Page 107 - RusRPTDec18

expensive year-on-year in 2018, which alone would cost Aeroflot RUB32.8bn. Another RUB22bn could be lost on weaker ruble, as over 50% of company's payments are in FX. As the government bets on aviation as one of the instruments of boosting regional interconnectivity under the six-year infrastructure development plan, it is possible that jet fuel prices could potentially be tackled by direct regulation. Most recently high motor fuel prices led to a direct intervention by the government with the largest domestic suppliers. Currently Aeroflot is buying jet fuel Russian oil majors Rosneft, Gazprom Neft, and Lukoil based on long-term contracts regulated by oil- pegged price formulas. The head of the Federal Antimonopoly Service (FAS) previously urged carriers to buy fuel on commodity bourses to minimise costs. In the meantime the air travel market is expected to see tightening competition, with Aeroflot announcing an ambitious growth strategy which directly targets domestic regional market shares of its closest private competitors S7 and Ural airlines. Ural, in turn, recently announced adding new foreign destinations. S7 aims to get a competitie edge by modernising its fleet, in large part to minimise fuel consumption by latest Boeing and Airbus jets.
Russia's largest private air carrier S7 Group plans to become the first carrier in Russia to completely revamp its mid-range fleet with Airbus 320/321 neo and Boeing 737 MAX new generation jets, Vedomosti daily reported on October 23 citing the deputy strategic director of the company Grigory Davidov.S7 has a fleet of 91 jets, out of which 74 are mid-range Airbus and Boeing and 17 are regional short-to-mid-range Embraer E170. Out of 74 mid-range jets 12 are new generation Airbus 320 neo, one is Airbus 321 neo and one Boeing 737 MAX. The company ordered another 32 new generation jets (19 Airbus 320 neo, three Airbus 321 neo, and ten Boeing 737 MAX) by the end of 2020. S7 will also adopt a strategy of short-term leasing for a maximum period of two years to avoid price fluctuations, to quickly react to demand fluctuations, and to constantly update the fleet with newest models, according to Davidov. Davidov also argued that despite higher leasing cost, the new generation fleet allows for 11%-15% savings on fuel, while fuel overall takes up to 30% of total costs of the carriers. Newer jets also require less service and can spend more time flying.
Russia's third largest air carrier Ural airlines has increased the number of foreign destinations it flies to from the Moscow regional Zhukovsky airport and is now serving London, Amsterdam, Madrid, Stockholm, Prague, Karlovy Vari, Istanbul, Milan, Katania, Paris, and Shymkent. The addition of regular foreign flights will increase competition in the sector, as most of the destinations were previously served exclusively by state carrier Aeroflot.
9.2.4 Construction & Real estate corporate news
Russia's Financial Corporation Otkritie could get 35% stake in O1 Properties real estate developer of billionaire Boris Mints, Vedomosti daily reported on October 31 citing the materials of the Moscow Arbitrage Court.
Mints was one of the shareholders in Promsvyazbank (PSB) together with FC Otkritie one of the largest private banks bailed out by the Central Bank of Russia (CBR) in 2017. His O1 Group suffered from banking assets contagion, losing over RUB20bn in assets after the CBR takeover of PSB and Otkritie.
Since spring O1 Group defaulted on three out of five bond issues worth a total of RUB87bn ($1.37bn) and finally had 61.2% stake in О1 Properties acquired
107 RUSSIA Country Report December 2018 www.intellinews.com