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. Last Updated: 07/27/2016

Vnukovo Merges With Sibir Airline

No. 3 air carrier Sibir is merging with troubled Vnukovo Airlines in a groundbreaking deal that could make the new airline the second-largest air carrier in Russia after Aeroflot, Sibir said Wednesday.

Industry analysts called the merger the biggest landmark in Russian aviation history since the breakup of Soviet mammoth Aeroflot into hundreds of smaller airlines in the early 1990s.

The merger will add 50 Russian-built aircraft to Sibir's fleet of 28 and increase the number of cities that it serves from 150 to about 200.

But more importantly, it will give the Novosibirsk-based airline a strategic Moscow hub at Vnukovo Airport, said Sibir spokesman Mikhail Koshman.

"This is the only way for us to strengthen our position in Moscow," Koshman said in a telephone interview.

The merged airline is aiming to fly 2 million passengers, a number that could push it past last year's No. 2 airline Pulkovo Airlines. That fast-growing airline carried about 2 million passengers, compared with just over 1 million passengers in 1999.

By comparison, Aeroflot was the untouched leader with 5 million passengers flown in 2000.

Sibir and Vnukovo refused to give details about the financial side of the deal.

Both airlines met Wednesday afternoon with officials from the State Civil Aviation Service to begin talks to gain federal approval for the merger.

While a number of tiny airlines have been gobbled up by large rivals, no airline merger of this size has ever been carried out before in Russia.

Koshman said that the chief executives from both airlines were given a week to draw up papers outlining how the merged airline would honor Vnukovo's debts of 500 million rubles and curb staff layoffs. The aviation service also wanted to know how the airline would deal with the 25 percent stake that the state owns in Vnukovo.

"They want to be assured that our intentions are serious," Koshman said.

State Civil Aviation Service officials present at the meeting were unavailable for comment.

Neither airline has released its financials for the last year yet, although analysts expect Sibir to turn a profit of $5 million to $6 million on revenues of $120 million.

Koshman said he is confident Sibir will not have any trouble pulling Vnukovo out of its financial doldrums, pointing out that in the past two years it has turned around bankrupt airlines in Kemerovo, Tomsk, Irkutsk, Novokuznetsk and Barnaul.

As part of the merger agreement Sibir has agreed to take on all of Vnukovo's financial obligations and has already been paying employees at both airlines for the 2 1/2 months, Koshman said.

For the past few years Vnukovo has been in a financial tailspin, with its creditors including Vnukovo Airport, fueling companies and maintenance services.

It has had four general directors in the past 1 1/2 years and that post is currently vacant.

Since September it has also been plagued with strikes by unpaid employees.

As such, Vnukovo only managed to carry 600,000 passengers last year, far below its capacity of 1.5 million, Koshman said.

Sibir flew 870,000 passengers in 2000, an increase of 17 percent from the previous year. Before the merger it had planned to carry 1 million this year.

Sibir currently flies seven Il-86s, 20 Tu-154s, and one Tu-204, and it plans to acquire five more Tu-204s by the end of the year. Vnukovo's fleet of 50 aircraft includes 17 Il-86s, 7 Tu-204 and dozens of Tu-154s.

Vnukovo flies to 60 domestic and 80 international destinations, which includes an extensive network of potentially lucrative routes throughout southern Russia, a favorite destination spot for vacationers. Sibir currently offers no flights in the south.

Aside from the gold mine Moscow-Sochi route, Sibir would also get access from Moscow to attractive destinations like Krasnoyark and Norilsk, Sibir said.

Sibir brings with the deal a marketing agreement with Lufthansa under which the German airlines sells Sibir tickets all over the world.

Sibir has already began selling tickets for Vnukovo on 21 flights a week to seven southern destinations.

Moscow-based independent aviation analyst Paul Duffy hailed the teaming up of the two airlines as an lucrative merger.

"Vnukovo staff are capable of anything but just need good leadership and money," Duffy said.

He said Sibir general director Vladislav Filyov is just the leader to fit the bill.

"Filyov is one of the few who finds answers to the questions in Russian aviation," Duffy said.

Yelena Sakhnova with the Aton brokerage said the new destinations would make Sibir a formable player in Moscow.

"We believe the Sibir-Vnukovo merger will create a big challenge for Aeroflot," she said.

In addition to the 25 percent stake held by the state, some 43 percent in Vnukovo is owned by Russian Aviation Consortium, 19 percent is held by Universus and the remainder is split up among small shareholders.

Sibir is 25 percent owned by the state and 7 percent to 9 percent owned by its employees.