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. Last Updated: 07/27/2016

New Airline Will Be Aeroflot Alternative

Russian Technologies chief Sergei Chemezov said Tuesday that a new airline his company is creating with the Moscow city government would one day serve as an alternative to Aeroflot.

The new airline, which is to become one of the country's largest air carriers, incorporating 10 regional airlines, will be registered as a public corporation, or OAO, and eventually branded into something other than Avialinii Rossii, its current working name, Chemezov told reporters following a meeting between the founders of the new airline.

It will eventually serve as an alternative to Aeroflot, he said.

The new airlines' combined passenger traffic would be slightly higher than Aeroflot's, Vedomosti reported.

The creation of the airline is an effort to bail out small, unprofitable airlines that have suffered from the high costs of jet fuel. Russian Technologies is to hold a controlling stake of 51 percent.

Chemezov, along with two other representatives from Russian Technologies, will be on the board of directors for the company. The board will also include three members of the Moscow city government, including Mayor Yury Luzhkov, and Boris Korol from the Transportation Ministry.

Chemezov is expected to head the board, while Vitaly Vantsev was recommended for the post of general director of the company. Vantsev currently heads the board of directors of Vnukovo Airport, which is expected to become the main hub for the new airline.

The company is planning to eventually open hubs in St. Petersburg, Krasnoyarsk and Khabarovsk for servicing planes on regional routes.

The main problem the company will have to solve quickly is its accumulated debt. However, creating Avialinii Rossii during the country's financial crisis has its benefits, analysts said.

"Regional airlines that have a lot of debt may be purchased for a symbolic price, similar to investment banks. Nobody will look at their fundamental values," said Marina Irkli, a transportation analyst with the investment company Veles Capital.

The exact amount of debt that the new company will deal with is yet to be determined. The company will go through a full audit and restructure the debt as soon as possible, Vantsev said.

Vantsev was confident that the new airline would not face problems securing loans despite the financial crisis. It would most likely approach state-owned VTB or Moscow city government-connected Bank of Moscow for funding, he said. Vantsev said the company was in talks with the Finance and Transportation ministries regarding compensation for transporting passengers who hold tickets from airlines that can no longer fulfill their obligations. "We have already spent 2 billion rubles on that," he said.

The announced stake sizes of 51 and 49 percent may change slightly as future assets will be allocated between Russian Technologies and the Moscow city government, said Igor Zavyalov, deputy director of Russian Technologies.

The company would need "serious funding" to construct airport hubs and purchasing or leasing planes for its fleet, Luzhkov said.