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. Last Updated: 07/27/2016

Russian Technologies Won't Be Aeroflot Shareholder

Russian Technologies will not become an Aeroflot shareholder as part of a plan to create a national air champion, the Economic Development Ministry said.

Instead, the government will take control of Russian Technologies' airline assets so as to exchange them for a stake in Aeroflot itself, said Alexei Uvarov, a department head in the Economic Development Ministry.

The Transportation Ministry has prepared a plan that it will send for interagency approval to take the six airline assets — joint stock companies Vladivostok Avia, Saratov Airlines and Sakhalin Airways, as well as federal unitary enterprises Rossia, Orenavia and Kavminvodyavia — from Russian Technologies and transfer them to Aeroflot. In exchange, Aeroflot will issue additional shares that the government will get.

The Economic Development Ministry has no objection to the Transportation Ministry's document, Uvarov said. The order will be signed by the end of the year, he said.

The decision on transferring the assets to Aeroflot was made several weeks ago at a meeting with First Deputy Prime Minister Igor Shuvalov, he said.

The deal will take place in two stages: First, the joint stock companies will be returned to the state and exchanged for new shares in Aeroflot. At the same time, the Federal Property Management Agency will prepare the unitary enterprises to be turned into joint stock companies so that, in turn, they can be transferred to Aeroflot, Uvarov said.

It had been proposed that Russian Technologies itself would do the deal with Aeroflot. Sources in the state corporation planned that the holding would receive a blocking stake in Aeroflot in exchange for the six companies. Ten percent is enough, Aeroflot executives said.

Uvarov did not say why Russian Technologies ended up excluded from the deal. The airlines are a noncore business for the state corporation, a Transportation Ministry official said.

Neither Uvarov nor the ministry official would say how big of a stake the state would take.

It's unlikely that the state's stake would exceed 70 percent, said Yevgeny Shago, an analyst at Ingosstrakh-Investment. But the government doesn't aim to increase its stake in the carrier — it's content to keep control over it, Uvarov said.

The state's goals are to substantially increase the company's capitalization and then offer part of its stake to investors, Uvarov said, adding that he did not rule out issuing Aeroflot stock on foreign exchanges as well.

Currently, about 4 percent of the firm's stock is in a free float, but the government plans to increase that to 25 percent to 30 percent, he said.

The state is right to change the configuration of the deal, Shago said, adding that it may even make a profit on its sale of the Aeroflot stake.

Russian Technologies and Aeroflot spokespeople declined to comment.