BA Boeing Co

By Robert Wall 

Russia's largest airline, state-controlled Aeroflot, said a deal to take over the country's No. 2 carrier Transaero is unravelling.

Aeroflot said that Transaero, which had proposed to sell itself amid financial difficulties, didn't submit a formal proposal for the deal by the agreed deadline. Aeroflot said in a statement that its board of directors wouldn't extend the deadline for talks.

Transaero had agreed to sell Aeroflot a controlling stake of just over 75%. Transaero couldn't immediately be reached for comment.

The government-brokered deal was aimed at staving off bankruptcy at the heavily indebted Transaero, which has cuertailed aircraft purchase deals to save money.

The collapse of talks could have ramifications beyond Russia. Transaero is a buyer of Boeing Co. and Airbus Group SE jetliners.

Airbus had already delayed delivery to Transaero of the first of the carrier's A380 superjumbos, originally due this year, because of weakness in the Russian airline sector. Transaero has ordered four A380 jetliners. Airbus has been struggling to sell A380s which retail for more than $400 million at list price, though customers typically get discounts.

The airline also has ordered four Boeing 747-8 jumbo jets, which remain to be delivered.

Western sanctions and a fall in crude prices have weighed on Russia's economy and the airline sector, forcing carriers to retrench. Europe's No. 2 budget airline, easyJet PLC, also has curtailed flights to Russia amid the country's economic weakness.

The acquisition of Transaero would have bolstered the Aeroflot Group's share of Russia's airline market beyond 50%. The management of Russia's dominant airline was apprehensive about the deal, though, because of Transaero's financial situation, Russian airline experts have said.

Aeroflot Chief Executive Vitaly Saveliev said Aeroflot would ensure Transaero passengers won't be impacted by the collapse of talks. "Passengers will be guaranteed transportation or a refund in the event that a flight is cancelled," he said. Aeroflot effectively took over operational control of Transaero already last month.

Founded in 1990, Transaero had a fleet of 97 airplanes and an outstanding debt of 67.5 billion rubles ($1.03 billion) at the end of the first half of 2015. Herman Gref, head of Russian lender Sberbank, which lent money to Transaero, said earlier this year that the company's debt issue was "serious."

Aeroflot Group, with a history that traces back to 1923, has a fleet of 260 airliners. Passenger traffic in the first eight months for the airline was up almost 8% compared to the prior year, Aeroflot said last month.

Doug Cameron contributed to this article.

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(END) Dow Jones Newswires

October 01, 2015 15:51 ET (19:51 GMT)

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