The Kremlin is planning to revive the fortunes of Russia’s flagging aviation industry by launching another national carrier to run alongside Aeroflot.

Rather than bailing out the country’s struggling privately run airlines, the Kremlin plans to fold failing private assets into a state airline, Rosavia, which is expected to be controlled by a government bureaucrat close to Prime Minister Vladimir Putin.
Rosavia is still being formed, and has no website as yet, and its name is just a working title. It was even identified in the press as “Russian Airlines” until Aeroflot objected.

Russia’s private airline industry is on the verge of collapse due to the combination of the high price of jet fuel last summer and the unavailability of credit in the past few months.

One of those on the losers is Alexander Lebedev, the Russian oligarch and the largest private shareholder in Aeroflot. In an interview with the Financial Times, he said: “The airline industry is one of the riskiest, most unprofitable industries in the world. I don’t know why anybody does this.”

According to Russian media, Rosavia will be 51 per cent owned by Russian Technologies, a state holding company. The other 49 per cent could be controlled by the Moscow city government headed by mayor Yuri Luzhkov.

Mr Lebedev is fighting to save his stake in the airline, thought to be as high as 30 per cent.

“I have had to search all my pockets and found some money,” Mr Lebedev told the FT. He fears that if his shareholding falls below the 25 per cent blocking stake, the state will dilute his ownership further by issuing new stock.

Meanwhile, Aeroflot has posted a bullish trading statement, saying it aims to boost profits next year to a record 9.3bn roubles ($319m), despite predictions of a decline in demand for air travel of 10-20%.

The airline said it hopes to achieve this by replacing its fleet with fuel efficient airlines and cutting administrative staff.

The airline also said net profit for 2008 would be around US$85m compared to US$313m in 2007.
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