S7 Says Stake Offer, Plane Sales Possible

The CEO of Russia's second-largest airline, S7, said Monday that it had received a verbal offer to buy a share in the company and that it would work to restructure debt and sell off older Russian planes to weather the financial crisis.

Vladislav Filyov, whose wife Natalya is the majority shareholder in S7, said the company had received the offer for a share in the carrier from an investment bank acting on behalf of a third party.

"We have not received any sale or merger offers in writing that could be officially discussed," Filyov said at a news conference.

The government owns a 25.5 percent blocking stake in the airline.

S7, which has piled up significant debts in recent months, has been able to reach agreement with at least one creditor. Novaport, which operates seven airports in Russia, agreed to restructure a 127 million ruble ($4.6 million) debt to airports in Novosibirsk and Chelyabinsk.

As part of its plans to deal with the crisis, S7 has stopped flying 33 less cost-efficient Russian planes, Filyov said, and has laid off about 600 pilots and engineers working on them. The Il-86 and Tu-154 aircraft will be replaced by 70 Boeing and Airbus craft to be delivered on leasing agreements by 2014.

"The decision to sell the unneeded Russian planes can only be made at a shareholder meeting with the government's participation," Filyov said. He said they could receive at least $2 million for each of the Tu-154 planes, enough to cover all of the company's debts.

The move has meant reducing the number of destinations, as some Russian airports, such as Mineralniye Vody, are unable to handle foreign-made planes.

The Transport Ministry last month approved an Aeroflot request to take over the government's state in S7, but Anti-Monopoly Service head Igor Artemyev said in televised remarks that his organization would oppose the move.

The Federal Property Agency, responsible for the government's stake, supports the deal and has not received any official notification that the Federal Anti-Monopoly Service would try to block the deal, said agency representative Tatyana Zubanova.

"What to do with the stake would be up to the government," Filyov said, adding that he is opposed to the transfer.

"Aeroflot stands alone as it is," Filyov said, referring to the state-controlled airline as "S7's big brother."

VTB analyst Yelena Sakhnova said S7 would have difficulty selling the older Russian planes for the prices mentioned, "especially when everyone is scaling down because of the crisis."

This means, Sakhnova said, that S7 will still likely have to find the money somewhere to sign the leases for the new aircraft.

"They are likely to have big problems when the ruble is devalued, as the leasing agreements are in foreign currency," she said.

S7's passenger volumes in the past 10-month period grew by 19 percent, year on year, reaching nearly 5.69 million passengers, according to the latest figures from the company.