Boeing order prompts Putin's ire

Russian flag carrier Aeroflot has ordered 22 Boeing 787 passenger jets as part of an overhaul of its fleet – and immediately annoyed prime minister Vladimir Putin.

He told the company it was high time they invested more in Russian technology in documents published on the government website on Saturday.

Discussing plans for the renewal of the fleet with airline boss Vitaly Savelyev, he told Aeroflot there were “not enough” Russian planes in the proposals.

“You want to dominate the domestic market but you don’t want to buy domestic equipment,” Putin said. “This will not do.”

Boeing Wins Coveted Aeroflot Tender

Boeing of the US won a tender to supply Aeroflot with up to 65 midrange jets, the U.S. jet maker announced late Monday, beating out stalwart Airbus and the domestic vUnited Aircraft Corporation.

State-owned industry holding Russian Technologies, which conducted the tender on behalf of Aeroflot, said in a statement Monday that Boeing submitted the best offer technically, operationally and financially.

The statement did not specify the number of planes that would be supplied, but Boeing spokesman Dmitry Krol said the terms of the tender, announced in August at the MAKS air show, called for the buyer to purchase 50 planes with an option to buy 15 more in the future.

Boeing welcomed the decision, saying the "selection of Boeing airplanes demonstrates [Russian Technologies'] commitment to deploying the optimal solution for its market needs,” the Seattle-based aircraft giant said.

The tender comes after Aeroflot reached a deal in December with Sukhoi, a unit of United Aircraft Corporation, in which it agreed to purchase 30 of the new, Russian-built Superjet 100s. The company is buying the Superjets and 737s to replace its aging midrange fleet of Airbus 320s and 319s.

In April, Aeroflot signed an agreement with Russian Technologies granting Aeroflot the rights to manage the airline assets of the state holding, which, in turn, received the rights to acquire and lease planes for the country's biggest airline.

The agreement was a precursor to a larger government plan to unite Russian Technologies' airline assets — Vladivostok Avia, Saratov Airlines, Sakhalin Airways, Rossia, Orenavia and Kavminvodyavia — with Aeroflot. Under a Transportation Ministry plan drafted last month, the government will transfer the airline assets to Aeroflot in exchange for an additional share issue from the airliner.

The ministry's merger plan came as a disappointment for Russian Technologies, which was hoping to get a stake in the unified carrier.

The Boeing purchase would be good news for the state holding, which also owns 66 percent of titanium maker VSMPO-Avisma. By purchasing plans from Boeing, which is the Russian miner's main client, Avisma will get more orders, said Andrei Rozhkov, a transportation analyst at Metropol.

Nevertheless, the tender was won by Boeing because Airbus was offering more costly contracts and UAC couldn't offer the right sized jet, Rozhkov said. “Sukhoi Superjet 100 produced by UAC has between 75 and 95 seats, which is insufficient for Aeroflot's domestic operation.” The Boeing 737 New Generation has between 140 to 215 seats.

But Aeroflot may have different ideas. A source in the airline told Reuters that Aeroflot is still considering leasing 15 Airbus 320s in the coming years in addition to the 16 aircraft that it has already agreed to lease over the next three years.

Aeroflot spokeswoman Irina Dannenberg directed questions regarding the tender to Russian Technologies. A spokesman for the state corporation declined to comment.

The statement didn't give any details on the price of the contract, but Rozhkov said Aeroflot could acquire five to seven jets per year at a cost of $40 million to $60 million each, depending on the options.

But much depends on how the merger of Aeroflot with the regional carriers proceeds.

“If Aeroflot gets the airline assets of the Russian Technologies, it will get enough planes at its disposal and will increase its market share using mainly these,” Rozhkov said. “If the deal fails, Aeroflot may need to acquire more planes to support its growth plans.”

In the long run, Russian Technologies said it will focus on domestically made aircraft, such as the Irkut MS-21, the Antonov AN-148 and the Sukhoi Superjet.

Aeroflot cancels flights to Europe

A huge volcanic eruption in Iceland has forced Aeroflot to suspend flights to much of northern and western Europe due to dangerous clouds of ash in the sky.

Flights to London, Paris, Riga, Oslo, Copenhagen, Stockholm, Amsterdam, Warsaw, Berlin, Frankfurt, Hamburg, Dusseldorf, Munich, and Kaliningrad have been cancelled.

