Published: 6/27/2000

What has happened to Boris Berezovsky at Aeroflot? This is the question asked by commentators after the oligarch's poor performance in Saturday's board elections at the Aeroflot AGM. Of Berezovsky's five associated candidates receiving votes, only one, Ruslan Fomishev, the Chairman of the Berezovsky-associated Obedeinenny Bank, showed any signs of coming near to election for one of the nine board seats. The remaining candidates had levels of votes that barely registered any support among Aeroflot shareholders. Certain board members voted in under the government's 52% holding are reported to have close contacts with the Berezovsky faction, the most prominent being Evgeny Shaposhnikov, long-standing aerospace adviser to Yeltsin and now to President Putin. Otherwise Valery Okulov appears to have won the day and seen Berezovsky off at the gates, for the time being at least. The second surprise was the level of support for American fund manager, David Herne, who has recently moved from Swiss-based Unifund to Brunswick Capital Management. As an independent candidate, Herne garnered 11.6% of the vote and the ninth seat on the board to represent primarily international investors but also, according to reports, with some domestic support which suggested that Herne's vote exceeded purely foreign holdings. Despite local rumours of Herne being a secret Berezovsky plant, the international investment community collaborated with the airline's management to ensure that Berezovsky nominees were not elected. In particular, Alexander Krasneneker, who is currently General Director of competitor Vnukovo Airlines and formerly a director of Aeroflot, ousted along with a number of other Berezovsky affiliates at the end of 1998. The collective success of Herne is seen as a reflection of the desire of the airline's foreign shareholder base to get some say in the development of the airline and make sure that their interests are represented at the highest level. They have used the threat of Berezovsky to convince the airline and government that their cooperation was required to prevent a rerun of past events at Aeroflot. From the voting it appears that the Berezovsky holdings, rumoured at one time to be 13% of the airline although only ever directly confirmed at 4% and effectively masked by the Russian requirement to declare holdings over 5% per corporate entity, were in fact really 4%. This was capable in the event of only giving one Berezovsky candidate, Fomishev, a 3.8% share of the vote, a figure well short of the threshold for election. The state holding also appears to have retained the status quo and did not adopt its historically flexible approach. The buzz of Machiavellian moves on the part of the ever-resourceful oligarch continue to circulate, but it seems that he has simply been out-flanked and out-manoeuvred in his rather bizarre tactic of naming a large number of nominees for election often without even consulting them, in an effort to create a position of strength when one appears not to have existed. For the airline, the results of the election can only be seen as positive, removing the spectre of an imminent Berezovsky-led invasion and giving something approaching a mandate to the much vaunted plan for turning around the airline, acquired recently from management consultants McKinsey & Co. at a cost rumoured to be $5m. The election should also considerably ease the airline's efforts to establish a GDR share programme in Europe, which is timed for the autumn. Many investors, while interested in what they saw as a potential turn-around story, were highly suspicious of the lack of transparency and the lingering presence of Berezovsky. Whether the presence of Berezovsky has been fully exorcised only time will prove. The challenge for the management in the medium term will be to execute a relatively simple restructuring plan for the airline in theory, but against an entrenched culture that has shown itself not particularly welcoming of change in the past.

Article ID: 1877