Daily analyst comments

On April 17, a Transportation Ministry official representative said the Russian Technologies state corporation officially gave up its claims on Russia's Far Eastern airlines Vladivostok Avia, Dalavia and Sakhalin Air Routes. Aeroflot has now remained the only contender for the assets, as was originally planned. However, MERT representatives voiced their disagreement with the planned consolidation of the sector, citing the possible monopolization of the regional market. According to mass media report, the ministry only agrees to hand over part of the Far Eastern assets to Aeroflot.

In our view, consolidation of the Far Eastern airlines would no doubt allow Aeroflot to strengthen its foothold on the regional air travel market. However, investments in this project are unlikely to be soon recouped given the need for large-scale investments in the aircraft fleet. We are wary of the company's aggressive expansion strategy. The airline has repeatedly stated its intention to take over various aviation assets of dubious quality. The airline may face a high debt burden in the event it steps up its acquisition activities, given the need for hefty investments in its own aircraft fleet. We currently estimate the fair value of Aeroflot common shares at USD 4.14 per share, which implies a downside potential of 4% to the current stock valuations.