Russia's Aeroflot set to buy competitor Transaero

Russia's state-controlled flagship airline Aeroflot is set to buy its struggling competitor Transaero, sources said Tuesday, AFP reports.

The decision to make an offer for 75 percent of the capital of Transaero was taken at a meeting led by First Deputy Prime Minister Igor Shuvalov and must now be finalised by Aeroflot's board, a source close to the government told AFP. 

Aeroflot's press secretary Maxim Fetisov confirmed to Echo of Moscow radio station that "we can say it's true the possibility of consolidation with Transaero is being discussed."

Transaero confirmed that a meeting with Shuvalov took place.

The meeting backed "the consolidation of Transaero into the Aeroflot group," the airline said in a statement on its website.

The airline said the measure would be "in the interests of further development of civil aviation and to create one of the largest aviation groups in the world."

It would also be "in the interests of passengers, staff and partners of the airline," Transaero said, citing its shareholders.

Russian news agency Interfax reported that Aeroflot was planning to acquire Transaero for the symbolic price of one ruble (one US or euro cent), citing a source present at the talks with Shuvalov.

Aeroflot is 51 percent owned by the Russian government. It grew out of the Soviet monopoly of the same name.

Transaero, which began operating in 1991, is the second-largest Russian airline and the country's largest privately-owned carrier. In the first half of 2015, it carried 5.7 million passengers compared to 10.9 million who flew on Aeroflot.

Transaero has incurred massive debts in recent years as it modernised its fleet of mostly Boeing planes and was threatened with bankruptcy. It has no choice but to accept Aeroflot's offer in order to survive, wrote the Vedomosti business daily.

With a fleet of 106 planes, Transaero serves domestic destinations, most European capitals as well as long-haul destinations popular with Russian holidaymakers such as Thailand. It has particularly suffered as Russians have tightened their belts in the economic crisis and has been hit with serious financial losses in recent months.

Along with Russia's third-largest carrier UTair, Transaero had asked for a financial lifeline from the government but Russian media reported that officials were reluctant and Aeroflot opposed aid on the grounds that the airlines had got into difficulties due to their excessive borrowing and slashing ticket prices.

The falling spending power of Russians has hit international carriers and pushed them to reduce their margins and to sell cut-price tickets to fill planes.

The ruble's plunge in value has also increased costs linked to the dollar, such as rental and maintenance of aircraft as well as paying back dollar-denominated loans.

Aeroflot has made huge strides in recent years to lay to rest its image as a disaster-plagued Soviet carrier, becoming a member of the Sky Team alliance along with Air France-KLM and winning international awards for its service.

It has resisted the crisis better than its peers, but still reported a net loss of 3.5 billion rubles ($52.9 million) in the first half of the year. That loss was up 86 percent from the same period last year.

However Aeroflot increased its passenger numbers by 14 percent and its market share by 5.8 percent to 37 percent in the first half of this year thanks to boosting domestic flights and launching a low-cost airline, Pobeda.