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Russia's 2 biggest airlines in forced merger

Russia's international flag carrier, Aeroflot, will take over failing domestic carrier Transaero this week, paying one ruble for 75% of its shares. Aeroflot, itself in financial trouble, will be taking over a domestic route network, billions in debts, and obligations for nearly a year's worth of sold-in-advance tickets.


Transaero, Russia's #2 carrier and #1 domestic carrier has fallen into deep trouble in part because economic hard times in Russia have reduced demand for its widebody vacation flights to southern and Asian vacation destinations, and also because its debts for aircraft are payable in dollars and Euros...and the ruble has lost a lot of value in the past year.


Some critics also believe that the well-connected Pleshakov family, which has controlled the airline, have siphoned off riches and kept the airline afloat by false accounting. In any case, they and a number of other shareholders get to hold onto 25% of the stock. The government's representatives on Aeroflot's board were instructed to vote for the deal, although Aeroflot management has opposed it in the past.


The two airlines now coming together come from different pasts. Aeroflot, which once included all Soviet aviation, down to cropdusters, was spun off as an international airline in the post-Soviet era, and the domestic services became "baby flots," many of which have failed. At one point recently, Russia had 126 airlines. Transaero was different; it was an entirely new start-up, with new planes and a plan to carry huge planeloads of Russians to the Middle East and Asia. For a number of years, both Aeroflot and Transaero were profitable.


Aeroflot is a SkyTeam member. Transaero has not belonged to any alliance. It is not clear, but seems likely that Aeroflot will need government assistance to complete the merger and keep flying; it lost $409 million last year and will now have to accommodate new debts. It receives about $300 million a year in fees from foreign airlines crossing Russian airspace.



Photo: Transaero 747 Alex Beltyukov / Wikimedia


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