Lebedev Offers to Exchange Aeroflot Shares for S7 Stake

Billionaire Alexander Lebedev said he is offering the government his shares in Aeroflot, the country's largest airline, in exchange for a stake in smaller rival S7 plus cash.

Lebedev is ready to swap his 30 percent holding in state-controlled Aeroflot for the government's 25.5 percent of S7 and about $375 million, the investor said Monday.

Government officials have indicated that they are not "ideologically ready" to give up control of Aeroflot, so they will probably "leave me to merge" with S7, while "the final decision rests with the prime minister," Lebedev said, declining to elaborate on the negotiations.

The government, which owns 51 percent of Aeroflot, will not give up its stake because it believes that the airline "is a strategic asset, a flagship carrier for Russia," said Roydel Stewart, an analyst at Alfa Bank.

The company would benefit if the state turns the shares it gets from Lebedev into freely traded stock to attract more international and domestic investors, Stewart said.

Shares of Aeroflot, run by CEO Valery Okulov, a son-in-law of late President Boris Yeltsin, have lost 51 percent this year, reducing the carrier's market value to 50 billion rubles ($1.8 billion).

Aeroflot "has too many employees and is not run efficiently," Alfa Bank's Stewart said.

S7, Russia's second-largest airline, has a better cost control and needs to join a worldwide marketing group of carriers, such as the Star Alliance, "to get more international routes and become more competitive," Stewart said.

The government has also offered "some weak companies which are state-controlled" as part of negotiations for buying Lebedev's stake in Aeroflot, Lebedev said.