Transaero To Offer Partial Debt For Equity Swap

October 30, 2015

Transaero, once Russia's second-biggest carrier, is considering offering its creditors equity stakes in exchange for part of its debt, among other options.

Russian state banks Sberbank, VTB and development bank VEB are the biggest lenders to Transaero, which lost its license on October 26, with some creditors submitting bankruptcy suits against the carrier.

Sberbank, VTB and VEB account for RUB120 billion roubles (USD$1.9 billion) of Transaero's total debt of over RUB250 billion roubles.

"Given the exceptionally high levels of debt and the difficult situation in the company, the offer is likely to include a partial write-off of the debt and the debt's conversion into the firm's shares," chief executive Valery Zaytsev told a meeting with around 50 debtors and their representatives.

"We are asking creditors to be patient and assure that you will be offered a transparent and fair proposal on debt restructure," he said, without giving any other details.

Transaero, which stopped flying on October 26, had 13 million passengers last year and ordered planes from Airbus and Boeing.

The airline, controlled by the Pleshakov family, had been expanding rapidly, adding new routes and aircraft as it counted on a growing market before Western sanctions and the weak rouble hit the Russian economy and Transaero's debt ballooned.

Aeroflot was in talks to buy a 75 percent stake in Transaero, which would increase the state-controlled carrier's own debt, but the talks failed.

Vladislav Filev, co-owner of Russia's S7 Airlines, has agreed to buy at least a 51 percent stake in Transaero and told reporters that the carrier could be turned into a profitable business within six months.

Since Transaero stopped flying, air fares in Russia have shot up. Zhanna Mokropolova, who works in the financial sector, said she had bought a return flight to New York from Moscow with Transaero for the New Year holidays for only RUB16,000 roubles.

Her trip is now cancelled. The flight on the same dates with Aeroflot now costs RUB48,500 roubles, according to the airline's website.

UNDELIVERED PLANES

Transaero's financial problems have raised questions about the planes it has ordered. In August, Airbus said it would not make a planned delivery of an A380 to Transaero this year.

On Thursday, Aeroflot agreed with Sberbank to lease at least 14 planes, mainly Boeing 737NGs, that had been ordered by Transaero but not delivered.

Aeroflot chief executive Vitaly Savelyev told Interfax news agency that Aeroflot was ready to sign a similar deal with both VTB and VEB for another 20 planes.

After deciding to cancel Transaero's license, Russia's Ministry of Transport also handed Aeroflot 56 international routes previously serviced by Transaero.

Transaero owes VTB RUB40 billion roubles for 21 planes. VTB is in talks with Aeroflot over the planes it has leased, the bank said in emailed comments. VEB, to whom Transaero owes RUB55 billion roubles for plane leases, declined to comment.

(Reuters)