Vnukovo and Sibir will merge after EGM (645 words)

Published: 3/30/2001

More details are emerging of the Sibir and Aeroflot protocol of intentions that was reportedly signed off, by the Minister of Transport Franks in Novosibirsk two weeks ago. According to Mikhail Koshman, spokesman for Sibir, the agreement focuses on two major areas: · The creation of a leasing company · The creation of a united carrier on a united route network. According to Koshman, the terms of the creation of a united route network are not decided yet and the airlines have established a working group to consider mutually beneficial developments such as code sharing, shared frequent fliers schemes etc. The context of the negotiations is however, clearly the consolidation of the Russian airline sector; a path the government supports. On past record, it would seem likely that Filov, Sibir's General Director, would take any linkup between the two parties very slowly. His merger with Vnukovo ended up taking a considerable period of time and had at least one false start, which saw Filov resign as Vnukovo's General Director before finally reaching a merger agreement, he has however, been quoted by new agency Interfax, as saying that he does not rule merger out. For the immediate future, the most important cooperation between the two carriers is in terms of the creation of a leasing company, which he argues needs both partners to be effective. Aeroflot and Sibir equity investment in the company will be a Tu-204 that Sibir inherited from Vnukovo, and rather strangely, something Koshman describes as Aeroflot's route licences, which presumably currently generate significant revenue from other carriers using them. In principle, the state has recently announced its intention to give guarantees to a number of leasing aircraft vehicles. Financing will come from financial institutions and Sberbank (already a major provider of finance to Sibir); Sberbank will also participate in the venture as a shareholder. The implication from Sibir is that the state, a 51.17% shareholder in Aeroflot and 25.5% in Sibir, may take some role beyond providing guarantees, but what that may be, is uncertain The state guarantees of leases are however to be allocated by tender to suitable companies during the summer. Koshman commented that those leasing companies currently operating in Russia are “ half-dead”. It is unclear exactly to whom he referred as he was not specific, though he was quite pointed about their method of conducting business, commenting that Russian leasing companies acted in the interests of the aircraft producer rather than the airlines. The major players to date, particularly Ilyushin Finance, have had the charge, that they are more interested in shifting aircraft regardless of viability or suitability, levelled against them in the past The Aeroflot/Sibir company maintain focus on providing a service to its customers the airlines. According to Koshman, Sibir currently operates Tu-204s. The condition of the aircraft, acquired for $16.9m from Vnukovo, is extremely poor and in need of an extensive overhaul. With a viable leasing system, these costs could have been borne by another entity without impacting Sibir's balance sheet. This aircraft cost five times as much as a Tu-154, but cannot deliver five times the service. The other Tu-204 with its limited facilities, acquired from Perm Airlines, is described by Koshman as being “okay, but not great,” It appears that Sibir's irritation at the quality of the aircraft is only compounding the fact that they had to buy them due to lack of viable leasing. He also believes that the control of their own leasing will allow them to dictate what aircraft they want rather then buying poorly specified products created with little regard to the operators needs. On Sibir's other plans, Koshman said that the merger with Vnukovo is going ahead and will be voted on at the EGM on 27th April. Legal completion of the merger may take a year, but to all intents the two companies will work as one from the date of the EGM.

Article ID: 2455