Oil deal for Aeroflot emphasises the structural difficulties for other operators

Published: 1/24/2000

In a deal similar to one concluded in September 1999, with Russia"s Lukoil and the Tyumen oil company, Aeroflot has signed an agreement with the Yukos oil company. Under the terms of the deal, signed by Mikhail Khodorkovsky and Valery Ikulov of Aeroflot, Yukos will supply fuel and other products in agreed volumes to the national carrier. In addition, jet-fuelling facilities will be jointly developed in areas where the two parties have common interests. Aeroflot will take on something akin to preferred carrier status, involving tickets and additional flight services for Yukos employees. The deal is motivated by Aeroflot"s concern - common to all Russia"s carriers - to secure a sufficient quantity of fuel with reliable delivery, at the right price. For Aeroflot, embarking on the development of its domestic network, this is a critical issue. The airline will have no wish to experience the long delays and cancellations, caused by fuel shortages across the country, that have beset even the largest of the domestic carriers. Buying fuel directly from the producer should also reduce prices, as it eliminates the intermediaries. These, according to many informed sources, including the Director of the FSVT, Andreyev, have been making windfall profits through exporting products to higher priced markets. As a result, they have deprived the domestic market of supply, or simply exploited the shortage in certain areas in order to jack up prices, so perpetrating large price distortions from one regional market to another. Associated articles: www.concise.org 23rd September 1999

Article ID: 1348