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. Last Updated: 07/27/2016

Aeroflot Board Gets Businesslike

In an upbeat annual meeting Saturday, Aeroflot avoided any dramatic ousters from its board and presented a businesslike face as the national carrier looked toward a new airport terminal, a float on global stock markets and full recovery from problems relating to the 1998 financial crisis.

Aeroflot is expected to start an American Depositary Receipt program of an approximately 5 percent stake in the company in the fall, analysts said.

For the first time, a foreigner, U.S. citizen David Herne, a manager with Unifund, will sit on the board to represent Aeroflot's foreign shareholders.

Both the company's advisers and analysts say inviting a foreign shareholders' representative on board will make the company more transparent and open to the Western world and investors to help it carry out its ambitious plans.

One of these is joining by 2003 the international SkyTeam alliance comprised of Air France, Delta Airlines, Korean Air and AeroMexico that was officially launched last week.

Transport Minister Sergei Frank was re-elected chairman of the board.

Other government representatives on the new board are Economic Development and Trade Minister German Gref, Vladimir Goryachev, deputy director of the Federal Air Transport Service, First Deputy Economics Minister Andrei Svinarenko, presidential assistant Yevgeny Shaposhnikov and Deputy Finance Minister Andrei Petrov.

Alexander Zurabov, Aeroflot's first deputy general director for financial, economic and commercial activity, is a new board member.

Construction of a new terminal, Sheremetyevo-3, is a condition of Aeroflot joining the SkyTeam alliance. The Sheremetyevo Airport company and Aeroflot have agreed to 50:50 participation in the project, with tenders for investors and contractors to be called this year.

Having Gref, who is board chairman of the airport company, on the Aeroflot board is a good omen that the project will take off, said Yulia Zhdanova, transportation analyst with UFG, who attended the meeting Saturday.

According to those present, unlike previous meetings that ended in huge debates, Saturday's meeting wound up smoothly, with shareholders approving Aeroflot's annual results, dividends and regulations.

Despite many rumors that general director Valery Okulov, a son-in-law of former President Boris Yeltsin, would be sacked, Okulov kept his job and his place on the board.

"The meeting brought a lot of positive results," Zhdanova said. "Okulov delivered a good report and pointed out many positive changes the company is planning."

"This was a quiet meeting," said Larisa Solodukhina, a consultant employed by Aeroflot. "The trade unions did not speak up this time."

She said the question of Okulov keeping the general director's seat was not even mentioned during the meeting.

"Okulov's staying did not come as a surprise," said Alexei Komarov, editor of the Air Transport Magazine for Russia and the Commonwealth of Independent States. "There has been much speculation that he will go, but this is most likely the fault of the press. It's hard to do it legally since he has a contract."

He will carry out his term, unless he makes a serious mistake, he added. "The current situation satisfies everybody."

Although his five-year contract is valid till 2002, rumors have run all year that financier Boris Berezovsky wanted Okulov to go. As many as eight candidates were proposed by shareholder ZAO Firma Foster, which is backed by Berezovsky, Zhdanova said. However, none of them got on the board.

Analysts said this could have been revenge for last's year ouster of two candidates for the board who were said to be closely related to Berezovsky f former Aeroflot commercial director Alexander Krasnenker and former Aeroflot vice president Nikolai Glushkov.

Krasnenker, now general director of Vnukovo Airlines, was on the 22-name list of candidates for this year along with deputy general director of LogoVaz, Yuli Dubov.

According to Aeroflot statistics, using international standards of accounting the airline losses came to $33.9 million, but fell almost 72 percent since 1998.

By Russian accounting standards, pretax profits for last year came to 1.15 billion rubles up 7.8 percent from 1998. The board approved a dividend of 11.1 million rubles ($395,000) on its 1.1 billion shares.

For the first five months of 2000 the company posted, its profit grew by 5.2 percent and is expected to grow more through the year, the seat occupancy grew by 5.4 percent. The passenger-kilometers grew by 1.4 percent while cargo increased by 7.7 percent, Aeroflot said.

The company also changed its name from "Aeroflot f Russian international airlines" to "Aeroflot f Russian airlines" with a view to keep strengthening its position domestically.

"One of the strategic goals of the company is to develop the internal market," Solodukhina said. With just 4 percent of the domestic market in 1998, Aeroflot gained a leading position domestically with 8.2 percent in 1999, planning 10 percent to 11 percent in 2000, she said.


Aeroflot's Annual Results

1999 1998

Sales* $1.13 bln $1.15 bln

Operating Profit $1.54 mln $71.41 mln

Passenger-kilometers (mln) 27,639 28,441

Seat Occupancy 59.4% 57.8%

Aircraft 116 121

*average exchange rates applied

Source: Aeroflot