Controversial deal results in ministry submitting to the court ruling in favour of DAL, but still defiantly against the sale (441 words)

Published: 11/22/2001

The transfer of shares from the Russian Federal Property Fund to employees of Domodedovo Airlines (DAL) has started, despite indications at the beginning of October that the government would seek to reverse the process, by which a management group acquired control of the airline for a reported $2m. It reportedly then sold its stake on to entities close to associated companies of Roman Abramovich, namely Sibneft and Russian Aluminium (RusAL). The distribution of shares under the Ministry of State Property's June 2000 plan allowed employees to buy up to 50% of the airline, although the ministry subsequently challenged the deal on the grounds that the price of the closed tender was too low. Since then, the airline and the ministry have been locked in a number of court battles over the issue, in which the courts have sided with the airline. It now seems as if the ministry has accepted that it is fighting a lost cause, given the relatively high profile of the sale - by Russian privatisation standards - and that the price, although on the low side following a recovery in the Russian airline sector, did, when originally set, partly reflect the poor standards of both the airline and sector. Despite bowing to the court ruling, however, Alexander Borodin, head of the department responsible for the case within the ministry, stills insists that it was too much of a bargain. Alexander Akimov, General Director of DAL, argues that the ministry's valuation, based on the potential value of the fleet, was naive and failed to understand the intrinsic value of DAL, both as an airline and as a company. He considers the $5m valuation for the airline as a whole as being realistic. The ministry says that it remains concerned that the shares will end up in the hands of Abramovich and associates, after the transfer. This seems to be a legitimate worry, if reports that they funded the purchase are true. Akimov, however, claims that he does not intend to sell his shares and that he and his senior managers only control 18% of the airline, having bought only 3% each. He stresses that they saw the acquisition as a commitment to an airline that they believed would continue to develop successfully. The facts of this case will emerge only in time, but the reports of Abramovich's involvement are gathering momentum and, while the managers may have only bought 3% each, this is no guarantee that other arrangements have not been made.

Article ID: 2918