Annual Report 2006

Transcription

Annual Report 2006

ANNUAL REPORT 2006
THE RUSSIAN SKIES — NEW ROUTES,
NEW CHALLENGES, NEW SOLUTIONS
AEROFLOT
ANNUAL REPORT 2006
Key Figures
Contents
Key Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CEO’s Address to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Main Events in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1. Implementing Company Strategy: Results of the year 2006
and Priority Tasks for 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Strengthening Aeroflot’s position on the domestic air traffic market . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Construction of the Sheremetyevo-3 airport terminal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Implementing the IOSA International Standards for Operational Safety . . . . . . . . . . . . . . . . . . . . . . . . 16
Renewal the fleet with modern aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Joining and working with the SkyTeam alliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Increasing the competitiveness of our product . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
IT development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Priority tasks for 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2. Overview of the Air Traffic Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Global air traffic market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Russian airline industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Russian airlines: main events in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Aeroflot Group’s position on the civil aviation market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3. Business Results in 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Passenger traffic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Cargo traffic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Safety and security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Route network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Aircraft fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Product and brand development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Passenger ticket sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
IT development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Quality management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SkyTeam alliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Sheremetyevo-3 airport terminal complex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Business of Aeroflot subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4. Main risks and Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Industry risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Preventative measures for risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Insurance programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Financial risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
5. Social Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Development of the corporate philosophy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Professional training and raising the qualifications of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Labor safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Social and charity activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Environmental protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
6. Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Governing bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Financial and business control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Information disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
7. Shareholders and Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Shareholders capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Dividend history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
Important events since December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
8. Financial Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Statement of management’s responsibilities for the preparation and approval
of the consolidated financial statements for the year ended december 31, 2006 . . . . . . . . . . . . . 111
Financial results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Independent auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Consolidated statement of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Consolidated statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Notes to the consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Appendixes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Overview of major deals and interested party transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Glossary of terms and abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Operational statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Aeroflot Group representative offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
Route network of the Aeroflot Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
KEY FIGURES*
Business Performance
Passengers carried
Cargo and mail carried
Unit
2006
2005
millions
8.7
8.1
thousands
151.8
151.5
Revenue passenger kilometers
billions
24.3
22.5
Revenue ton kilometers
billions
3.0
2.9
Passenger load factor
%
69.7
68.4
Cargo load factor
%
57.9
58.1
thousands
302.5
292.8
person
17,503
17,064
units
128
118
Traffic revenue
USD millions
2,474.3
2,079.9
Total revenue
USD millions
2,982.7
2,526.3
Operating income
USD millions
377.0
242.1
Net income
USD millions
258.1
189.8
Shareholders’ equity (as of December 31)
USD millions
784.6
558.6
Capital expenditures
USD millions
534.1
204.1
US cents
24.3
17.9
9.3
8.3
2,418
1,566
Available ton kilometer per employee
Personnel in airline sector (average)
Number of aircraft in the fleet at the end of the year
Financial Statistics
Capital Market Figures
Earnings per share
P/E ratio (as of December 31)
Market capitalization (as of December 31)
* Consolidated key figures of JSC Aeroflot and its subsidiaries.
USD millions
AEROFLOT
ANNUAL REPORT 2006
CEO’s ADDRESS TO SHAREHOLDERS
CEO’s ADDRESS
TO SHAREHOLDERS
position as the flagship of the Russian air fleet has required painstaking work, effective
cooperation between the thousands of people in our company, astute policy management, as well as thorough study and strategic analysis of the market.
Today, there is no doubt that we successfully improved and expanded our business
in 2006. As a result, Aeroflot has earned the right to be counted among the leading
Russian companies demonstrating impressive financial figures. We have considerably strengthened our position on the domestic and international markets, as well as
earning a profit of USD 258.1 million. This figure should be especially welcomed by
shareholders, who profited from the appreciable increase of the company’s capital.
According to the results of last year, the market capitalization of Aeroflot grew by
54%, topping off at USD 2.4 billion. Furthermore, the credit portfolio of the airline
is minimal: in other words, Aeroflot can use its own resources to finance its expenditures and endeavors, including the realization of a number of major investment
projects.
Dear Shareholders,
Not all of Aeroflot’s achievements can be expressed in dry accounting figures. Last
year was rich with events that are not of immediate importance for the company, but
which will play a fundamental role in its development for many years to come. The most
noteworthy of these events was Aeroflot’s inclusion in the international airline alliance
SkyTeam on April 14, 2006. As one of 10 full members of the alliance, we entered into
new and vital strategic level. Our participation in SkyTeam allows Aeroflot’s passengers to fly anywhere in the SkyTeam network of flights between 728 destinations in
149 countries, as well as to use reward points from the bonus programs of other airlines in the alliance. Passengers may also enjoy the SkyTeam’s common airport waiting
rooms. Overall, the prospects are endless, and we plan to use the synergy of this global
partnership to achieve the goals of our company.
I am happy to say that after a period of regression in the global airline industry following September 11, 2001, civil aviation has entered a period of stable development.
According to data from the International Air Transport Association (IATA), the airline
industry has shown a slow but steady growth in the last year.
Another landmark event this year was Aeroflot’s registration as an accredited operator
by the IATA Operational Safety Audit (IOSA) Program. This not only confirms the high
level of reliability and quality of our services, but also proves that we regularly observe
the strict international requirements for operational safety.
The economic upswing and revival of business activity in our country have stimulated
the growth of the airline industry. In 2006, the volume of passenger traffic in the Russian civil aviation industry grew by 8.3%. In total, the Russian airline companies carried more than 38 million people, while the total passenger turnover grew by 9.5%,
reaching 94 billion passenger kilometers.
