Aeroflot Might Snap Up Rivals

Interesting news out of Russia. The Moscow Times is reporting that Aeroflot is considering buying government stakes in rival government-owned carriers with newly issued shares. That's according to Lev Koshlyakov, deupty CEO of Aeroflot. The board meets in June to decide whether to issue more shares or not.

Altough Koshlyakov said that the plan would "expand the company's activities", he denied a report that stated that Aeroflot's real plan would be to bring the government's shares into the Aeroflot family - and thus create a near-monopoly. Koshlyakov wouldn't say which shares Aeroflot might purchase.

The report said that Aeroflot wanted state-owned Pulkovo, Rossia and Dalavia to be merged directly into Aeroflot, and for the government's 51% stakes in KrasAir and Vladivostokavia and 25% stake in Siberia Airlines (also known as S7). The apparent source for this info comes from an unidentified member of Aeroflot's board. This would mean that, according to some analyists, Aeroflot's current 20% share of the Russian market would increase to over 50%.

Some also say that the government is putting pressure on Aeroflot to consolidate the industry. This would make sense, since Russian President Vladimir Putin last month announced an order that would merge the country's aircraft manufacturers into one entity.

In my opinion, I think that this Aeroflot-led consolidation might occur, especially if it's with the government's blessing. After all, Aeroflot announced last week that profits fell 50% to 3.052 billion rubles ($109 million), even though income increased 10% but costs grew almost 15% as well.

According to the Times, there are 185 airlines in Russia. Profits are souring for almost all as fuel prices increase and since many operate Russian-built aircraft with poor fuel efficiency, this makes the problem worse.

Consolidation is nothing new to the airline industry, but it is in Russia - especially on such a grand scale. It will intersting to see how this plays out in the future.