Risky business with Russian air

Aeroflot Russian Airlines is a national Russian carrier. The company was established in 1923 (yes indeed during Soviet times) and has now been turned into a state owned [51%] bureaucracy with 45% market share of international flights. Aeroflot is based at Moscow Sheremetyevo International airport. The airline provides domestic and international passenger services to 96 destinations in 49 countries, operating about 302 flights daily.

During the Soviet era, the airline performed multiple functions ranging from heavy lifting to crop-dusting. In fact, the communist regime did not allow any competition in the airline industry[1][1]; therefore, quality control was at minimum and innovation attempts were illicit. There are records of approximately 127 accidents involving Aeroflot aircraft and 6,875 fatalities (plus 20 people killed on the ground), making an average of 54.13 fatalities per accident since 1953. From September 15, 1983 until August 2, 1990 Aeroflot service to and from the United States was interrupted due to the KAL 007 incident, following an executive order by Ronald Reagan revoking Aeroflot's license to operate flights into and out of the United States. The incident consisted of a Korean jet departing from JFK being shot down by a Russian pilot as it violated the Soviet airspace.

However, I do not intend to paint a dismal picture of Aeroflot’s history. Indeed, the company has made tremendous efforts to improve its services. Even though it is still the national carrier, after the collapse of the Soviet Union, Aeroflot started to introduce major fleet and safety improvements in order to comply with international standards. For instance, the company has been hiring British consultants to help re-position its brand image as a reliable airline. Aeroflot has also upgraded its fleet of western-built aircrafts. It has a total of 24 A320/A319 jet planes for short-haul flights in Europe and 11 Boeing 767 planes for long-distance routes. In the spring of 2004 the airline started an aggressive expansion on the domestic market aiming to gain 30% share by 2010. On April, 2006 Aeroflot has become a member of the global alliance SkyTeam. By joining the international alliance, Aeroflot has proven its reliability and has increased the number of destinations worldwide.

Nonetheless, its position as an investor and a business partner is still rather shaky. For instance, the long-awaited acquisition of the Italian national carrier Alitalia by Aeroflot never took place. In April 2007 Aeroflot has made a bid for all or part of the Alitalia as one of three potential buyers to meet a deadline set by the Italian Ministry of Finance. Aeroflot joined the largest Italian bank, UniCredit, to bid for most of the 49 percent stake in Alitalia, which was selling its shares in hopes that a private owner will revive the unprofitable airline. At that moment Alitalia had a market capitalization of $1.74 billion (while Aeroflot’s market value was estimated at $ 3.2 billion). Most foreign analysts were skeptical that the deal would go through. Turned out, they were correct. In June 2007 Aeroflot has abandoned its bid, motivating withdrawal by lacking access to the "critical information" on the commercial and operational aspects of Alitalia's business. The Italian carrier was still in need of a rescue and saw Air France KLM as a potential bidder (much preferred to Aeroflot by the way). However, the talks were shortly suspended. That left Alitalia with just its smaller rival Air One and the buyout firm MatlinPatterson Global Advisers as possible buyers.

On April 18, 2008 Aeroflot surprised the business world again by its decision to re-consider the acquisition of Italian national airline. Putin met with Berlusconi on the picturesque island of Sardinia and has announced that Aeroflot will resume talks on buying the Italian government's 49.9% stake in airline Alitalia. The leaders also discussed the possible suspension of visa requirement to enter EU for the Russian citizens. But going back to Aeroflot’s business – the airline behaved like a capricious lady on the Alitalia deal, which justifies the lack of trust from international partners.

All that being said, it is quite risky to deal with Russian air – you might get shot if entering the post-soviet airspace (like KAL 007) or you may never see monetary follow up if you are thinking of a financial partnership with Aeroflot.

P.S: I still fly Aeroflot since it is the only direct flight from Moscow to LA); frankly, their service is not bad after all. 

[1] Funny enough, one of the very few Soviet advertising attempts involved Aeroflot. It promoted flying with national carrier despite the fact that the soviet citizens could not physically chose a non-Aeroflot flight since there was no competition whatsoever. The ads were meant to encourage people to travel by plane versus train.