RUSSIA, BEFORE THE CRASH WAS ONLY FOR THE BRAVE, NOW IT IS FAST BECOMING A NO-GO ZONE FOR INVESTORS AS AVIANOVA BECOMES ANOTHER HIGH PROFILE CASE

Dino D'Amore
By Dino D'Amore July 6, 2011 14:03

RUSSIA, BEFORE THE CRASH WAS ONLY FOR THE BRAVE, NOW IT IS FAST BECOMING A NO-GO ZONE FOR INVESTORS AS AVIANOVA BECOMES ANOTHER HIGH PROFILE CASE

Yesterday there was a purge of Avianova management. But this was not because of shoddy or lacklustre work it was a targeted coup by the Russian majority shareholder, A1, against foreign members of the airline’s management with A1 reps telling the media “The foreigners no longer work here”.

Avianova CEO, Andy Pyne, from the UK and a number of senior managers including Michael Hayden from Ireland, Guy Maclean of Australia and Trevor Warburton also of the UK, were barred from entering the headquarters of the airline by security guards at the gates yesterday. A1 has installed Russian Konstantin Teterin to run the airline. Avianova itself is doing well, since incorporation in 2009 as a low-cost carrier the airline has risen to become the fourth largest carrier in Russia serving 20 destinations and is very well placed indeed to make a killing out of the winter Olympics in 2014. Tellingly A1 says that the foreign managers are now under investigation. This is Russian business talk for get out of the country and walk away. Given previous form that is just what the guys should do – Get out and fight the problem from outside of Russia.

Avianova is 51% owned by A1, which in turn is a subsidiary of Oligarch Mikhail Fridman’s Alfa Group. The other 49% is owned by the US based Indigo Partners. You all may recall that Fridman has a track record of this sort of behaviour. He is the very same man that in partnership with other oligarchs totally stitched-up BP time and again in its joint venture TNK-BP including the recent blockage of a share swap between BP and Rosneft. This reflects yet again the problems with investing in Russian companies. The general rule seems to be if the company is not doing well then no one will notice, but if the company is doing well then watch out as your time as a shareholder will be made to be uncomfortable to say the least and your influence eroded at speed. This leads to the conclusion that some Russian businessmen with considerable power and influence are keen to tap foreign investors to get companies on track and no more. It is correct to state that investing in Russia requires a controlling stake if not outright ownership in order to offer a degree of security and assure influence. But when dealing with a virtual gangster culture at the top levels of business even outright ownership can be usurped. Indigo will now be put under pressure to sell its 49% stake at a discounted price; this is an example of Russian business practice that has been seen before many times.

Russia is seemingly in a bit of a mess. This attack on Avianova comes just a few weeks after President Medvedev reached out to foreign investors to back the Russian economy. The oligarchs would do nothing to upset Vladimir Putin and so it can be assumed that either this is part of a political game to undermine Medvedev or a campaign to keep big business home owned. Either way the stay away signs are up and clear for all to see.

Dino D'Amore
By Dino D'Amore July 6, 2011 14:03
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