Russia » Economics
Author`s name Ольга Савка

Russia's three largest airlines to become private

Private business is likely to control Aeroflot in the near future

The government decided to sell its stakes in three Russian largest airlines – Aeroflot, KrasAir and Domodedovo Airlines. As a result, Aeroflot's state-owned shares may be sold below the real value, and the company will be at risk of losing the status of the national air carrier. Aeroflot may lose the annual $300 million profit received from Western carriers for using trans-Siberian air routes. In this case Aeroflot might become an unprofitable company.

Last week the government approved the state property privatization plan for 2005. Aeroflot was included on the list too. The final decision on the airline is to be made on October 1st. However, specialists say private business will control the national airline already next year. Two companies are said to be likely contenders for Aeroflot's state-owned shares: Alfa-Group and the National Reserve Corporation (NRC), which owns 30 percent of the airline. The government made the latter share its victory with Aeroflot, when Alfa-Group won the tender to govern the Sheremetyevo Airport.

NRC is said to be most active. Twenty-five percent of Aeroflot's shares are to be put up for auction. If NRC buys them, it will be able to gain control over the airline, which also implies the control over one-fourth of the Russian aviation market.

Until recently, NRC's main shareholder, State Duma deputy Alexander Lebedev and Aeroflot's administration had a common opinion about the privatization issue of the airline: Aeroflot is not ready for it yet. Yet, after the statement from the minister for economic development about the possible sale of the government's stake, the allies changed their minds. Lebedev started saying the airline's management was poor. NRC's owner pointed out the issues, which Aeroflot's administration was not able to cope with: the standstill project to build Sheremetyevo-3 airport, the non-transparent ticket-sale system and the company's close ties with 'royalty' – the fee that European carriers pay Aeroflot for using trans-Siberian routes.

Aeroflot's General Director Valery Okulov declines these claims. “I do not understand such statements, especially during the reform of the airline, when we need the shareholders' support,” said he. Okulov said the statement about the non-transparent ticket sale system was not true, and the assessment concerning the management's fault with continuing failures to build the Sheremetyevo-3 airport was absurd. As far as the 'royalty' issue is concerned, Valery Okulov believes it is the question of mutual relations between Aeroflot and Western airlines.

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