Aeroflot bid for Italian airline

Aeroflot logoIn a surprise move, Aeroflot have made a bid for the Italian flag carrier Alitalia:

Aeroflot joined with the largest Italian bank, UniCredit, on Monday to bid for most of the 49 percent stake in Alitalia held by the Italian Finance Ministry, which is selling its shares in hopes that a private owner will have better luck reviving the money-losing airline.

Experts seem to think that it’s a bit too much for Aeroflot to take on just after a major restructuring of its own.

A part of me thinks, if they’ve got the money, they might as well spend it on expansion. But I also wonder whether Aeroflot is following the recent Russian trend of making high profile purchases, with more of an eye for their international image than their long-term profitability.

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14 Responses

  1. Red Exile says:

    A staggeringly bad idea for Aeroflot, financially. Possibly a good thing (sneakily)for fellow Skyteam member, Air France. Great for the investment bankers involved, natch.

    I submit that jealousy drove this deal as, I have tried to explain on my blog posting just now.

    Aeroflot is making a knee-jerk, if belatedly-so, reaction to AirUnion’s hub-to-hub strategy offered by the Malev acquisition.

  2. Tim Newman says:

    Judging by the two flights I’ve taken from Moscow to Sakhalin, Aeroflot’s poor reputation is underserved. I found the standard of service far worse on Lufthansa, whom I will never fly with again.

  3. Lyndon says:

    Not sure about the ‘flot’s expansion, but I second Tim on their rep. I was a loyal Aeroflot customer the whole time I lived in Moscow and found that their flexibility about check-in cutoff times and baggage allowances was much greater than that of any other airline I’ve flown out of Moscow. Also, their frequent flier plan was surprisingly user-friendly and rewarding. Here’s RenCap’s take on the bid – looks like Alitalia would probably be too big for Aeroflot to swallow realistically, but I’m no expert on the airline biz:

    Aeroflot bidding for Alitalia
    Rencap, Russia
    Tuesday, April 3, 2007

    Event: Yesterday (2 Apr) Bloomberg reported a surprise move by Aeroflot to bid for Alitalia. UniCredit, Italy’s largest bank in terms of assets, and Aeroflot have joined forces to bid for Alitalia. UniCredit will control 5% of the bidding group, while Aeroflot will control the remaining 95%. The Italian government, which owns 49.9% of the unprofitable Alitalia, aims to sell at least a 39.9% stake by mid-year. Yesterday was the deadline for bidders to be short-listed and therefore eligible to bid for the Rome-based carrier. Mediobanca SpA, Italy’s largest investment bank, will be part of a group that includes Texas Pacific Group and MatlinPatterson Global Advisers LLC team also bidding for Alitalia.

    Action: We do not cover this stock.

    Rationale: Alitalia’s 2006 revenues were up 4%, but fuel costs increased 17%, by far outweighing all the effects of cost cutting (all other expenses combined declined 0.2%). As a result profit before tax declined from E144mn to E405mn. The market heavily discounted Alitalia for losses, as it currently trades at a 2007E 1.0 P/B (Aeroflot’s P/B is 5.6) and 2007E 0.5 EV/Sales (Aeroflot’s is 1.3). In 2005 Alitalia generated 1.7x more turnover than Aeroflot, flying 187 planes (vs 88 for Aeroflot).

    Eduard Faritov

  4. ReluctantMuscovite says:

    D’accord on aeroflot rep. Friend of mine – Russian – refuses to fly aeroflot. Never understood that. Flew aeroflot first time eight years ago (when smoking was still allowed on board!!!!! Those happy days are over, though), and was fully content. Took KLM three years ago — nightmare (referring to totally not replaced equipment in cabin).

  5. Andy says:

    As a result profit before tax declined from E144mn to E405mn.

    Sigh. If only my profits declined like that…

  6. GER O'BRIEN says:

    I’m in total agreement with Tim and RM regrading Aeroflot. The bad old days are long gone though I do miss the smoking. Travel from London to Moscow with them is on brand spanking new Airbus and the service was fine. There’s nothing wrong with them at all, though being based at Sheremtyevo-2 well…..I dont need to go on really.