However, our goal to comply with the highest international safety standards is not an
end in itself. The civil airline industry is the global industry, and Aeroflot works in a
highly competitive environment. We face serious competitors, especially from international companies, who are more actively expanding into the Russian market with each
passing year. We fully realize that under such conditions, the struggle to excel cannot
be successful without cutting-edge innovation and technological advancement.
We have every reason to be proud of the contribution that Aeroflot has made in obtaining these achievements. Last year, the company’s services were used by 7.29 million passengers, while together with its subsidiaries, Aeroflot transported 8.7 million
people, or 23% of the total number of passengers who flew on Russian airlines.
These figures are clear indicators that our airline remains the undisputable leader in
the market, which is further substantiated by the fact that we are the Russian national
carrier.
However, this status has not been earned simply by grace of the fact that Aeroflot was
conceived as the national carrier of the Soviet Union. Rather, the preservation of our
One of our continual priorities is to update and reconstruct our aircraft fleet. As one of
the youngest in Europe, our fleet stands to become even more modern and functional,
especially with the continued use of Airbus A320s. Just this year alone, nine A320s
were replenished into Aeroflot’s fleet, while by 2010, the total number of A320s in the
fleet should exceed 50. It is important to note that Aeroflot also stringently maintains
a flight airworthiness and adheres to the daily allowance of flight hours for a given type
of plane. We work to both replace any outdated systems from our services and enable
the development of the Russian airline industry. I remind you that our company is the
first buyer of the new generation of short-haul Sukhoi SuperJet-100 planes, the first of
which should be delivered to us by the end of 2008.
AEROFLOT
ANNUAL REPORT 2006
CEO’s ADDRESS TO SHAREHOLDERS
Aeroflot is also putting high stakes into new information technologies. For example, the
company has changed to the Sabre reservation system, which allows for the development of internet sales through online reservation and billing. Passenger self-registration desks have also been placed in airport terminals. However, most importantly, we
have begun selling e-tickets.
We recognize that there is only one key to our success — professional and intensive
work. Aeroflot, from year to year, has confirmed that it is capable of working successfully under any weather conditions. And so it is without a doubt that this tradition will
continue throughout 2007. As such, I will continue to rely upon the professionalism and
persistent work of our airline, as well as the support of shareholders.
Also in 2006, important decisions were made about the development of Aeroflot’s flight
network, which stretches across the whole world. However, I would like to stress that
above all, we are a Russian airline and our main priority is the domestic aviation market. Aeroflot’s total passenger traffic grew by 9.4% in 2006, while this figure was 16.6%
for the domestic market. Furthermore, in 2007, we plan to increase domestic passenger traffic by approximately 20%.
Sincerely Yours,
Valery Okulov
When assessing our progress, we focus not just on the financial figures, but also on the
development of our corporate philosophy. We believe that Aeroflot, as the future leader
of Russian airlines, holds a certain responsibility for the Russian people, and that it
is obliged to promote in every way possible the integration of the country’s transport,
as well as its general social and economic prosperity. As such, our company works to
consolidate Russian civil aviation in order to strengthen its competitive position on the
global market.
Thus, Aeroflot purposely focuses on Russia’s eastern regions, which have huge potential but are deprived of the necessary transport communications with other regions of
Russia and foreign countries. We are working on a project to create an affiliated company in Russia’s Far East, and we believe that the realization of this project will benefit
Aeroflot, the Far East, and the country as a whole. Aeroflot already has first-hand experience creating successful affiliated companies in the regions, such as Aeroflot-Don,
Aeroflot-Nord, and Aeroflot-Cargo.
The most profitable international market for us remains the European one, and as such,
we hope to strengthen our position in it. At the same time, Aeroflot has special plans for
the dynamically developing Asian-Pacific region and continues to promote the strategic development of transit from Europe to Asia.
I want to assure our shareholders that our goals are realistic and economically feasible.
Our progress on the development of our route networks will allow us to carry around
9.9 million passengers in 2007, which will be a 13.8% increase from the previous year.
We plan is to reach 27.4 billion passenger kilometers (up 12.8% from 2006).
AEROFLOT
ANNUAL REPORT 2006
Main Events in 2006
10
11
Main Events in 2006
January
As a result of the transfer of Aeroflot’s Moscow-Paris flights to terminal 2C at Charles de Gaulle Airport, the quality of service offered to passengers significantly improved.
Also this month, Aeroflot initiated a new transfer service for passengers flying from Moscow to one of the Austrian or German ski resort via Munich. The airline can arrange for such passengers the transfer between the airport and the resorts in
comfortable Mercedes minivans.
Aeroflot also presented a new program for travel lovers. Together with Alfa-Bank and MasterCard, the airline offers
a charge card for credit card holders, particularly those with Gold and Platinum cards. The card can be used to make
purchases, which earns the card holder additional miles for the airline’s bonus program.
February
In February, Aeroflot won the nomination for the Best Social Programs at the 5th All-Russian Competition of Russian Organization for High Social Effectiveness.
Aeroflot flights delivered the Russian Olympic team, members of the official delegation, guests, and tourists to the Winter
Olympics Games in Turin, Italy. The airline’s planes also transported large-sized sports equipment and other difficult luggage
to Italy.
March
A registration kiosk with baggage check-in was installed at Moscow’s new Savelovsky train station for passengers departing
on domestic flight from Sheremetyevo-1.
Aeroflot was included on the register of IOSA operators (IATA Operational Safety Audit).
The Company concluded a code-sharing agreement with Air Baltic for the joint operation of the Moscow-Riga-Moscow route.
