On March 15, 2007 Aeroflot CEO Valery Okulov said that his company is looking to enter into a firm agreement with European corporation EADS on the supply of 22 A-350s. According to him, this will be an integrated agreement whereby along with A-350s, 10 or 15 A-330 aircraft will also be delivered. The supply of the first A-330 planes is slated for 2008 with their subsequent replacement by brand new A-350s starting 2015.
This decision removes uncertainty about the future supplier of long-range aircraft for Aeroflot. Over the past few years the air carrier has had to choose from Boeing and EADS. Such a long tender period was due to discrepancies among Aeroflot’s two major shareholders.
National Reserve Corporation, which controls some 30% of the airline’s stocks, was inclined to contract Boeing as a future supplier and even spearheaded the conclusion of a preliminary agreement. However, Aeroflot failed to adopt a final decision before the preliminary agreement elapsed due to the lack of a voting directive for state officials sitting on the air carrier’s BoD. The position of the state, which controls around 51% of the company’s shares, according to our estimates, came from the aspiration to use the big contract as an instrument promoting the establishment of closer cooperation ties between United Aircraft-Building Corporation and Europe’s EADS.
According to our estimates, removal of uncertainty over the airline’s fleet renewal mechanism is able to produce a positive impact on its stock valuations. However, we reiterate our neutral stance on AFTL shares with an approximate target price of $3.10.
0.553
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