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. Last Updated: 07/27/2016

Aeroflot Expansion Fueled by '97 Profit




Aeroflot officials proclaimed 1997 a bumper year Tuesday, promising a profit for the first time in several years and announcing ambitious plans for a new $50 million terminal at the Sheremetyevo 2 international airport.


Last year was "a year of preparation at Aeroflot for the big changes that are coming up in the next few years," Aeroflot general director Valery Okulov said at a news conference Tuesday. "We expect a 26 percent growth in transfers over 1998."


Though exact financial data for 1997 was not available to back the company's announcement, Okulov said a net profit is expected, putting an end to the drought that had characterized the airline industry in recent years. The airline ferried 3.9 million passengers in 1997, just short of its target of 4 million.


Okulov criticized a government decree in January commanding Aeroflot to pay its dues to the budget and increase transparency in its dealings with the energy monopolies Unified Energy Systems and Gazprom.


"Unlike many other companies, Aeroflot has paid all its taxes down to the last penny and we are also a relatively transparent company," he said, noting that the decree could adversely affect the airline's credit rating for forthcoming Eurobond and ADR issues.


The airline also announced Tuesday that it would delay a Eurobond and American Depositary Receipt issue in light of recent turmoil on international markets.


Aeroflot's agenda for 1998 includes buying new aircraft and expanding within the increasingly profitable Russian and Commonwealth of Independent State markets. But above all, it has plans to break ground on the first $50 million phase of a new terminal at Moscow's overworked Sheremetyevo 2.


Okulov said the airline is still in search of financing for the project, which he described as based on Heathrow's terminal 4 -- "simple and functional, with room for addition."


"Sheremetyevo is our main base, and if it is to remain an important hub, some reconstruction is essential," Okulov said, adding that the airline is also working on improving transfers between the two Sheremetyevo terminals.


Analysts said a new terminal would undoubtedly help the Russian air carrier.


"The significant growth in international traffic may have prompted the decision, as the airport is approaching peak capacity," said Peter Forbes, representative director at the London-based TecnEcon consultancy.


But Sheremetyevo's requirements for additional capacity would be subject to competitive pressures from the other Moscow airports gunning for a share of the traffic, Forbes said.


Aeroflot's plans will add to the overall strategy to invest $400 million, overhauling Sheremetyevo's terminals and runways.


The airline will also continue efforts to modernize its ageing fleet of aircraft by purchasing 15 planes this year. Okulov said the airline would continue its policy of buying aircraft from different manufacturers, as varied designs service different needs.


Flights to 18 new destinations in the CIS will commence this year, beginning Feb. 9 with Nizhny Novgorod. Aeroflot officials, however, did not say how many passengers they expected to carry.


The plans are in line with trends shaping Russia's domestic aviation sector.


Air traffic on domestic routes slumped between 1990 and 1996 as Russians' real incomes declined and fare prices rose. An improved economy, however, is expected to increase air passenger traffic.


A Salomon Brothers report on Aeroflot in November 1997 predicted that Russia and the CIS would become the world's leading air travel market after the year 2000, and pegged domestic air travel as likely to grow faster than international traffic.


Andrew Light, an airline analyst with Salomon Smith Barney in London, called Aeroflot's decision to expand domestic traffic a "sensible strategic move."