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Russian Airline Aeroflot to Take Control of Carrier Transaero

09/01/2015 | 02:15pm US/Eastern

MOSCOW?Russia's largest airline, state-controlled Aeroflot, will take control of the country's No. 2 carrier Transaero in a government-brokered deal to stave off bankruptcy at the heavily indebted company.

Aeroflot Group, which says it already controls 37% of the Russian market, will restructure Transaero, which accounts for 14.4% of the country's passenger traffic, and merge it into its group of companies.

Transaero has struggled with heavy debts as Russians have cut foreign travel as the country's economy is in recession and the ruble has lost around half of its value in the past year.

"It is a mild form of nationalization of the struggling company. Which is very sensible as it is a huge headache for any country to bankrupt an air carrier. A handover of the company into the arms of a carrier, which is close to the state, looks logical," said Boris Rybak, chief executive at aviation consultancy firm Infomost Consulting.

The deal follows a steady rise in the Transaero's debt burden and serves as the latest example of how Russia, hit by Western sanctions, is bailing out some major troubled businesses, ranging from banks to oil companies.

Aeroflot's acquisition of a 75% stake in Transaero was backed by a government commission chaired by Igor Shuvalov, First Deputy Prime Minister, on the air transport industry on Tuesday.

According to the official RIA news agency, the deal is for a symbolic 1 ruble. Both companies declined to comment on the deal price.

A person close to the deal said the both companies won't face "substantial changes" to their operations.

"The shareholders of Transaero Airlines believe this measure will serve the interests of passengers, personnel and partners of the airline," the company said in a statement.

Founded in 1990, Transaero had a fleet of 97 airplanes and an outstanding debt of 67.5 billion rubles ($1.03 billion) at the end of the first half of 2015. Herman Gref, head of Russian lender Sberbank, which lent money to Transaero, said earlier this year that the company's debt issue was "serious."

Aeroflot, with a history that traces back to 1923, has a fleet of 161 airliners.

Earlier this week, Aeroflot surprised the market with stronger-than-expected financial results for the first six months of 2015, despite a challenging economic environment. Russia's economy contracted by 4.6% in the second quarter after shrinking by 2.2% in the first, while the volatile ruble ended the first half of the year some 45% weaker than a year ago.

The drop in the ruble's value dented consumer demand and thus the air industry turnover. According to Russia's Federal Air Transport Agency, passenger traffic to countries outside former U.S.S.R. fell 16.5% in the first six months of 2015 on an annual basis.

Transaero shares soared nearly 40% after news of the deal, while Aeroflot shares finished Moscow trading 5.75% lower.

Olga Razumovskaya contributed to this article

Write to Andrey Ostroukh at andrey.ostroukh@wsj.com

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