Daily analyst comments

On October 22, news agencies reported that Aeroflot general director, Valery Okulov had sent a letter to the Russian Ministry of Transport with a proposal to transfer a 25.5% state share package in Siberia Airlines to Aeroflot in order to merge Russia’s largest air transportation assets and overcome the crisis caused by a 40% upturn in jet fuel prices and inaccessibility of credit funds. Using the companies’ joint resources, Aeroflot plans to create "a modern unified aircraft fleet and efficient joint network of international and domestic routes with hubs in the largest Russian cities, which should ensure the industry’s survival and development".

In our opinion, the success of the company’s merger will depend on Siberia Airlines management, which owns the controlling stake in the company. In turn, Aeroflot management has already expressed its positive attitude to the issue. If Siberia management is against the merger of the companies’ fleets and routes, they will not be able to cooperate efficiently. A positive factor for Aeroflot is its ability to buy out a blocking stake in Siberia from the state at a bargain price, given the current state of the market. For Siberia, the fleet merger would also be positive, since about 50% of its aircraft are outdated and fuel-inefficient.

The fair value of Aeroflot is USD 2.47 per share, which implies an 11.1% upside potential and corresponds to a Hold recommendation. The fair value of Siberia Airlines is USD 2,317 per share with a 5.3% upside, which also corresponds to a Hold recommendation.