Daily analyst comments

On August 21, with help from state authorities, the airline companies incorporated into the AirUnion alliance, whose core asset is the KrasAir airline company, were provided with a week's supply of aircraft fuel, Vedomosti newspaper reported with reference to a source in Rosaviatsiya. If the alliance does not solve its fuel problems by August 28, Rosaviatsiya will completely ban AirUnion from selling tickets. In fact, this measure has already been partly enacted.

At the moment, the companies of the alliance incur losses from their operating activities, and they will be hard pushed to attract financing on their own. However, the air alliance may receive help from state corporation Rostekhnologii. This is indirectly confirmed by Rostekhnologii's attempts to economically revive AirUnion's cash flows and operating activities, as well as by unofficial information from negotiations between Rostekhnologii and aviation fuel suppliers. However, the state corporation's spokespersons said in a special announcement that Rostekhnologii was not an AirUnion shareholder and had nothing to do with the alliance's financial problems.

In our opinion, the fuel issue could be resolved by an air alliance's future controlling shareholder. However, the appearance of such problems is indicative of the carrier's precarious financial state and its weak cash flows. Taking into account the complex industry conditions and the company's serious debt burden, we recommend that investors SELL KrasAir shares.