroflot” should prepare relevant documents for consideration at the meeting of its Board of Directors, then submit the documents to the government Directive on the issue of the sale of shares of “Russia,” says Okulov.

Chairman of the Board of Directors of Aeroflot Kirill Androsov Wednesday, October 12, stated that the company has no plans now to sell “Russia”: “the discussions, the decision of the shareholders, but the development strategy of “Aeroflot” corresponds to the preservation of airline “Russia” in the medium term in our property” (quoted by “RIA Novosti”). The strategy of “Aeroflot”, “Russia” given to the “big place”. This strategy was approved by the government, said the representative of the airline, answering the question of RBC.

According to “Aeroflot”, the question of the sale of this “daughter” should be considered no earlier than 2019, after entering the “planned activities”, the letter said Okulova. First of all, we are talking about the number of passengers, said RBC close to the “Russian” source. So, in 2016 the plan was to move 10 million people, but in the end, is likely to be only 9 million

“At the moment, the government will not be easy to find investors in the market, because the industry is not the most brilliant, — told RBC General Director of UTair (ranked fourth for the first eight months of 2016 carried 4.3 million passengers) Andrey Martirosov. Is therefore understandable reaction of “Aeroflot” to sell the airline “Russia” is not necessary”. “Russia” niche — long-haul transport on large aircraft, the “great synergy” with other airlines will not, he said.

But Martirosov declined to comment on interest UTair to “Russia”. Representatives of other its competitors — S7, which last year was interested in buying “Transaero”, “Ural airlines” — has not responded to requests to RBC.

According to Okulov, for “coordinating the activities” working group of the Ministry of transport review of the development strategy of “Russia” held two meetings, which were attended by the representatives of “Aeroflot”, the St. Petersburg administration, “Air gates of Northern capital” (manages the airport Pulkovo), as well as UK “Airports of Regions” controlled by “Renova” of Victor Vekselberg. After joining “Donavia” to “Russia” in 2015, the airline ceased to exist and no longer be stationed at the airport of Rostov-on-don (part of the group “Airports of Regions”), therefore significantly reduced the number of flights from this airport, said a source close to one of the participants in the meetings. A similar situation happened with the Pulkovo airport, he adds.

The representative of “Airports of Regions” says that the managers of the company along with others participated in the discussion of the strategy of “Russia” as experts. The representative of administration of St.-Petersburg did not respond to a request RBC.

But who can buy a controlling stake in “Russia” and for how much – is not clear. “Core investors “Russia” will not attract, but it could buy a business that has other interests in St. Petersburg and is ready to develop it in partnership with the government of the city”, – says the General Director Infomost Boris Rybak. The representative of administration of St.-Petersburg on the questions not answered.

The airline “Russia” does not have its own sales system, its tickets are sold through a distribution network of “Aeroflot”, therefore, reduced costs, analyst IK “Aton” Michael Ganelin. According to “SPARK-Interfax”, in 2015, “Russia” increased net profit by 2.8 times, to 870,7 million rubles, while revenue growth 8% to 38.7 bn RUB But without the support of “Aeroflot” airline unprofitable, and in case of its sale the new owner will require significant investment in further development, he warns.

“The world aviation market is very competitive but it is better to have one strong carrier than a lot of weak, and the task of the FAS to monitor the prices and time to test their validity”, — concludes the Ganelin. The company group “Aeroflot” working in three segments — premium (Aeroflot), economy (“Russia”) and as a low-cost carrier (“Victory”). This is not such an exceptional situation for international practice, says Sberbank CIB analyst Igor Vasilyev. “For example, there are similar cases in Europe, Lufthansa owns budget carrier Eurowings, and is still a number of airlines represented in different segments,” he says.