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May 26, 2024
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The mechanism of the sale of Transaero to Aeroflot is the typical example of the traditional business model implemented by Russian companies controlled by the state in which there are no winners or losers and indefinitely reproduces management errors that sooner or later somebody pays for.

Transaero is a very complex financial situation, with debts in foreign currency for over a billion US dollars. Aeroflot, which is controlled 51% by the State, was forced by the government to buy its competitor: the transaction cost a ruble in exchange for all of the debt of Transaero.

In the opinion of the Russian business daily Vedomosti, “the Russian government considers Transaero too big to fail, and that the State guaranteed loans has decided to save the giant of struggling through the acquisition of 75% of shares“.  However, Aeroflot will only receive  “an unsuccessful business model, a fleet of aging aircraft, 12,000 employees and credits to be restored” from Transaero.

The state saved the employees of Transaero and those who had already bought tickets.  Transaero and other Russian airlines are in trouble because of the collapse of the ruble, the decline in foreign tourism, Western sanctions and blockade of Western financial markets.  All this, according to Vedomosti, would be “a direct result of the deliberate actions of the Russian authorities.”

The hope is for a foreign entrepreneur, who can save the company and avoid the inevitable monopoly on domestic flights by Aeroflot.  Now there is the routes dilemma: comparing the routes around the world, the two airlines have 65 destination in common to and from Moscow.

Aeroflot is prepared to take 34 of Transaero’s aircraft and 6,000 of its employees, if granted part of the Transaero route network, Interfax reports citing an Aeroflot spokesperson. Reuters reported Vladislav Filev, a co-owner of Russia’s S7 Airlines, signed an agreement to purchase at least 51% of Transaero.

Transaero operated mainly from Vnukovo and Domodedovo, while Aeroflot operates from Sheremetyevo.  More specifically, however, there are only 12 routes operated by the two airlines without a competitor. The exclusive destinations of Aeroflot and Transaero from Moscow are Vladivostok, Khabarovsk, Yuzhno Sakhalinsk and Petropavlovsk Kamchatsky with regard to domestic flights and Bangkok, Los Angeles and Hong Kong for long-haul flights.

From St. Petersburg the two airlines share four destinations, of which only two are exclusive. Finally, Aeroflot is part of the Sky Team while Transaero was close to Star Alliance while not being a part of it.  S7 Airlines is linked to Oneworld: in essence, with the closure of Transaero, Star Alliance will disappear from the Russia airline market.

Fabio Gigante

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