Rumours rife over airline's privatisation (721 words)

Published: 6/19/2001

Early reports are suggesting that Domodedovo Airlines may pass into the control of parties close to oligarch, Roman Abramovich, who was recently identified as the buyer of a substantial stake in flag carrier, Aeroflot. The reports claim that a 50% holding in Domodedovo, Russia's fifth largest airline and 100% owned by the state, will be purchased by Abramovich from the airline's General Director, Alexander Akimov. He is expected to acquire the holding from the Ministry of State Property, reportedly through the acquisition and exercising of airline employee stock options (3.8m shares at 57 cents per option) when the airline is privatised. The Ministry of State Property is believed to be opposed to the transaction and has delayed the transfer of the holding to the Federal Property Fund for privatisation. However, a complaint by the airline's union to the courts has compelled the ministry to transfer the stock within twenty days. The fund is also reported to be planning the initial privatisation of 25% of the airline soon. The announcement of the ministry's sale of stakes in 30 state holdings was officially made in February 2001. These were slated to include the state's holdings in Kuban Airlines in Krasnodar and the expanding Siberia Airlines (Sibir), but little detail emerged as to the method of disposal. Even so, few would have expected the sale of 50% of the airline to a single senior manager - if the initial reports prove to be correct - and certainly not as a put through to Abramovich. This is particularly the case, given that the government has been under pressure in other sectors to improve the visibility of its deals involving state assets. Domodedovo Airlines has had a difficult year to date. It suspended flights earlier in January in protest at government non-payment of debts for carrying military and other personnel to the Russian Far East and the North East, where Domodedovo remains the major carrier. There was some earlier speculation that East Line, owner of Domodedovo's home base at Moscow's Domodedovo Airport, might be interested in participating in the privatisation, given its interest in expanding its passenger business, but the news of Abramovich acquisition has taken most by surprise. The reasons for Abramovich's interest in the airline are difficult to interpret, but a number of factors among his political and business interests could have led to a proposed acquisition. Abramovich was elected last year as Governor of the remote North East Chukotka Autonomous Region and, as recently as 14th June, addressed deputies in the Duma in the regional capital, Anadyr, promising a programme to revitalise the bankrupt region. As Domododevo is the region's main long distance carrier, acquisition of a major stake would offer some control over the critical access to the region and so stabilise both the provision and cost of travel. Last year, Sakhalin, to the south, made similar, although unsuccessful, efforts to beef up its own regional carrier, in order to compete against Domodedovo on the long haul routes, resulting in one of Sakhalin Airline's Il-62s being put up for sale, after incurring heavy losses on the route. Secondly, the 25% stake that Abramovich is reported to control in Aeroflot, could give him the opportunity to move the two airlines closer together and this would be in line with Aeroflot's strategic goal of building feeders to its long haul international routes. At present, however, this would be difficult to coordinate, given that Domodedovo operates out of another airport in Moscow, although Aeroflot's new capacity at Shermetyevo is due to come on line by the end of 2003 and Transaero's recent move to Domodedovo has set the precedent for moves. The rumoured acquisition also raises the possibility that the Krasair-led airline alliance may be in trouble, given that the role of Domodedovo in such an alliance is in some doubt, if its potential new shareholder materialises and also given that Chelyabinsk Airlines has ceased to fly and has transferred routes and aircraft to a related company, Encor, now based at Moscow's Domodedovo Airport. Encor is controlled by the Chelyabinsk Airlines Holding General Director, Serguey Yashin, who is reported to be planning the creation of what he describes as a “federal airline”, capable of competing with the largest carriers throughout Russia.

Article ID: 2594