Donavia and Aeroflot agreement in final stages of negotiations for new airline

Published: 11/10/1999

It appears that the bankrupt Donavia (Donskiye Airlines) from Rostov-on-Don, has finally negotiated an incorporation agreement with Aeroflot to create a new Rostov airline by the middle of December 1999, that will also be called Donavia. Mikhail Krivitsky, former Commercial Director and acting General Director of Donavia, said that the new airline should be operational by February 2000. The development is part of Aeroflot's strategy to create a network of hubs across Russia designed to feed its long haul routes. The Rostov based airline follows similar plans in Nizhni Novgorod providing coverage of Southern Russia. According to Krivitsky, the new organisation will retain the current 1450 employees of Donavia, whose numbers have declined from over 2100 at the end of 1998. Under the agreement, signed in October 1999, which follows a preliminary cooperation agreement in October 1998, Aeroflot will fund the purchase of additional aircraft to the present fleet of 40 planes, comprising Tu-134s, Tu-154s, Yak-40s and An-12s. As well as its fleet, Donavia will contribute its technical base and complex of buildings in Rostov. In April 1998, the arbitration court in Rostov region put Donskiye Airlines under external administration due to its perilous financial condition. When the five months of court appointed external administration expired in October 1998, the company put under temporary management. The airline however, has been dogged with charges of mismanagement and corruption, with financial irregularities being investigated by the Transport Prosecutor of Northern Caucusus .The former General Director, Pavel Duzhnikov was arrested by the Rostov-on-Don Militia in April 1999 charged with misappropriating funds from the airline (www.concise.org 6th April 1999). Donavia pilots claim that the airline has illegally pocketed some Rb 100m in Russia alone, and that several million dollars have been fraudulently invested abroad. (www.concise.org 8th July 1999). On 1st October 1999, Donavia's debts amounted to Rb 255m ($10m). Passenger volume decreased by 6%, to 297,000 over the first nine months of 1999, compared to the corresponding period in 1998. Cargo volumes fell sharply by 40% to 1,900 tonnes. The airline attributes its critical financial position to the increases in fare prices in poor economic conditions, so reducing passenger volume, and to the intensifying competition from other air carriers from destinations served by Donavia, such as Pulkovo, Uzbek Airlines and Ukraine International Airlines, which have started flying to Rostov-on-Don. However, the trade union contends that the airline has been struggling since even before the August 1998 crisis, with load factors of only 50% when the market was reasonably bouyant.

Article ID: 1066