Aeroflot opened representative offices in Krasnoyarsk and Yuzhno-Sakhalinsk.
April
May
June
On April 10, an extraordinary meeting of shareholders was held by an absentee ballot. Approval was given for
the purchase and sales contract of common shares of OJSC Terminal, which is realizing the construction of the
Sheremetyevo-3 air terminal complex, between Aeroflot and OJSC Sheremetyevo International Airport, Vneshtorgbank, and Vnesheconombank.
Aeroflot officially became one of ten members in the SkyTeam alliance, which was voted the Best Aviation Alliance
in 2005 and 2006 by readers of Global Traveler Magazine.
Valery Okulov, general director of OJSC Aeroflot, was elected chairman of the Russian side of the Russian-Emirates Business Council.
Aeroflot began operating regular flights on the Moscow-Krasnoyarsk-Moscow route.
Based on a poll of 450 thousand passengers across the world, the Aeroflot Bonus Program received the prestigious Freddie Award for the category of Best Website, beating out all competing airlines in Europe, Central Asia,
and Africa.
For the sixth year in a row, Aeroflot continued its tradition of helping World War II veterans meet their comrades
in arms across the former USSR and other countries. Former soldiers, POWs and those who endured the Siege of
Leningrad traveled free of charge on regular Aeroflot flights to any part of the Russian Federation and Europe. In
2006, more than 3,000 veterans received free air tickets from Aeroflot.
On May 16, an extraordinary general meeting of shareholders of the company was held and by absentee vote,
approved the acquisition of 30 new jet-engine regional Sukhoi Superjet aircraft.
A code-sharing agreement was concluded with the Pulkovo airlines, by which Aeroflot received the right to use its
code on Pulkovo flights between St. Petersburg and cities in Germany.
A credit agreement was signed with the leading French banks Natexis Transport Finance and Calyon for financing
of the advanced payments for seven Airbus A320 aircraft, obtained by Aeroflot. The credit is in the sum of USD
50 million.
Aeroflot established regular flights along the Moscow-Carlsbad-Moscow route.
Valery Okulov, general director of Aeroflot, was chosen to be a member of the IATA Board of Directors for
the fourth time.
Aeroflot received the National Award for “The Best Taxpayer of the Year,” founded by the Interregional Organization of Employers with support of the Accounts Chamber of the Russian Federation and the Committee
on Budget and Taxes of the State Duma of the Russian Federation.
The system of online-payment was installed on the Aeroflot website — www.aeroflot.aero. Passengers now
can reserve and pay for air tickets online with a credit card.
The Annual general meeting of shareholders was held June 17.
June
Aeroflot concluded a sales-purchase agreement with Vneshtorgbank and Vnesheconombank for sale of
shares of OSJC Terminal, according to which Vneshtorgbank obtained 25%+1 of shares and Vnesheconombank obtained 20%-2 of shares.
A credit agreement was concluded according to wich Vneshtorgbank and Vnesheconombank opened a credit
line to Terminal for a sum of USD 475 million for a period of 13 years. The credit line is to finance the construction of the Sheremetyevo-3 terminal.
An Aeroflot subsidiary opened in St. Petersburg.
July
Regular passenger flights began running along the Moscow — Yuzhno-Sakhalinsk — Moscow route and the Moscow–Magadan–Moscow route.
A representative office of Aeroflot opened in Magadan.
Aeroflot and CSA Czech Airlines began running a joint operation of flights between locations in Ireland, Great
Britain, the Czech Republic and Russia.
August
The Ministry of Transport of the Russian Federation awarded Aeroflot team with an honorary degree “For the high
level of professionalism shown when evacuating citizens of the Russian Federation from a zone of armed conflict
in the Middle East.”
The Human Resources Management department at Aeroflot won the second annual competition for the Best Russian HR Department — 2006.
September
Regular flights begun running along the Moscow–Hanover–Moscow route, making Hanover the seventh city in
Germany to which Aeroflot provides service.
An independent jury in Brussels acknowledged the joint project between Aeroflot and Alfa-Bank as being one of
the most successful among European partners of the MasterCard co-branding payment system for 2006..
October
Aeroflot’s fleet grew with the addition of a new Airbus A321s and A320s. In line with tradition of naming planes of this
series after eminent Russian painters, the two new planes were named I. Repin and V. Vasnetsov.
Aeroflot along with Natexis Banques Populares, Calyon and ABN Amro Bank (London Branch), which are all considered the leading European finance banks for the purchase of aircraft, signed an agreement for the financial leasing
of seven Airbus A321s, with delivery slated for 2006-2007.
At the annual national competition “Brand of the Year/EFFIE 2006,” which recognizes the most successful brands on
the Russian market, Aeroflot won the grand prize for the best New Image.
November
The rating agency AK&M awarded Aeroflot with an A+ credit rating, thereby ranking the Company among the class borrowers with the highest level of credibility.
Aeroflot was awarded the prize of Company of the Year in “Transport” nomination.
As part of a financial leasing deal, the Company obtained an A321 aircraft. The new addition to the fleet was named I. Kramskoy.
Aeroflot and Dalavia made a decision to join efforts in creating a major competitive air carrier in the Far East Federal Region,
which will provide service to regional and long-haul destinations on a modern fleet of aircraft.
Aeroflot began operating regular flights along the Moscow — Mineralye Vody — Jeddah route.
December
Aeroflot began operating self service check-in desks at the Sheremetyevo airport.
Aeroflot launched a simulator facility center for emergency/rescue training of flight crews known as “Water-Land,”
which is based in the Company’s Training Center for Aviation Personnel (TCAP).
