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. Last Updated: 07/27/2016

Report: Putin Approves Airline Merger

Itar-TassAn Il-86, operated by KrasAir, parked by the terminal at Domodedovo Airport. The state owns 51 percent in the carrier.
President Vladimir Putin has approved the creation of a second national airline by combining five companies including KrasAir, Vedomosti reported Thursday, citing unidentified government officials.

The government would have less than a controlling stake in the holding company, called AiRUnion, which would include KrasAir, Domodedovo Airlines, Omskavia, Samara and Sibaviatrans, the newspaper reported, citing officials from two ministries.

KrasAir general director Boris Abramovich and companies connected with him would own the largest stake in the new company, the newspaper said. Abramovich was the architect of the plan, which is still opposed by the Federal Property Fund, the newspaper said.

The government is pressing state-controlled Aeroflot, Russia's largest airline, to buy other carriers in the country to double in size and expedite the consolidation of the domestic industry, Alexander Lebedev, who owns 31 percent of Moscow-based Aeroflot, said in March. Aeroflot will vote on acquisitions at its June board meeting.

The state owns 51 percent in KrasAir, 50 percent in Domodedovo Airlines and 46.5 percent in Samara, while Abramov and the structures connected to him control around 40 percent in KrasAir, 48.6 percent in Domodedovo Airlines, around 40 percent in Samara, around 70 percent in Omskavia and 100 percent in Sibaviatrans, according to Vedomosti.

The airlines started operating as an alliance of independent legal entities in late 2004 and have operated flights under the AiRUnion brand since last June.

There are currently over 185 airlines operating in Russia, but they are increasingly struggling to turn a profit and consolidation is seen as a way to increase competitiveness.

Some analysts have said AiRUnion could eventually replace Sibir as the country's No. 2 carrier. Sibir's revenue is expected to reach $900 million this year, while Aeroflot is forecast to rake in $2.5 billion, Vedomosti said.

AiRUnion members will earn $700 million this year, said the paper, citing Oleg Sudakov, an analyst with Rye, Man & Gor Securities.

(Bloomberg, MT)