Aeroflot is closely monitoring the situation in St Petersburg, Murmansk and Kalinigrad and has set up a crisis centre,

Passengers on the cancelled flights will receive free meals and hotel rooms. They will be able to leave as soon as the airports open.

At the moment more than 30 European flights from Moscow airports by Russian companies Aeroflot and Transaero and foreign carriers, are delayed indefinitely.

A volcano below Eyjafjallajokull glacier, 200 km east of Reykjavik started erupting on Wednesday; a huge cloud of volcanic ash was carried to the sky over the Northern Europe, paralysing air traffic. At the same time, the sky over Iceland is completely clear.

The first country to close its airspace was Norway, followed by Sweden and Great Britain. Ireland, Denmark, the Netherlands, and Finland followed suit on Thursday evening.

Airports in Northern Germany and France are closed for traffic. Brussels, Geneva, Warsaw, Amsterdam and Tallinn are affected.

Eurocontrol expects around 11,000 flights to take place today in European airspace, on a normal day, they would expect 28,000, says the message on the air traffic controller's website. The agency says the disruptions could last for further 48 hours.

The ash's impact was felt further afield, with intercontinental flights routed through Heathrow and Frankfurt also forced to cancel. Many Asian companies, including Japanese and Singapore airlines, had to stop flights via northern Europe.

Volcanic ash poses a threat to turbines of the planes' engines and can cause problems if it lands on the wings.

In 1982, all four engines of a British Airways Boeing 747 were shut down after the plane flew through the cloud of volcanic ash on its way to Perth, Australia. The plane fell for nearly four miles, before one engine was started again and the plane was able to make an emergency landing.

"The length of the eruptions varies from a few days to a year," Magnus Tumi Gudmundsson, an Icelandic geophysicist informed. The ash could cause disruptions in air traffic for up to six months, reports Reuters.

The activity of the volcano increased in the last two days. If it does not diminish, in a few days the cloud of ash could cover most of the Northern Hemisphere.

Meanwhile clouds of volcanic ash have reached the Moscow region, reports the agency. They do not pose a threat for the population.

Aeroflot Board Dismisses Embattled CEO

Aeroflot's board fired longtime chief executive Valery Okulov on Thursday and replaced him with Vitaly Savelyev, a Sistema executive with no previous experience in the aviation sector. The shuffle caps a weeks-long power struggle at Russia's flagship airline amid growing dissatisfaction over Okulov's leadership, including criticism of the carrier's failed bid for Alitalia in 2007 and a decision not to pay a dividend for last year. Minority shareholder Alexander Lebedev reversed his earlier opposition to Okulov's removal Thursday, saying many of the board's complaints against Okulov were well-grounded. "I've suggested many things to Okulov, and I was not listened to," he told The Moscow Times. Leonid Dushatin, the Aeroflot board member representing Lebedev's National Reserve Corporation, which holds a 30 percent stake in the airline and is its largest minority shareholder, said Tuesday that ousting Okulov would be "madness." "It's like putting out a fire with kerosene. There is no reason to do this right now," he said. Lebedev said Thursday that he had heard that Savelyev was a "good manager" and that he would "recommend him." It was not immediately clear what changes might be made at the airline under Savelyev, 53, first vice president at billionaire Vladimir Yevtushenkov's Sistema holding and a former deputy prime minister. Savelyev made no public comments Thursday. The removal of Okulov, 57, who spent 12 years transforming the state-controlled carrier from a Soviet-era behemoth to an airline that could hold its own against global rivals, drew criticism from Aeroflot executives alarmed at the consequences of removing a popular chief executive in difficult economic times. "Nobody can be the boss forever, but the way [Okulov] is being treated is not right," said a senior Aeroflot executive who asked for anonymity in order to speak candidly. "He was a popular chief executive, the company has grown under him and to unceremoniously get rid of him like that looks bad to the ranks and to the rest of the world." Aviation analysts said it was too early to say whether the shuffle would have a negative impact on Aeroflot. "You have to remember that the airline's strategy is decided by the board of directors. The CEO is only responsible for carrying it out," said Oleg Panteleyev, a researcher at Aviaport, an aviation consultancy. "If he is an effective manager, it could be even be a plus for the company." Natalya Sorokina, an aviation analyst at UralSib, said a good deal of the airline's fortunes would depend on whether any major management shakeups would occur after Okulov's departure. "Some [executives] are likely to be removed, of course, but there are others with a great deal of technical experience who will not be so easy to replace, and they will likely remain," she said. She said Okulov's removal could be the result of disagreements with the Transportation Ministry about Aeroflot's direction, namely, whether to place a greater emphasis on the development of domestic or international service. Interfax reported late Thursday that Okulov had accepted the post of deputy transportation minister, a relatively low-profile post for a decorated pilot who headed a blue-chip company and has 34 years of experience in civil aviation. Earlier this month, Transportation Minister Igor Levitin offered Okulov a job as one of his six deputies. Okulov, however, said last week that he was dedicated to Aeroflot and that it was too early to discuss his departure. "[Aeroflot] is not just a transitional phase in my life. It is my life," he told Vedomosti. The management change comes at a turbulent time for Russia's airline industry, which has been battered by a drop in passenger traffic and falling share prices in the financial crisis. Last year, the Moscow city government and Russian Technologies said they would create an airline out of 10 smaller regional airlines that would eventually serve as an alternative to Aeroflot. The new airline is being overseen by Sergei Chemezov, who as head of Russian Technologies has sweeping powers over Russia's industrial complex, including weapons, heavy machinery and now aviation. Okulov, however, criticized the creation of the new carrier, calling it a "pyramid scheme." Okulov is the son-in-law of late President Boris Yeltsin

