Aeroflot audit worth a joke or two (again) while Norwegian Air Shuttle shows the way

By Victoria April 29, 2013 12:28

Aeroflot audit worth a joke or two (again) while Norwegian Air Shuttle shows the way


Firstly we cannot start the week without a mention of the Aeroflot audit which each year reminds one of the fact that in Russian business there are a great many rather large carpets where a great many things get swept: Aeroflot misspent 13.9 billion rubles (over $443 million) in 2010-2011 and the first nine months of 2012, according to an Audit Chamber report.  Auditor Sergei Ryabukhin said at a meeting of the Federation Council’s Rules Committee that Aeroflot misspent 8.5 billion rubles on the purchase of commodities and services, around 4 billion rubles in loans and investment in its subsidiary Aeroflot Finance, and more than 1.5 billion rubles in selling and buying back trademarks.

It was also stated that the airline’s board of directors made poor decisions regarding borrowing including a loan deal with Sberbank that went on to Aeroflot subsidiaries and a 12 billion ruble loan to Aeroflot Finance to shore-up working capital at a cost of 3.8 billion rubles, according to the auditor.

The perennial subject of subsidiary investment came up yet again with the annual 7 to 10 billion rubles in subsidiary subsidies coming under attack, which, given the fact that  dividends from them only amounted to 1.5-2% of the total investment seems warranted.

Aeroflot, said the auditors’ conclusions conflicted with aviation sector experts’ assessments. Aeroflot also dismissed the auditors’ complaint that it had signed contracts worth more than 10 million rubles without holding tenders, saying these claims were groundless. On the matter of regional subsidies Aeroflot state that it has a major social responsibility to keep these subsidies going.

Now the only shareholders to worry about are The Federal Agency for State Property Management with a 51.17% stake and of course owner of the London Evening Standard, the guy who sold Red for 1 Ruble, personal friend of the Russian President and ex senior KGB agent (they all are after all) Alexander Lebedev – who holds 15%. So expect no investigation on the matter.

Now far more importantly: Norwegian Air Shuttle is considering doing what we at Airline Economics have been trumpeting for three years now – re-registering a long-haul aircraft to circumvent local laws – in this case those of Norway. Norwegian is looking to re-register aircraft in Ireland to lower labour costs.

The carrier has sent a letter to Norway’s Civil Aviation Authority asking it to authorise “renting an aircraft that in all likelihood will be registered in the Irish Aircraft Registration Department”.

The new aircraft would operate on Norwegian’s recently announced routes to Thailand and the United States with Thai staff.

It is likely that Norwegian will register its 787s in Ireland, also look to what it does with the HiFly A340 aircraft it has in the intrim period.

This move by Norwegian gives the LCC the ability to reduce costs substantially, by our estimations labour costs could fall by 50% per trip. All LCCs should be dynamic in this way when dealing with labour costs and this could/should play to the advantage of the lessors.

By Victoria April 29, 2013 12:28
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