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. Last Updated: 07/27/2016

Report of VTB Stake Triggers EADS Rally

Shares of European airspace and defense giant EADS jumped nearly 5 percent Tuesday on a report that Vneshtorgbank had bought a minority stake in the company.

The country's No. 2 bank by assets, state-run Vneshtorgbank has accumulated a 5 percent stake in EADS over the past few months, Vedomosti reported Monday, citing sources close to the bank and EADS, as well as a high-ranking government official.

Vneshtorgbank, or VTB, has bought stock worth some $1 billion and may spend another $200 million on additional shares, the newspaper said.

VTB and EADS spokesmen declined to comment Monday.

Several analysts, who requested anonymity citing the sensitivity of the situation, confirmed their knowledge of the purchase. Market watchers said VTB's reported move likely signaled a push by Russia to become a stronger player in global aviation.

"For now, this is a portfolio investment, but it may turn into a bigger game," said Ruslan Pukhov, director of the Moscow-based Center for Analysis of Strategies and Technologies. Both EADS and Russian manufacturers stand to gain from Russia's participation in the company, which owns aircraft manufacturer Airbus, he said.

National carrier Aeroflot has yet to say whether Boeing or Airbus will win a $3 billion order for 22 new jetliners. Some analysts have suggested that geopolitics may lead Aeroflot to evenly split the order between Boeing and Airbus, even if that turns out to be less financially attractive.

Russia's buying into EADS may boost Airbus' chances of getting the entire order, Pukhov said.

EADS shares jumped nearly 5 percent Tuesday to a high of 23.75 euros ($30.31) per share on Vedomosti's report, before falling back to 22.98 euros at the close of Paris trading.

EADS shares fell earlier this summer after the company delayed the roll out of its new A380 jetliner and bought back British BAE Systems' stake in Airbus.

Buying into EADS could boost Russia's participation in European aviation projects, Pukhov said, adding that the country has so far had little experience of such projects.

Russia and India are expected to seal an agreement as early as next month to jointly develop a new military transport plane. The deal is subject to ratification by the State Duma.

"Russian aviation industry is in need of global cooperation," said Alexandra Melnikova, aviation analyst with Deutsche UFG. Russia would have a better chance to jointly develop new aircraft with foreign companies, but only if it increased its EADS stake to more than 5 percent, Melnikova said.

VTB's reported move toward EADS comes ahead of Russia's plans to allow greater foreign capital participation in commercial aviation projects. Plans to lift the cap on foreign ownership in such projects from 25 percent to 49 percent are in the works.

EADS has been tipped as a major foreign participant in Russia's United Aircraft Corporation, set up earlier this year to consolidate domestic airplane manufacturers into one holding and eventually take it public.

EADS currently holds a 10 percent stake in jetmaker Irkut, which is set to be one of the companies consolidated into UAC.