Aeroflot Backs Away From S7 Merger Talk

Aeroflot is not considering a merger with S7, Aeroflot chief financial officer Mikhail Poluboyarinov said Monday as he reported that the airline's profit for the first nine months of 2008 had dropped 57 percent. "We have analyzed the financial condition of S7 and determined that there is nothing to merge with," Poluboyarinov said at a news conference, Interfax reported. The state-controlled airline made its interest in S7 public at the end of October, when Aeroflot head Valery Okulov sent a letter to the Transportation Ministry asking the government to transfer its 25.5 percent stake in S7 to Aeroflot as a first step in a merger in the interest of "consolidating domestic flights." The debt being carried by S7 and asset transfers with subsidiary Globus Airlines likely played a part in Aeroflot's decision to step back. Short-term loans taken out by the company worth 2.4 billion rubles ($84.7 million) come due in December and January, said Dmitry Baranov, an analyst with Finam Management. "It makes no sense for Aeroflot to pick up more debt right now," Baranov said. National Reserve Corporation, which is owned by Alexander Lebedev, holder of a blocking stake in Aeroflot, got a margin call from Deutsche Bank on Friday on a loan backed by shares in the airline. On Saturday, Lebedev said the blocking stake was safe. While Aeroflot's interest in an S7 merger appears to have faded, the company is still open to the possibility of acting as a management company for Malev, which is Hungary's flagship airline. Vneshekonombank is currently examining the airline's financial viability, Poluboyarinov said, adding that Aeroflot was "interested in helping the Russian bank" if it ended up with a stake in the Hungarian carrier. Malev was sold last year to AirBridge, a company owned in part by Boris Abramovich. The Russian businessman purchased 99.5 percent of Malev, with VEB providing up to 102 million euros over 10 years to finance the deal. Reports in the Hungarian media earlier this month said Abramovich was considering selling a 49 percent stake. A VEB spokeswoman confirmed Monday that the bank is taking a look at Malev, but said that any potential deal will involve a minority stake of less than 49 percent, declining to comment on the possibility of any Aeroflot role. "It's too early to say whether the bank will keep financing [Abramovich] according to the arrangement, or choose not to prolong that deal, and thus become the owner," said Natalia Sorokina, an analyst with Uralsib. "If they do the latter, they may look for a managing company, as an airline is not a core asset." The nine-month results posted by Aeroflot on Monday were less than stellar, with net profit falling by $199.5 million, or 56.8 percent, from the same period last year. With the sharp increases in aviation fuel prices this summer, these results were to be expected, said Finam's Baranov. Aeroflot is planning to sign 2.7 billion rubles in loan agreements with Gazprombank and Sberbank this week, Poluboyarinov said.