On September 1, Russia's highest government officials, including prime-minister, Vladimir Putin, vice prime-minister, Sergei Ivanov, and some Transport Ministry representatives, will hold a meeting to try to defuse the crisis in the companies that make up the AirUnion alliance, Vedomosti business newspaper reported.
For the last two weeks, the AirUnion, whose core asset is the KrasAir airline company, has delayed more than 100 flights due to its inability to pay for aircraft fuel. According to Vedomosti, the Russian Federal Agency for Federal Property Management (Rosimushestvo) and state corporation Rostekhnologii believe that the companies of the alliance should undergo bankruptcy procedure: lawsuits on KrasAir and Domodedovo Airlines' insolvency have already been filed.
Currently, the companies of the alliance are making an operating loss, and they are unlikely to be able to attract financing on their own. De jure, Rostekhnologii is not related to AirUnion, and therefore, it will not participate in financing the alliance's operating activities. Moreover, in our opinion, the companies' insolvency may turn out to be profitable for the state corporation, since it will be able to purchase the air alliance's assets at a discount and exempt from taxes of more than USD 1 billion.
In our view, given the growing operating loss and bankruptcy proceedings against its member companies, AirUnion's future looks quite bleak. In view of the complex industry environment, AirUnion's heavy debts and its inability to attract financing on its own, we recommend that investors Sell KrasAir shares.
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