Aeroflot's new board reinforces the hold of Okulov on Aeroflot and removes Berezovsky's direct influence

Published: 7/2/1999

Mr Valery Okulov's re-election as General Director at Aeroflot's AGM has left him firmly in command. He has distanced the management of the company from Mr Boris Berezovsky and his associates, by failing to elect two figures closely associated with Mr Berezovsky: Mr Alexander Krasnenker and Mr Nikolai Glushkov. Mr Glushkov is currently under investigation for his financial management practices at Aeroflot. The new board is therefore made up of nine members. These are as follows: • Mr German Gref, Deputy Minister for State Property (Gosimushestvo); • Mr Gennady Zaitsev; • Mr Alexander Korsak, Head of the Transport and Communication Department of Moscow; • Mr Valery Okulov, Director General of Aeroflot; • Mr Andrey Petrov, Deputy Minister of Finance; • Mr Serguey Frank, Minister of Transport; • Mr Yevgueny Shaposhnikov, Advisor to President Boris Yeltsin;. • Mr Vladimir Smirnov, Aeroflot Director of the Ground Support Complex; and • Ms Tamara Yakubovskaya, Aeroflot Director of the Onboard Service Support. At a press conference after the AGM, Aeroflot added little to the information already available regarding its operating performance. It did acknowledge, however, that the operating performance in the first two quarters had shown unspecified decreases, although revenue remained flat owing to fare increases on volumes down by 6%. The Aeroflot press office however, later corrected the statement saying that passenger numbers were up in the Q1 of 1999 and cargo volumes down. This is a fairly typical confusion for the release of Aeroflot results, which are typically followed by corrections and adjustments after the event. Mr Okulov emphasised Aeroflot's objectives of achieving increasing load factors and reducing costs. He conceded that Aeroflot, as has been rumoured, did miss lease payments on its aircraft in December 1998 and January 1999, but stressed that it had no plans to do so in the future! According to Mr Okulov, future aircraft purchases will be contingent on improvements in volume and at present the outlook does not merit further acquisitions during 1999. No aircraft are scheduled for delivery. It has been rumoured that Aeroflot is seeking to wet lease some its current fleet in order to alleviate some of the burden of lease payments, with the Boeing 777s being mentioned as potential candidates. Despite earlier suggestions from Aeroflot that the AGM might have seen the publication of the International Accounting Standards (IAS) accounts, these failed to materialise. According to Aeroflot, they are still to be completed and may be available in July 1999. Access to those accounts may in part help to explain the $77m profit that company reported at the operating level in 1998. However, with no comparable 1997 figures under Russian Accounting Standards (RAS) and no explanation of currency treatment, fuel costs or forward buying policy, the RAS account remains impossible to interpret. Given the company's need for capital and the government's desire to sell at least part of its 51% stake, Concise considers the delays in the IAS accounts to be genuine and probably caused by the previous financial management of the company. The management must be aware that the international investment community, who are probably the only source of investment for both the company and the government, will require a high level of transparency before they commit further monies to Aeroflot. The sense of confidence is also not encouraged however, by the authorisation of the issuing of additional shares and it was not made clear who would take up these shares and the impact on minority shareholders. Although Alexander Skylar responsible for the state holding assured Concise the state's intention was not to treat the minorities badly and the company would be unlikely to issue the shares unless they were assured of a buyer. What this actually means for minority holders will have to wait. .

Article ID: 640