As part of a financial leasing deal, the Company obtained another A321 aircraft, which was given the name
I. Shishkin.
A presentation was given about the new work uniforms for Aeroflot ground crews and the new requirements for
the uniforms of flight and cabin crews.
Aeroflot’s subsidiary cargo airline, Aeroflot-Cargo, successfully completed its first flight under its own flag.
Aeroflot increased its ownership interest in the subsidiary airline Aeroflot-Don from 51% to 100% following a deal
in which the Aeroflot obtained 49% of the subsidiary’s shares.
Moscow
15
1
Implementing Company Strategy:
Results of the year 2006
and Priority Tasks for 2007
The strategy of Aeroflot focuses on creating a company of the highest international standard that is a formidable competitor on the global aviation market. One
of Aeroflot’s main priorities is to realize the transit potential of Russia, as is defined
in the Transport Development Strategy of Russia until 2020. According to the approved company strategy, the fundamental areas for development in 2006 were as
follows:
• strengthening position on the domestic airline market;
• constructing of the Sheremetyevo-3 airport terminal;
• introducing the IOSA-IATA international standards for operational safety (IATA Operational Safety Audit);
• expanding the fleet of modern aircraft;
• entering the SkyTeam alliance;
• increasing the competitive edge of the airline, which includes offering passengers
a higher level of service;
• developing information technology, including e-tickets.
Strengthening Aeroflot’s Position on the Domestic Air
Traffic Market
In 2006, Aeroflot Group carried 3.6 million passengers on the domestic market, totaling 7.2 billion passenger kilometers. The number of carried passengers on the domestic market grew by 13%, while the market itself grew by 8.1%. Passenger turnover
increased by 15.8% and 7.5%, respectfully. New regular flights began to run to Krasnoyarsk, Yuzhno-Sakhalinsk, and Magadan. In addition, the number of flights to Irkutsk,
Novosibirsk, Yekaterinburg, Perm, Volgograd, St. Petersburg, Sochi, and other cities
was increased.
The prospects for developing Aeroflot’s domestic passenger traffic depend on the formation of a network between several major regional transportation centers, which will
serve as national and regional hubs that work together to strengthen the strategic position of Russia’s airline industry.
The meeting with the regional partners and directors
of the subsidiaries will be held in time approved by the
head office of the Company.
Please confirm your arrival.
Regards,
M. I. Alekseev .
In line with the program to consolidate the airline industry and create major transportation hubs in the Far East, Aeroflot plans to create it own base in Khabarovsk.
The consolidation of the airlines in the Far East involves the merger of the major Far
East airlines, namely Dalavia, Sakhalin Airlines, and Vladivostokavia.
AEROFLOT
ANNUAL REPORT 2006
Implementing Company Strategy: Results of the year 2006 and Priority Tasks for 2007
16
17
The establishment of one consolidated airline company in the Far East will give Russia
an entrance to the dynamically growing airline markets in Southeastern Asia, thereby
expanding the transport potential of Russia. The project also includes the establishment of an Aeroflot subsidiary in Magadan.
Another noteworthy event in 2006 was the opening of an subsidiary airline in St. Petersburg. The influence of the “northern capital” as a political and cultural center and
the increasing demand for international and national flight out of St. Petersburg has
encouraged Aeroflot to further develop the city’s air base.
Construction of the Sheremetyevo-3 Airport Terminal
A key factor for strengthening Aeroflot’s competitive position is the creation of a new terminal complex at the Sheremetyevo International Airport. The new addition is designed
to increase the capacity of the airport, provide easier transfers for transit passengers, as
well as offer a higher level of airport service quality.
The terminal will process both domestic flights and a large part of the regular international flights for Aeroflot, its subsidiaries, and partners. The construction of the new
terminal is being realized according the schedule of the hired contractor.
Implementing the IOSA International Standards for
Operational Safety
In 2006, Aeroflot became the first Russian airline company to undergo a safety audit by
IATA, after which the company was accredited as an IOSA operator (IATA Operational
Safety Audit). The audit sets the safety standards for the global aviation industry.
Aeroflot’s adherence to international safety requirements was acknowledged when the
company was admitted into the international aviation alliance, SkyTeam, in April of
2006.
As such, Aeroflot has become a leader for operational safety standards in Russia and
has affirmed the solvency of the country’s civil aviation industry by using both foreignmade and Russian-made aircraft.
renewal the Fleet with Modern Aircraft
In 2006, Aeroflot obtained seven new Airbus aircraft, against signed contracts, comprising three A320s and four A321s. In addition, a number of contracts were signed
in order to reconstruct and unify the inventory of aircraft. For example, letters of
intent were signed with the company AerCap for the delivery of six A320s between
2008–2009 on the basis of operational leasing, while the company GECAS will deliver
13 A319/A320s by 2007–2009, also on the basis of operational leasing. Among nar-
row-bodied planes, the A320s offer the most modern design and the most spacious and
comfortable interior. They are also cost efficient and do not require highly cost maintenance. As such, the use of the narrow-bodied A320s will allow for considerable funds
to be saved. Lease contracts were also signed for three MD-11 cargo aircraft, which will
be used by Aeroflot-Cargo.
Joining and Working with the SkyTeam Alliance
A major event in 2006 was Aeroflot’s joining the SkyTeam alliance. The company became
one of ten members of the alliance, with AeroMexico, Air France, Alitalia, Continental
Airlines, CSA — Czech Airlines, Delta Airlines, KLM — Royal Dutch Airlines, Korean Air,
and Northwest Airlines acting as the other partners.
Since the Company’s joining the alliance, the total passenger traffic of the SkyTeam airlines
grew to 373 million passengers, flying on 15 thousand routes to 728 locations across 149
countries. Aeroflot’s participation in the alliance has created the preconditions for improvement of the airline’s operational efficiency and passenger service quality.
