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Aeroflot to raise $1 billion in Russia's first state-backed rescue of pandemic

MOSCOW (Reuters) - Aeroflot AFLT.MM said on Friday the state would take up 50 billion roubles worth of its 80-billion rouble ($1 billion) new share offering, a vital cash injection for Russia's flagship airline that is reeling from the pandemic.

FILE PHOTO: The logo of Russia's flagship airline Aeroflot is seen on an Airbus A320 which landed after an inaugural trip at the Marseille-Provence airport in Marignane, France, June 1, 2019. REUTERS/Jean-Paul Pelissier/File Photo

Russia grounded flights abroad in April and has only resumed some routes, cutting revenue streams in half for Russia’s airlines that are also grappling with a plunge in the rouble. Some airlines will need state support to survive, analysts say.

Aeroflot is holding a secondary public offering in Moscow to be completed around Oct. 26 and has raised 39.1 billion roubles during bookbuilding, including 9.1 billion roubles from the Russian state, the airline said.

The Russian government, which already holds a 51.17% stake in Aeroflot, will also exercise pre-emptive rights to buy a further 40.9 billion roubles in shares, Aeroflot said. Market investors will buy shares worth 30 billion roubles, it added.

Aeroflot’s board was reported to have set the share price at 60 roubles, prompting its share price to fall 8.8% from 65.86 roubles on Wednesday to 60.08 roubles on Friday.

Russia’s Direct Investment Fund said it and leading sovereign wealth funds from the Middle East had become anchor investors in the SPO.

Finance Minister Anton Siluanov said the government’s funds would be taken from Russia’s National Wealth Fund, a separate entity from the RDIF. They are the first state cash injection to a Russian company during the pandemic, which has hit national airlines hard.

Russia’s total airline passenger traffic fell 35% in August year on year. That represented a significant recovery from previous months due to a surge in domestic air travel as Russians holidayed at home rather than abroad.

Total passenger air traffic is forecast to fall 53% this year to 60 million people, the transport ministry said on Friday.

LEASING DEBTS

Aeroflot reported in August an 85% fall in second-quarter revenue. Other major Russian carriers do not publish their results.

Exacerbating the headwinds facing the sector, the Russian rouble has fallen 24.5% against the U.S. dollar this year, increasing costs for airlines that mostly lease their aircraft from foreign firms and pay for spare parts and some maintenance in dollars.

“An array of problems remain - the dollar rate is rising which our leasing payments depend on, while we get our income in roubles,” a spokeswoman for Ural Airlines, Russia’s third biggest carrier, said.

Smartavia, a private airline, said around a quarter of its expenses were currently in foreign currency. Aeroflot, S7, Utair declined to comment.

Aeroflot, which leases 354 out of 360 of its planes, said in its financial reporting that its leasing debt rose 13% in the first half of 2020.

Mikhail Ganelin, an analyst for Aton, said a prolonged devaluation of the rouble would add to other problems that have already put Russia’s airlines in a “very difficult” financial situation.

“It will be very difficult to resolve them without state support and state support for the sector would be the right step like in many other countries,” he said.

($1 = 77.1641 roubles)

Reporting by Gleb Stolyarov; additional reporting by Anastasia Teterevleva; Writing by Tom Balmforth; Editing by Emelia Sithole-Matarise

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