  7. Tim Newman says:

    There’s nothing wrong with them at all, though being based at Sheremtyevo-2 well…..I dont need to go on really.

    Consider yourself lucky. Moscow to Sakahlin is a domestic (albeit eight and a half hours!!), so Aeroflot in my case is based out of Sheremetyevo 1. If there is one place which makes Sherem 2 look good it is Sherem 1.

  8. Tim, I thought you oil-tycoons all have private business jets ? 😉

  9. Tim Newman says:

    Tim, I thought you oil-tycoons all have private business jets ?

    Heh! I don’t even get to fly business class. 🙁

  10. ReluctantMuscovite says:

    Or as one of my friends likes to say… Shittimetevo. There was a nasty pun on Aeroflot in the old days: aeroschrott.

    ouch.

  11. RM:There was a nasty pun on Aeroflot in the old days: aeroschrott.

    I have a cute book about civilian aviation, giving away the “airline names” for being abbreviations.

    example:

    SABENA = Such A Bloody Experience, Never Again
    SAUDI = Such A Unique Desaster in Aerospace
    Air China (AC) = Always Crashes

    Lufthansa = Let Us F*** The Hostess As No Steward Available

    I share Tim’s view on Lufthansa. I will also never fly with them again.

  12. Lyndon says:

    Sh-2 is horrible, an awful first impression and the worst possible way for Russia to “welcome” visitors – and it’s amazing (or not, if you consider all of the competing interests) that they haven’t successfully renovated it yet. I guess Sh-3 is under construction. Sadly, Sh-2’s location still makes it very attractive compared to the alternatives.

    But as for Aeroflot, here’s another bit (not sure whether 41st is anything to crow about, but apparently RenCap thinks it’s not bad):

    Aeroflot recognised for safety
    Rencap Russia
    March 20, 2007

    Event: Aero International magazine has published its ranking of 50 large airlines based on safety. The magazine has ranked the safety of airlines since 1973. The only Russian airline to make the list was Aeroflot, ranked number 41. The company has had 10 incidents since 1992, but none in the past five years.

    Action: We do not cover this stock, but believe the news to be positive for the stock, particularly in an environment where the safety of Russian airlines in general is questioned.

    Rationale: The company has been active in its efforts to update its fleet. Last week Aeroflot took delivery of a new ?-320, with another one due to arrive by the end of March. By the end of the year the company is expected to take delivery of three A-321s and three A-319s. In 2008 11 new A-320s are scheduled to be put into service together with long-range ?330s, which will be used until Airbus supplies the airline with 22 ?350s, the delivery of which is scheduled to begin in 2015. The A350s are the aircraft the Russian government (51% owner of the airline) insisted Aeroflot choose over Boeing’s 787s.

  13. GER O'BRIEN says:

    Sher-2 is just a nightmare. BA got fed up and pulled out and they still have hardly improved. However, its a proper introduction to Moscow. Nothing says ”its all ahead of you” better than Sheremtyevo-2. With total lack of irony, its named after Sheremetyev, surely one the coolest noblemen to have ever lived anywhere) Pity the airport doesnt measure up to its namesake) However, the passport control women are very special. When its busy and you’re queing to get into the country, you can see them huddled in the corner smoking, with their sexy uniforms and deliberately shortened skirts(the skirts seemingly are issued a good deal longer than they are worn) – it sure puts me in good mood after a long flight! As well as that, where else can you actually smoke whilst waiting in line to get in? Its hilarious, listening to foreigners piping up about smokers lighting up in the queue, tut-tutting with that glorious tone of self-righteousness! I always smile and think to myself ”wait till you get out of the airport. You aint seen nothing yet. Welcome to Rossiya”))

  1. April 4, 2007

    […] unknown wrote an interesting post today onHere’s a quick excerpt… UniCredit, on Monday to bid for most of the 49 percent stake in Alitalia held by the Italian Finance Ministry, which is selling its shares in hopes that a private owner will have better luck reviving the money-losing airline. … […]