Aeroflot also concluded a bilateral agreement with all nine airlines who are the members of the SkyTeam alliance. Aeroflot’s frequent passengers now have the possibility
to use bonus miles from any of the nine SkyTeam members as part of the Aeroflot
Bonus program.
Increasing the Competitiveness of Our Product
In 2006, Aeroflot continued to run campaigns in order to increase the competitive edge
of the company’s product. The following tasks were determined to be most important:
• implementing the Management Quality System in line with ISO 9000 standards;
• installation additional reservation desks and self-registration desks in terminals at
Sheremetyevo;
AEROFLOT
ANNUAL REPORT 2006
Implementing Company Strategy: Results of the year 2006 and Priority Tasks for 2007
18
19
• completely new the on-board menu;
• installing a system to monitor and control the quality of services, known as the “mysterious passenger” technique;
• creating a central telephone number for information and reservations — +7 (495)
223-5555, and for calls from the Russian regions — 8-800-333-5555.
The following classes of services are now included in Aeroflot flights:
• President — a qualitatively new business class with higher levels of comfort for passengers traveling on trans-Atlantic flights or to Asia;
• Premier — an improved business class for passengers traveling to European centers
and a number of other locations within medium range.
Aeroflot Bonus program
Aeroflot is developing its rewards program for frequent flyers called Aeroflot Bonus,
which is integrated with the similar programs of the other SkyTeam members, as well as
is associated with various banks, hotels, and tourist businesses. In 2006, information
services for the Aeroflot Bonus program were consolidated into a centralized information and booking center, including the automatic delivery of personal account information and news to project participants via e-mail. In 2006, the number of Aeroflot Bonus
participants increased by 198 404, now totaling 677 165 members.
IT development
In line with the IATA emergency system, a development program has been approved
for the purpose of reducing the airline’s expenses for the distribution of passenger services, simplifying business transactions, as well as introducing paper-free technology.
According to the given program, the following five basic projects have been determined:
• E-ticketing — electronic passenger tickets;
• Bar code (BCBP) — luggage labels and boarding passes with bar codes;
• CUSS — self-service registration desks;
• RFID — radio-equipped luggage labels;
• E-freight — electronic cargo registration..
The installation of these features is required by IATA for the transfer in 2008 to e-ticketing, as well as by the SkyTeam.
In 2006, Aeroflot successfully met the following requirements for IATA and SkyTeam:
• successfully tested the e-ticketing feature and prepared an internal document base
for the use of e-tickets;
• integrated the information systems of the SkyTeam partners with that of Aeroflot;
• achieved significant progress on the fully-functioning internet sales service with the
purpose of improving the service quality and increasing direct sales;
• expanded the functional capabilities of the company’s Sabre program;
• prepared for the introduction of more modern technical features, which will allow
for passengers to be more quickly processed at airports (such as self-registration
desks);
• installed the SAP R/3 system in order to automate book keeping.
Priority Tasks for 2007
The airline’s main tasks in 2007 are as follows:
• an intensive growth of passenger traffic, the development of a passenger network of
flights within Russia, and the establishment of regional bases;
• consolidation of the Russian airline industry;
• the modernization and further unification of the aircraft fleet;
• the completion of construction and opening of the Sheremetyevo-3 airport terminal
complex;
• improvement in the quality of products to a level that corresponds to the leading
Western European services;
• the cost optimization and the promotion of effective business functions;
• the immediate installation of a system for web-reservations and internet sales with
e-tickets;
• an improved system of effective corporate management, as indicated by key performance indicator.
St. Petersburg
23
2
Overview of the Air Traffic Market
Global Air Traffic Market
The financial results of 2006 indicate that the global airline industry has finally recovered from the crisis that followed in the wake of the terrorist attacks on September 11,
2001. According to IATA estimates, airline companies lost more than USD 40 billion
during this period.
In 2006, the total loss of airline companies registered in the IATA, which account for
94% of regular passenger traffic, dropped to USD 500 million (while this figure was
6 billion in 2005). The significant improvement of the situation is due in part to the improved operating efficiency of airlines and the growth in passenger demand. In 2006,
2.2 billion passengers and 39.2 million tons of cargo were carried throughout the
world. The growth of total passenger traffic last year totaled 5.9%, while cargo traffic
jumped by 4.6%. The seat occupancy rate grew by 0.9%, reaching 76%.
However, the vitality of the airline industry continues to be jeopardized by the high
price of jet fuel. In 2003, the total cost of jet fuel for airlines equaled USD 44 billion,
while in 2006, this number jumped to around USD 115 billion. Jet fuel for direct operational costs in 2006 represented 26% of the total expenditures, as compared to
14% in 2003.
One of the hardest hit regions in 2006 was North America, with a USD 3.7 billion loss,
while the particularly lucrative regions were Europe and the Asian Pacific region, with
profits of USD 1.8 billion and USD 1.7 billion, respectively.
In 2007, the net profit of the companies is expected to achieve USD 2.5 billion following the stabilization of the price of jet fuel. However, this will be possible only through
the preservation of stability and the absence of escalading local conflict in the regions
of the Middle East, especially Iraq and the areas around Iran.
Russian Airline Industry
Dear Mom and Dad! Everything
here is fine, and my studies are
going well. All the boys really
liked the honey you brought from
Altai. See you soon!
In 2006, Russian airlines carried 38.01 million people (an 8.3% growth from 2005).
The air passenger turnover grew by 9.5%, topping off at 93.91 billion passenger kilometers. Cargo traffic amounted to 640.3 thousand tons of cargo and mail (representing a 1.8% growth).
