Friday, April 06, 2007


Much about Aeroflot is reminiscent of the Soviet era. Its company songs, for example, which include “You are with me, Aeroflot!” And its chairman, Viktor Ivanov, who is one of the former KGB officers turned businessmen close to Vladimir Putin, the president. Is Aeroflot’s desire for Alitalia also Soviet-style?

Even as part of a consortium, buying Alitalia, which has an enterprise value of about $3bn, would be a pretty tall order for Russia’s national airline. Aeroflot’s market capitalisation is about $3.4bn and it has estimated net debt, adjusted for leases, of $1.2bn. Of course, for a company still 51 per cent owned by the state, raising finance may not be too much of a challenge. The industrial logic for such a deal, though, is also stretched. Lossmaking less than a decade ago, Aeroflot probably made $200m pre-tax profits last year on revenues of nearly $3bn. But growth is not a given and there are question marks over its management’s ability to take on another large challenge, particularly in Italy where it has no experience. While a foreigner at Alitalia might have more leeway to make swingeing changes – in the manner of Carlos Ghosn at Nissan – the idea that Aeroflot’s managers could deal more effectively with Alitalia’s intractable labour problems seems far-fetched.

Aeroflot’s only other main shareholder, tycoon Alexander Lebedev, whose National Reserve Corporation owns 30 per cent of the airline, was reportedly not consulted before the approach. This gives some indication of what lies behind it. Many of Aeroflot’s strategic decisions seem motivated less by business criteria than by political ones. Its choice last month to buy Airbus A350s, for example, over Boeing 787 Dreamliners was widely seen as a snub to the US. And the recent co-operation between Italy’s Eni and Enel and Gazprom shows the Russian government is warming to Italy’s involvement in strategic sectors. Quite why, though, the government should want to buy Alitalia is a mystery.

Financial Times (Lex)

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