Russian aviation poised for radical overhaul

Russia’s troubled aviation market is poised for a radical overhaul after the government approved plans to merge six state-owned airlines into its flagship carrier Aeroflot.

Prime Minister Vladimir Putin has given the green light to the merger which will boost Aeroflot’s share of the domestic passenger market from 15 per cent to between 30 and 35 per cent.

The six airlines – Rossia, KavMinVody, Vladivostokavia, Orenburg, Saratov and Sakhalin – have all been struggling in the financial crisis. The government had earlier planned to merge them into a new state airline, Rosavia, which would have been owned by Russian Technologies, the state conglomerate. But the latter has also been struggling during the downturn.

After the collapse of the Soviet Union, Aeroflot’s monopoly was broken up and hundreds of smaller carriers were created to handle regional flights. But the Russian market remain limited at 45m passengers last year, making it smaller than the average number of passengers carried by European heavyweight airlines such as Lufthansa.

Aeroflot, the biggest airline, carried 8.7m over the same period. Overall passenger traffic in the country fell last year by 10 per cent.

The government needs to keep the losses making routes running because they serve key cities in remote Russian outposts.

The merger is expected to saddle Aeroflot with a heavy debt burden.

The deal is likely to take more than a year because they must first be valued and transformed into joint stock companies.