Russia's two biggest airlines to combine; Aeroflot to buy Transaero

Ben Mutzabaugh | USA TODAY

Aeroflot is set to absorb rival Transaero in a move that will consolidate Russia's two largest carriers into one, the airlines announced Tuesday.

"Transaero will be completely overhauled and integrated into the Aeroflot group," an Aeroflot spokesman said to Russia's RIA news agency, according to Reuters.

The move comes as Russia's souring economy had a dramatic impact on its aviation industry. The Associated Press notes Transaero – Russia's No. 2 carrier – reported debts of nearly $1 billion as of June 30, according to the airline's earnings update for the first half of 2015.

Transaero has been hammered by a devalued ruble and a drop demand for travel from within Russia. The once fast-growing carrier has slowed growth plans. Just last week, Bloomberg News reported that Airbus had "postponed the delivery of its A380 superjumbo to Transaero Airlines in order to help the No. 2 Russian carrier cope with slowing travel demand in its home market." Transaero had previously revealed plans to fly its A380s with more seats than any carrier currently flying the world's biggest passenger jet.

As for the acquisition by Aeroflot, Russia's RIA news agency says Aeroflot will pay a symbolic 1 ruble for a controlling stake in Transaero. The Wall Street Journaldescribed it as "a government-brokered deal to stave off bankruptcy at the heavily indebted (Transaero)."

Transaero says in a statement that it would be acquired by Aeroflot "in the interests of the development of the commercial aviation." Aeroflot is Russia's top carrier, with Transaero saying the combination would "create one of the largest in the world group of airlines."

Aeroflot currently controls about 37% of the Russian market while Transaero has about 14%, according to the Journal. The carriers compete on a number of domestic and international routes.

"It is a mild form of nationalization of the struggling company," Boris Rybak, CEO at aviation-focused Infomost Consulting, says to the Journal. "Which is very sensible as it is a huge headache for any country to bankrupt an air carrier. A handover of the company into the arms of a carrier, which is close to the state, looks logical."

"Weak airlines are leaving the market or reducing their business, on the one hand," Andrei Rozhkov, a transportation analyst at Moscow-based IFC Metropol, adds to Bloomberg News. "Aeroflot is getting a boost from the Transaero deal, on the other hand."

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