AEROFLOT
ANNUAL REPORT 2006
24
25
In terms of the figures for air passenger traffic in 2005, the number of carried passengers increased by 3.9%, and the executed passenger turnover increased by 3.4%,
which is more than two times lower than the same figures for 2006.
In 2006, for the first time in six years, the overall rate of growth for the regular air traffic of Russian airlines (a growth of 10.2% in executed passenger turnover) surpassed
growth rates for non-regular flights (a 7.3% growth). Non-regular flights mainly provided service to popular international tourist destinations in countries, for which the
passenger traffic growth equaled only 5.9%. From 2003 to 2005, the average annual
growth rate of non-regular flights to tourist destinations equaled 18.9%.
In 2006, international airlines increased the number of their passenger traffic in and
out of Russia by 13.8%, while Russian airlines increased their passenger traffic on
international routes by 8.7%.
The strongest international player on the Russian airline market is the German carrier
Lufthansa. In 2006, the company announced that they would increase their passenger
traffic to Russia and CIS countries up to 1.3 million people (a 20% growth). Lufthansa
has a wide-reaching network of routes in the Russian regions, providing service to
Nizhniy Novgorod, Perm, Rostov-on-Don, Samara, St. Petersburg, Ufa and Yekaterinburg. In 2006, Lufthansa carried more than 5.8 thousand flights to Russia, including
2.6 thousand flights to Moscow.
Likewise, British Airways increased their available seats to Moscow by over 30%, while
Air China and China Eastern Airlines raised this figure by 78%. In addition, Austrian Air
increased service to Moscow by 20%, as did the low cost airlines Germania and Germanwings, who raised this figure by 43%. Furthermore, in 2006, Singapore Airlines,
one of the world’s biggest airlines, started offering service to Russia.
In 2006, the growth rates for the number of passengers carried by Russian airlines on
either international or domestic routes were comparable (a 8.7% and 8.0% growth,
respectively). In 2005, due to the sharp growth in jet fuel costs and the subsequent
Growth of passenger
traffic inof2006
Growth
passenger
traffic in 2006
increase in prices for passengers, the growth of demand for domestic service stopped,
with figures even dropping for the first eight months of the year. The problem with
fuel price was further aggravated by the fact that airlines have no choice but to use
old planes with low fuel efficiency for domestic routes. The cost of jet fuel represents
40–50% of the total operational expenses for the majority of Russian airlines, while the
worldwide average is 25% (for Aeroflot, this figure is 35.7%). As a result, the growth of
tariffs has taken a heavy toll on the price sensitive domestic air traffic market.
Nevertheless, the domestic passenger traffic market still possesses major potential for
growth, the realization of which is one of the priority tasks for Russia’s civil aviation
industry. In order to ensure their competitive edge and impede the expansion of international carriers on the market, Russian airlines must implement a series of complicated
measures, such as modernization their fleets with more fuel-efficient planes and installing the latest technologies for passengers and cargo service, both of which can help to
cut expenses. There is also an acute need for the complete modernization of ground
infrastructure at Russian airports, as well as more efficient use of Russian airspace.
In 2006, Russia’s leading airlines intensively worked to upgrade their fleets with modern aircraft, as well as implemented programs to decrease their operational costs. As
a result, they were able to halt the growth in ticket prices, and in 2006, the domestic
market demonstrated a stable growth.
Russian Airlines: Main Events in 2006
Aeroflot’s management considers the most significant events of 2006 to be Aeroflot’s
joining in the international alliance SkyTeam and the completion of the consolidation
the state-owned airline Rossia and Pulkovo.
The amalgamation of these two airlines resulted in a major new airline, Rossia, with the
third largest total of passenger traffic in the industry, possessing two base airports —
Vnukovo in Moscow and Pulkovo in St. Petersburg. The united Rossia airline has been
in operation under its own flag since October 29, 2006, with headquarters located in
St. Petersburg. The Moscow affiliate of the airline is entrusted with the coordination
of air transport for the President and senior state officials of the Russian Federation.
Aeroflot favours the union, regarding it as a step forward in the process of consolidating Russia’s aviation industry, which is necessary for strengthening the competitive
edge of Russian airlines.
9 .4%
In light of the growing price of jet fuel, leading Russian airlines have speed up the pace
at which they are replacing outdated and fuel-inefficient aircraft. Due to the lack of a
more competitive offer from domestic aircraft manufactures, Russian airlines supplemented 53 foreign-made long-haul passenger planes into their fleets in 2006. At the
end of year, the total number of foreign-made long-haul passenger planes possessed by
the 17 airlines of Russia reached 134 units, of which 39 belong to Aeroflot.
Aeroflot
total russian airlines
8 .3%
Out of the ten leading Russian airlines in terms of passenger traffic, the largest growth
in total passenger volume was demonstrated by Sibir (16.4%), UTair (28.1%), Transaero
(35.9%) and Atlant-Soyuz (in 1.6 times). In 2006, Sibir airlines intensively developed
AEROFLOT
ANNUAL REPORT 2006
26
27
their international service (27% growth), including non-regular international flights
(38.9% growth), while UTair increased domestic service and Transaero developed
its international service (a 43.2% growth), resulting in practically equivalent rates
of growth for regular and non-regular flights. About 95% of traffic on the airline AtlantSoyuz was non-regular, thereby increasing the non-regular market segment. Total passenger traffic on the newly incorporated Rossiya airline lowered by 5.2%.
