Russian Aviation Consortium undertakes to clear bankruptcy debt (500 words)

Published: 1/31/2001

Prior to its merger with Vnukovo Airlines, Sibir would prefer the troubled airline's $17m debt to be restructured, to avoid recent efforts by creditors to push the airline into bankruptcy. Sibir's restructuring proposal comes from a number of outstanding problems with debts that have dogged VAL over the last six months. The most recent of these came from caterer, AeroMar (owed $800,000 by VAL). It recently took the airline to the arbitrage court, asking for the commencement of bankruptcy proceedings and also for temporary external management to be brought in. The court having heard the case, granted the motion. The motivation for AeroMar's action is apparently, not entirely for debt recovery, but because the company itself (a joint venture with Marriot), is 51% controlled by Aeroflot. The suggestion has been made that the court action may be an effort, on the part of the Russian flag-carrier, to prevent or slow the merger of VAL with Sibir. Such a merger would be considered a significant competitive threat for the domestically expanding carrier. AeroMar, less keen on intrigue, accepted a payment of $400,000 from VAL's major shareholder (the Russian Aviation Consortium) as part payment of the debt, only three days after the temporary management was imposed. It then tasked the arbitrage court to remove the temporary management. RAC plans to pay the balance of the debt by the 9th of February 2001, when the court will decide whether or not to cancel the proceedings. While Sibir says that the debts to AeroMar are not an obstacle to the merger, it is one of many claims against VAL (which Sibir believes should be resolved or restructured before the merger goes ahead). Sibir says that VAL is now in the process of negotiating the debt restructure. Elements of the merger are already in place, as Sibir has been operating VAL's routes to Yerevan, Sochi Novy Urengoi, Nadym, Makhachkala, Mineral Waters and Ulan-Ude since 15th January 2001. The impact of the incorporation of the VAL routes could help Sibir considerably increase its traffic during 2001; particularly as additional routes are added during the next few months. New routes are expected to bring a 60%-80% increase in passenger numbers on the 832,728 passengers carried by the Siberian carrier in 2000. The actual details of the merger between the two airlines remain vague. Several options are being discussed between Sibir, VAL and the state (25.5% shareholder in Sibir and the holder of a golden share in VAL). Sibir maintains that shareholders of both VAL and itself have approved the merger. It does seem likely that a single airline will emerge, incorporating the assets of both. In addition to the negotiation between the shareholders, any merger awaits the agreement of the civil aviation authority, the GSGA. The entity, although initially reported as not being entirely favourable to the merger, has approved it in principle - with the very big caveat of a review of relevant operating and route licences prior to full approval.

Article ID: 2331