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|10MOSCOW265||2010-02-05 09:25||2011-08-30 01:44||CONFIDENTIAL||Embassy Moscow|
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHMO #0265/01 0360925
ZNY CCCCC ZZH
P 050925Z FEB 10
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6160
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHXE/EASTERN EUROPEAN POSTS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 000265
DEPT FOR EUR/RUS, EEB/CIP, EEB/IFD/OIA, DOC FOR JBROUGHER,
USTR FOR EHAFNER
E.O. 12958: DECL: 2/3/2010
TAGS: EAIR ECON ETRD EINV RS
SUBJECT: PUTIN SUPPORTS PLAN TO MERGE ROSTEKHNOLOGIA'S
AVIATION ASSETS INTO AEROFLOT
REF: A. A: MOSCOW 147
¶B. B: MOSCOW 155
Classified By: ECONMINCOUNS Matthias Mitman for reasons 1.4 (b) and (d)
¶1. (SBU) On February 2, Prime Minister Putin announced
support for Transport Minister Levitin's plan to transfer
Rostekhnologia's aviation assets to Aeroflot. According to
Levitin's proposal, all the regional airlines that would have
become Russia's new national carrier RosAvia, will be
absorbed by Aeroflot. On January 26, in apparent
anticipation of this decision, Aeroflot's board of directors
approved the purchase of a 25.8% stake owned by private
concern NRC (reftel B), enabling Levitin to engineer the
transfer of those Aeroflot shares to Rostekhnologia in
exchange for RosAvia's assets.
¶2. (C) Despite the Putin announcement, Boeing continues to
work with RosAvia's evaluation team on the tender to purchase
up to 65 narrow bodied aircraft. According to a Boeing
representative, RosAvia will present its assessment of the
business offers to Rostekhnologia by the end of this week.
Boeing also stated that the process of consolidating
Rostekhnologia's aviation assets under Aeroflot will likely
take at least a year. The tender is expected to be finalized
over the short run but further delays are likely. End summary.
Terms of the Deal
¶3. (SBU) On February 2, Prime Minister Putin's website
reported that Putin fully endorsed Transport Minister
Levitin's plan to transfer Rostekhnologia's aviation assets
to Aeroflot. Levitin's proposal would transfer all the
regional airlines that formed the basis of Russia's new
national carrier RosAvia -- Rossiya, Orenburg, Vladivostok
Air, Kavminvody, Saratov Airlines and Sakhalin Avia Airlines
-- to Aeroflot.
¶4. (SBU) The merger process will be complex, since some of
the airlines are currently joint-stock companies (Vladivostok
Air, Saratov Airlines and Sakhalin Avia Airlines) while the
others are "federal unitary enterprises" (state-owned).
Levitin's proposal is to engage the governor of St Petersburg
in the process of preparing Rossiya, the largest carrier and
the core of Rostekhnologia's aviation assets (reftel B), to
become a joint-stock company before merging it with Aeroflot.
Once all the airlines have become joint stock companies,
Aeroflot and Rostekhnologia will jointly manage the group and
eventually they will be merged with Aeroflot. According to
Levitin, as a result of this merger, Aeroflot would increase
its share in the domestic market from 15% to 30-35% (which is
compatible with the anti-monopoly regulations). Other
details of the deal, such as the financial structure or the
timeframe, have not been officially released.
Aeroflot Board Meeting Approves Share Purchase
¶5. (SBU) On January 26, Aeroflot's board of directors
approved the purchase of a 25.8% stake in the company from
NRC (reftel B). Reportedly, the price of the block
($300-$400 million) was 18-30% below its current market value
and the purchase would be financed by a state-owned bank.
The move reflects Levitin's plan to swap control over RosAvia
for Aeroflot shares (according to media sources, only 10% of
Aeroflot shares will be spent to get control over
Rostekhnologia's assets). Industry analysts stated that
Aeroflot will be 75% government owned versus the current 51%
as a result of this deal.
Boeing continues negotiations
¶6. (C) Boeing representatives told us that they are
continuing to work with the RosAvia evaluation team on the
tender to purchase up to 65 passenger aircraft (reftel B).
The assessment of the business offers will be presented to
Rostekhnologia by the end of this week. Boeing officials
stated that the process of consolidating Rostekhnologia's
MOSCOW 00000265 002 OF 002
aviation assets under Aeroflot will likely take at least a
year while the tender is expected to be finalized over the
¶7. (C) Although RosAvia sources reportedly stated that the
airline would likely cancel the aircraft purchase,
Rostekhnologia officials told us that they "will continue
with the tender anyway." However, as Deputy Prime Minister
Shuvalov cautioned U/S Burns on January 14, price remains an
issue -- with the possibility that Airbus could offer a lower
price than Boeing (reftel A).
¶8. (C) Significant time and management effort will be
required to con
solidate all Rostekhnologia's aviation assets
under Aeroflot, to integrate routes and unify the fleet.
During this time, a decision on the tender likely will be
delayed. The consolidation of Rostekhnologia's aviation
assets into Aeroflot -- which in the past has favored Airbus
over Boeing -- probably will significantly reduce Boeing's
prospects for supplying the full quantity of aircraft
tendered. End comment.