The growth rate of Aeroflot Group’s passenger traffic in 2006 outpaced the industry
average. Due to the reduction of the number of international non-regular flights below
industry average, companies included in the AiRUnion alliance experienced a 4.8%
growth in the total volume of passenger traffic.
among domestic carriers, ahead of 2005’s leader Sibir Airlines (16.3%) and the AiRUnion alliance (16.6%). The difference between the numbers of carried passengers on the
domestic market is even more appreciable: Aeroflot Group’s share equals 17.2%, while
this figure is 14.2% for Sibir Airlines and 10.5% for AiRUnion alliance.
In 2006, Aeroflot alone carried more than 145.3 thousand tons of cargo and mail, or
151.8 thousand tons when including the Aeroflot’s subsidiary airlines (representing
23.7% of the industry figures). When comparing the total volume of cargo traffic of all
Russian airlines in 2006, Aeroflot takes second place behind Volga-Dnepr, which increased its cargo traffic one-and-a-half times in 2006, topping off at 155.1 thousand
tons. Sibir Airlines takes third place with 28.9 thousand tons (4.5%).
Aeroflot Group’s Position on the Civil Aviation Market
In 2006, Aeroflot Group carried 8.7 million passengers, which was a 8.5% increase
from 2005, outstripping the industry average growth rate of 8.3%. Aeroflot Group’s
passenger traffic in 2006 represented 23% of the total number of passengers carried
on the Russian market, as well as 25.9% of the market’s passenger turnover.
As leader on the Russian market for regular international flights (in 2006, Aeroflot carried 56.5% of total passenger turnover in Russia, while the second in line, Sibir Airlines,
carried 9.3%), Aeroflot has significantly strengthened its presence on the strategically
important domestic market, increasing its passenger turnover on it by 17.8%, which is
considerably higher than the average growth in the industry (7.5%). As a result, Aeroflot’s share of the total domestic passenger traffic rose from 12% to 13.1%.
In terms of Aeroflot Group’s subsidiary companies, Aeroflot-Don and Aeroflot-Nord
carried 16.7% of total domestic passenger turnover in 2006, rising to first place
Domestic
Domestic passenger
passenger traffic
traffic
by
by Russian
Russian airlines
airlines
(share
(share of
ofpassengers
passengerstraffic*),
traffic*),%(%)
International
International passenger
passenger traffic
traffic
by
by Russian
Russian airlines
airlines
(share
(share of
of passenger
passengertraffic*),
traffic*),%
%
Domestic
Domestic passenger
passenger traffic
traffic
by Russian
Russian airlines
airlines
by
(share of
of passenger
(share
passengerturnover*),
turnover*),%
%
17 .2
30 .0
14 .2
16 .7
16 .6
16 .3
* Including scheduled and non-scheduled traffic
* Including scheduled and non-scheduled traffic
russia
7 .5
Airunion
10 .8
sibir
6 .6
transaero
Airunion
russia
6 .8
Aeroflot group
12 .3
8 .5
Atlantsoyuz
10 .4
transaero
dalavia
4 .6
Aeroflot group
5 .4
russia
utair
sibir
Airunion
Aeroflot group
uralairlines
russia
utair
Airunion
2 .9
11 .3
7 .3
6 .6
vimAvia group
10 .5
7 .6
sibir
33 .7
sibir
10 .5
Aeroflot group
International passenger traffic
by Russian airlines
(share of passenger
passengerturnover*),
turnover*),%
%
6 .5
NOVGOROD
31
3
Business Results in 2006
Passenger Traffic
The total and structure of Aeroflot Group passenger traffic in 2006 are as follows. The
Group aircraft carried 8.7 million passengers, with 24.3 billion passenger kilometers. Practically all international and domestic traffic was on regular flights.
Group’s operating data
2006
2005
Change
International traffic
thousands
5,176
4,906
+ 5.5%
Passengers carried
millions
17,152
16,319
+5.1%
Available seat kilometers
millions
24,821
23,917
+3.8%
%
69.1
68.2
+0.9
Weight load factor
%
56.6
56.9
–0.3
Share of regular traffic*
%
97.6
97.8
–0.2
Domestic traffic
Passengers carried
thousands
3,579
3,166
+13.0%
millions
7,173
6,195
+15.8%
millions
10,073
8,989
+12.1%
%
71.2
68.9
+2.3
Weight load factor
%
62.1
62.2
–0.1
Share of regular traffic *
%
99.6
99.4
+0.2
thousands
8,755
8,072
+8.5%
millions
24,325
22,514
+8.0%
Total
Passengers carried
millions
34,894
32,906
+6.0%
%
69.7
68.4
+1.3
Weight load factor
%
57.9
58.1
–0.2
%
98.4
98.3
+0.1
* In total number of passenger carried.
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in our school books and imagined life in ancient Novgorod, when
people journeyed far to attend the assemblies? Now, it’s easy to
make any trip! When are you coming? Do you know that Aeroflot
will soon offer a special tariff? See you!
AEROFLOT
ANNUAL REPORT 2006
32
33
Aeroflot is currently the undisputable leader of the Russian aviation industry. The
strengthening of its leading position is a result of the airline’s goal-oriented policy,
which allows to confidently compete on the market. The 2006 budget was calculated
taking into account the entry of new serious competitors on the Russian airline market,
as well as the monopolies of natural services and the steadily rising price of fuel.
For the realization of a production target and achievement of positive financial results,
Aeroflot has undertaken a number of measures.
Passenger load factor, %
Passenger load factor, %
72 .5
72
67 .9
67 .7
67 .1
71 .2
69
68 .2
68 .9
69 .1
international routes
To begin with, the frequency of flights to popular and profitable destinations in Russia
has been increased. This includes flights to Irkutsk, Novosibirsk, Yekaterinburg, Perm,
Volgograd, St. Petersburg, Sochi, etc. In addition, regular flights have begun to Krasnoyarsk, Yuzhno-Sakhalinsk, and Magadan.
domestic routes
2002
Secondly, in order to strengthen its already-stable position among international airlines, Aeroflot increased the frequency of its flights to Paris, London, Milan, Rome, Belgrade, Warsaw, Prague, Beijing, Bangkok, Hong Kong, Ulaan Baator, Baku, Simferopol,
and Tashkent. Flights also now run to Hannover.
