Long awaited Samara-AeroVolga merger goes through after government reluctance overcome

Published: 10/21/1999

Samara Airlines is finally to merge with troubled local airline AeroVolga. The merge has been a long time coming, as the shareholders of both entities originally agreed it in May 1998. The reasons for the delay primarily lie in the government's reluctance, in the form of the regional property fund which controls 51% of Samara, to agree to the merger and the subsequent dilution of their interest as the airline had been regarded as being of strategic interest at the time of the original privatisation in 1993 and changing this status has delayed the absorption of AeroVolga into Samara. AeroVolga's financial situation deteriorated almost as soon as it began operations in 1995 when it could not service the debt of $7m owed to AvtoVazbank, following its purchase of one Tu-154 M. This prompted Sberbank, the state savings bank, which had taken part of the AvtoVazbank's exposure to the airline, to begin bankruptcy proceedings against AeroVolga, which were only prevented by a no interest loan of $ 5m from the regional government. AeroVolga and Samara Airlines' shareholders approved the merger and the share conversion rate of 7:1, and AeroVolga will disappear, with shareholders receiving a 15.15% stake in the new joint company. The merger was originally approved on 5th December 1997 by AeroVolga's board of directors. On 9th December 1997, the terms of the merger were approved at Samara Airlines' EGM, and endorsed at the AGM of 19th May 1998. On 21st May 1998, a united EGM of both airlines approved the merger and announced its terms. In September 1998, Samara announced that the issue of additional shares was delayed indefinitely, pending approval by the state, given the decrease in its stake in the new company from 51% to 47%. In December 1998, it announced a further delay, owing to legal difficulties, concerning the decrease in stake. On 7th October 1999, the Samara Branch of Russian Federal Commission for the Securities Market registered an authorised issue of 346,500 shares of Samara Airlines.The company however, will issue 49,500 shares with par value of Rb 2,000 to provide the stock for the merger swap. The state has a 23% stake in AeroVolga. Other shareholders are AeroVolga employees and former representatives of the former Soviet Aeroflot from the Volga region. Samara Airlines stands to benefit in the medium term from the merger through the acquisition of additional aircraft, new routes and the loss of a local competitor in a market where other stronger players are potentially beginning to emerge(www.concise.org 5th July 1999). Although conditions for Samara currently remain tight (www.concise.org 22nd June 1999) and the AeroVolga merger is unlikely to improve them in the short term, the airline's General Director, Alexander Kozlov, has reported that traffic was up by 14% in the January-September period and the company is optimistic about returning to the passengers levels of 1995, although those levels are still regarded as being too low. AeroVolga has a fleet 3 Tu-154Ms and 2 Yak-42Ds. The condition of the fleet, according to Samara Airlines, is pretty poor. Of the Yak-42s only one is flying and the other awaits repair, while of the Tu-154s, the most recent aircraft delivered in 1995 is flying, but only one of the two older aircraft is operating and the other waits funding for repairs.

Article ID: 991