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Aeroflot Held by the State
// On the Account of the “Airspace Money”
Privatization
Yesterday, Deputy Minister of Economic Development and Trade Andrey Sharonov told the journalists that the government refused to privatize the state owned share holding of “Aeroflot –Russian Airlines” in 2005. It was said at the Economics Minsitry that its head German Gref heeded arguments of Transporation Minister Igor Levitin, who, according to Kommersant, was against the sale, because of the unresolved issue with the “flight” money paid by the foreign companies for flying over Russia’s airspace. These payments of $120-140 million are currently received by Aeroflot.
Aeroflot is Russia’s national flag carrier. In 2003, the volume of transportation reached 48.5 billion, net profit – 3.9 billion rubles. Aeroflot has 89 air liners. The government owns 51.17 percent shares of it, about 30 percent are controlled by the National Reserve Corporation NRK, managing nonblank assets National Reserve Bank (NRB); another ten percent is owned by the company’s management.
The information on possible sale of Aeroflot appeared on June 29, when the government began to consider the privatization plan for 2005. The airline did not make it into the main preliminary sales list, however the Economy ministry officials promised to finalize their opinions on privatization of the carrier by October 1. Last week Deputy Minister of Economic Development and Trade Andrey Sharonov said that the ministry was preparing documents about excluding the company from the list of strategic enterprises, which cannot be privatized without the RF president’s permission. The market participants received that as Aeroflot being prepared for sale.
However, yesterday, the information agencies referring to Sharonov said that privatization of the company in 2005 will not happen. “We have made this decision just yesterday,” RBC quotes the official. The Economic Ministry confirmed that information. According to a Kommersant source, the sale of the state owned share holding of Aeroflot was a theme of intensive negotiations between Gref and Levitin. “Currently, the Economy Ministry has decided to accept the arguments of Transportaion Ministry,” the source said, allowing for the possibility that that position may be changed in the course of next year. According to Kommersant, Levitin’s main argument was the suspense of the issue with the so called “fly over” money. Right not Aeroflot is a co agent in the intergovernmental agreements, and receives yearly compensations from foreign airlines for their right to fly over Russia’s airspace. Aeroflot deputy general director Sergey Kharitonov says that amount equals to about $120-140 million a year. The Transportation Ministry thinks that it will take about two years to revise more than a hundred agreements, and the privatization of Aeroflot is impossible until then. Moreover, the ministry has no single opinion about how to distribute the “airspace” money, once Aeroflot stops receiving them.
The company’s management and the National Reserve Corporation who were against the sale of state owned Aeroflot shareholding were pleased with the decision of Economy Ministry. They said there were other arguments against the privatization. “All current financial and leasing agreements of the company worth about $1.5 billion have a condition that they will be invalid in case of privatization. We have no doubts, that the contractors can take advantage of their right. This would bring the company to a pre default condition,” one of the company’s managers told Kommersant. Deputy director of the Corporation Leonid Dushatin confirmed to Kommersant that such danger indeed existed.
He also said that the government being one of shareholders of Aeroflot was needed to realize such global projects, such as consolidation of the state air carriers on Aeroflot base (this suggestion was recently spoken by the company’s management) and the construction of a new terminal at Sheremetyevo worth $430 million. The National Reserve Corporation also thinks that the current cost of the state holding is about $550-600, which is not big enough amount.
“I think that the problem of “airspace money” is very important. Aeroflot management is already preparing to live without that money. The payments themselves will be cancelled soon, by request of the world community,” Infomost general director Boris Rybak says. The head of Prospect Investment analytical department Natalya Odintsova says that canceling Aeroflot privatization would not be good for the company. “In the absence of a private investor it will be difficult for the company to find large amounts for development, and the construction of Sheremetyevo-3 as well as Sheremetyevo-2 renovation can be crossed out for another few years.
Sergey Ryzhkin
All the Article in Russian as of Sep. 30, 2004
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Photo: Sergey Tyunin