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Acquisition Of Rosavia By Aeroflot

Aeroflot CEO: Rosavia may become a low-cost carrier

Steve Rothwell  Apr 28, 2010

OAO Aeroflot, Eastern Europe’s biggest airline, may start a low-cost carrier after completing the acquisition of Russian Technologies’s Rosavia unit, Chief Executive Officer Vitaly Savelyev said.

Aeroflot will operate Rosavia’s six regional airlines separately from its own “premium” brand, once it has taken control of the group, Savelyev said in an interview yesterday. The transaction will give Aeroflot an additional 7 million passengers and 120 planes.

“We are examining the possibility of transforming the assets of one of the carriers into a low-cost carrier,” Savelyev said in London. “Aeroflot is a name to be given only to a company which has reached the premium class.”

Russia’s airline industry needs more consolidation, and as few as 30 carriers would suffice to serve a country that has about 160 operators fighting for 45 million passengers, the CEO said. Moscow-based Aeroflot forecast earlier this month that passenger numbers may almost double next year to 20 million after acquiring regional airlines.

Aeroflot, a member of the SkyTeam alliance led by Air France-KLM Group and Delta Air Lines Inc., last year slashed operating costs as demand for air travel slowed. Passenger numbers have since rebounded and the carrier boosted traveler numbers by 23 percent in the first quarter, the CEO said.

The airline, 51-percent owned by the Russian government, raised 12 billion rubles ($413 million) April 8 selling three- year bonds paying 7.75 percent, after receiving orders for more than 24 billion rubles from investors, Savelyev said. The proceeds are “more than enough” to cover financing needs at present, the executive said.

Jet Orders

Aeroflot is reorganizing its fleet and has added Airbus SAS and Boeing Co. planes as it phases out older models including the OAO Tupolev Co. 154.

“It’s a reliable plane but, it isn’t efficient in terms of oil consumption,” Savelyev said of the Russian aircraft.

The carrier has also placed orders for Boeing’s 787 Dreamliner and Airbus’s A350, models that have yet to enter service. Aeroflot is also the biggest customer for Sukhoi Civil Aircraft Co.’s Superjet regional aircraft, and anticipates taking delivery of 10 of the 30 ordered “in the near future,” Savelyev said, without being more specific.

Savelyev, who joined Aeroflot in April last year, said the company wouldn’t take on any of the Rosavia group airlines unless they would contribute to long-term growth.

“This is an option to develop Aeroflot in the Russian domestic market,” said the CEO, who previously worked at billionaire Vladimir Yevtushenkov’s AFK Sistema holding company.

Aeroflot is working with St. Petersburg-based Rossiya, one of the carriers in the Rosavia group, and plans to reorganize the company’s debt and restore profitability. Measures to boost earnings include increasing outsourcing, reducing staffing levels and eliminating loss-making routes, Savelyev said.

“We are really sure that the company can reach positive financial results as early as next year,” the CEO said of Rossiya.

Aeroflot CEO: Rosavia may become a low-cost carrier
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Source: Bloomberg

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