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. Last Updated: 07/27/2016

Siberian Airline Takes Control of Armenian Sky

For MTSibir owns 70 percent of Armavia, an airline that has become Armenia's main carrier.
The country's No. 2 airline Sibir effectively took control of Armenia's national airline on Tuesday in an unprecedented handover that expands the Russian carrier's access to markets abroad.

After state-owned Armenian Airlines folded under the weight of its debts, Sibir assumed the lion's share of the defunct carrier's 36 flight destination licenses through a two-year-old airline called Armavia, in which it holds a 70 percent stake.

"Armavia has now become the main carrier in Armenia," Sibir deputy general director Mikhail Koshman said by phone Tuesday.

"This is the first time that any Russian airline has taken a major share in what is now effectively the national carrier of a country outside Russia," Paul Duffy, a Moscow-based independent aviation analyst, said in a telephone interview late Tuesday. The acquisition also adds a new international hub, in Yerevan, to Sibir's web of flight routes, he said.

Armavia absorbed 29 routes formerly served by Armenian Airlines, among them Amsterdam, Frankfurt, Odessa, Novosibirsk, Yekaterinburg and Krasnodar. The remaining licenses will go to International Armenian Airlines, set up last year by a French businessman of Armenian descent.

Only a few aircraft in Armenian Airlines' 30-strong fleet were operational last year but it managed nonetheless to carry 170,000 passengers. The airline is now hovering on the verge of bankruptcy, being $20 million in the red.

Koshman denied previous media reports that Armavia would pay off the carrier's debts but refused to discuss financial arrangements.

Neither Armenian Airlines nor Armenia's civil aviation authorities were available for comment Tuesday.

Armavia currently operates a single, leased Airbus 320. And it is Sibir's desire to fly that Airbus that prompted it, in large part, to buy its controlling stake in Armavia last year.

All 40 of Sibir's own aircraft are domestically made Ilyushins and Tupolevs -- the Il-86, Tu-154 and Tu-204.

Sibir doubts that the domestic aviation industry is in a position to replenish its fleet with planes of sufficient quality and quantity. With this writing on the wall, it has looked to shift its fleet toward foreign aircraft.

But import taxes have made it impossible for Sibir to procure Western-made aircraft on its home territory.

In Russia, airlines are slammed with a 20 percent value-added tax when they acquire foreign aircraft, as well as 26 percent import duties.

In contrast, Armenia charges only a registration fee, so through Armavia, Western aircraft are finally within Sibir's reach. Armavia got its first Airbus 320 last year, with more expected to come later this year.

"Sibir's intention is to add further Airbus A320s to the Armavia fleet," Duffy said, and then use them "to build up the experience of Sibir pilots and engineers in working with the Airbus aircraft family."

He said that if the Russian tax situation were to improve, "Sibir will then be very well placed to add a sizeable fleet of Airbuses to its overall network."

"The main goal is to get practical experience in operating foreign aircraft to the fullest extent," Koshman said.

Armavia had planned to get its second and third Airbuses in May, Koshman said, but the date has been pushed back to September. For the next several months, the Yerevan airport will be closed to flights during the day for runway repairs. With little demand for nighttime flights, Sibir put off adding new planes that would sit idle in hangars.

Apart from flying the A320, Sibir is gaining knowledge of how to service the craft, having set up two technical centers, in Yerevan and at its headquarters in Novosibirsk, to handle not only Airbuses but Boeings as well.

Koshman said Sibir aspires to have 25 foreign aircraft and is treading water until the government does away with the prohibitive import duties. Ideally it would be flying A320/321s or Boeing 737s and Boeing 757s, he said.

Yelena Sakhnova, an analyst with United Financial Group, said that since Sibir faces stiff competition in Russia, it is wise to expand the number of markets and passengers it serves. She thought the Armenian market could boost Sibir's passenger traffic by 12 percent.

Koshman said Armavia intends next year to claim 40 percent of the flight traffic to and from Yerevan, which accounted for 800,000 passengers last year.

At home in Russia, Sibir is second only to Aeroflot in overall terms, though last year it leapfrogged the flagship carrier to become No. 1 on domestic routes.

Sibir operates from three hubs, in Moscow, Novosibirsk and Irkutsk, and it flies to 60 destinations, half of which are in Russia.

And Sibir's business outlook is good. It reported a surge in passenger traffic in 2002 of 41 percent, carrying 2.7 million passengers, and it plans to boost that figure to 3.2 million passengers this year. Financially, it reported its first profit of 15 million rubles ($480,000) last year.