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. Last Updated: 07/27/2016

Putin Approves Merger of 5 Airlines

Itar-TassA KrasAir plane being serviced at Domodedovo Airport. The state will own an at least 45 percent stake in AirUnion.
President Vladimir Putin signed a decree approving the merger of five air carriers on Wednesday, amid government efforts to boost the country's struggling aviation industry.

But don't hope for lower ticket prices anytime soon. The new airline, AirUnion, is not expected to start competing against flagship airline Aeroflot for at least a couple years.

The state will retain a stake of no less than 45 percent in AirUnion, which will include the airlines KrasAir, Domodedovo Airlines, Omskavia, Samara and Sibaviatrans, as well as a company called AirUnion RRJ, the Kremlin said in a statement.

The government sees the merged carrier as a way to encourage competition and boost safety in an industry in which many companies lack the finances to overhaul their Soviet-built aircraft.

"It's the fittest that survive in our business," said Olga Trapeznikova, a spokeswoman for KrasAir, which initiated the drive for the merger.

The state currently holds a controlling 51 percent stake in KrasAir, 50 percent in Domodedovo Airlines, and 46.5 percent in Samara airlines. The two other carriers are privately owned.

But the move may not change anything for another few years, not least because the process of merging airlines with different ownership structures will be mired by bureaucracy, analysts said.

While the state will hold no less than 45 percent, private shareholders will have a controlling stake in the new airline, said Igor Konkov, adviser to Economic Development and Trade Minister German Gref.

"This completely changes the situation," said Konkov, adding that private ownership of the airline will attract much-needed investment to buy the new aircraft. Konkov declined to estimate how much investment was needed but said a new plane costs $25 million to $27 million and the new carrier would need to overhaul its fleet "totally." AirUnion also hopes to get 15 SuperJet aircraft that Sukhoi is building.

The five airlines under the AirUnion brand currently have more than 100 planes in their fleet. The alliance is the country's fifth- or sixth-largest domestic carrier, according to estimates by Boris Rybak, head of aviation consultancy Infomost.

Konkov added that the next step on the way to the merged airline would be for the Federal Property Management Agency to estimate the value of the shares each company would bring to the new carrier. The process would take about three months, he added.

The founders of the AirUnion RRJ -- whose charter capital should cover the costs of purchasing the SuperJet aircraft -- are KrasAir general director Boris Abramovich and his brother KrasAir first deputy general director and AirUnion president Alexander Abramovich, Interfax said, citing corporate database SPARK.

Analysts were skeptical that the new airline would become a boon for passenger in the next few years.

The SuperJet aircraft would only be tested in late 2008, Rybak said. "And then it will have to be built," he added.

"None of these five airlines have passed the IATA audit," said Rafail Aptukov, vice president of nonprofit group Flight Safety Foundation International, referring to research by the International Air Transport Association.

The five AirUnion companies carried some 4.9 million passengers in 2006, up from 3.7 million the year before, KrasAir said last month.