Lastly, new A320 planes were obtained and put into use as part of the plan to restructure the aircraft fleet.
2003
2004
2005
2006
Flight Hours
Total operational flight hours in 2006 surpassed last year’s level by 6.3% (+18,745 hours). To
ensure the dynamic growth of the company’s route network, as well as restructuring of its aircraft fleet, Aeroflot leased extra planes from the airlines Aviaenergo, Continental Airlines, and
VASO Airways, with the flight hours on the acquired planes totaling 9,657 hours.
Traffic Structure
International and
and domestic
domestic air
air traffic,
traffic, per thousand passengers
Scheduled and
and charter
charter traffic,
traffic, per thousand passengers
International
Scheduled
thousand passengers
thousand passengers
3,166
4,906
5,176
domestic flights
137
7,935
2006
scheduled flights
2005
7 .0
7 .3
7 .6
8 .2
Charter flights
international flights
2005
6 .4
140
8,614
3,579
Daily average flight hours per active
Среднесуточный
налет часов
roll aircraft*
на один списочный самолет
2006
2002 2003 2004 2005 2006
* JSC Aeroflot only.
AEROFLOT
ANNUAL REPORT 2006
34
35
Cargo Traffic
On October 26, 2005, the Board of Directors of Aeroflot decided to reconstruct the
cargo business and create an affiliate airline — Aeroflot-Cargo.
In 2006, Aeroflot Cargo was registered in the Common Legal Register of the Russian
Federation and received a License of Operation, No. 500, dated October 18, 2006.
Aeroflot-Cargo is fully a subsidiary company of Aeroflot.
Cargo traffic was separated from the basic functions of Aeroflot in order to improve the
efficiency and profitability of cargo transport, lower expenses, increase entrepreneurial initiatives, and subsequently increase Aeroflot’s capitalization.
Aeroflot-Cargo was formed based on Aeroflot’s former cargo traffic department and
has inherited a great wealth of resources from its parent company, including the company logo, the DC-10-40 aircraft fleet, a qualified work force, and a tradition of high
standards for quality and safety.
Group’s operating data
2006
2005
Change
thousands
120.1
122.4
–1.8%
Cargo ton kilometers
millions
746.9
762.5
–2.0%
millions
2,291
2,231
+2.7%
Available ton kilometers
millions
4,046
3,916
+3.3%
%
56.6
56.9
–0.3
International traffic
Cargo and mail, tons carried
Weight load factor
Domestic traffic
Cargo and mail tons carried
thousands
31.7
29.1
+8.9%
millions
129.8
114.6
+13.3%
millions
775.3
672.1
+15.4%
millions
1,248
1,081
+15.4%
%
62.1
62.2
–0.1
In addition to cargo transport on separate international flights to Germany, Finland,
Japan, South Korea, and China, Aeroflot-Cargo also takes the opportunity to transport
cargo in compartments on all Aeroflot passenger flights.
Weight load factor
thousands
151.8
151.5
–0.2%
On December 19, 2006, the DC-10-40F plane, after having been transferred to Aeroflot-Cargo from Aeroflot, successfully made its first flight under the flag of the subsidiary company. The transfer of DC-10-40F planes will conclude in 2007, and by summer
2007, the company plans to begin using the new MD-11F models.
millions
876.7
877.1
–0.05%
millions
3,066
2,903
+5.6%
millions
5,294
4,996
+5.9%
Weight load factor
%
57.9
58.1
–0.2%
%
97.4
95.4
+2.0
The development strategy for freight cargo is as follows:
• strengthen Aeroflot-Cargo’s presence in the freight market from Europe to Tokyo, Seoul,
Beijing, Shanghai, Hong Kong, as well as include the following destinations in the route
network: Novosibirsk, Khabarovsk, New York, Paris, Milan, Istanbul, Yerevan, Mumbai,
and Amsterdam;
• open and develop regional hubs in Khabarovsk and Novosibirsk;
• haul 330 thousand tons of cargo in 2010.
The favorable geographical location of Russia, the developed network of regular flights
and office representations, commercial rights, a qualified personnel, and the rich experiences and traditions that Aeroflot has collected over the years all work together give
the company its strategic advantage.
Aeroflot Groups total freight and mail cargo in 2006 equaled 151.8 thousand tons,
which was little change in comparison to the previous year’s level. The total volume of
mail cargo grew by 9.8%, reached 5.6 thousand tons, while the freight cargo totaled
146.2 thousand tons.
Total
Cargo and mail tons carried
* In total cargo and mail carried.
Traffic Structure
International and
and domestic
domestic traffic,
traffic, thousand tons
International
thousand tons
29 .1
31 .7
122 .4
120 .1
In 2006, the cargo turnover of the company amounted to 876.7 million ton kilometers, which corresponds with the 2005 figure. The share of domestic transportation has also increased, comprising 21% of the total amount of freight and mail
transport.
2005
2006
Scheduled and
and chartered
charter traffic,
Scheduled
traffic, thousand tons
thousand tons
7 .0
144 .5
4 .0
151 .8
domestic flights
Charter flights
scheduled flights
2005
2006
AEROFLOT
ANNUAL REPORT 2006
36
37
Weight load factor, %
Weight load factor, %
The package of commercial rights given by Aeroflot to its subsidiary allows AeroflotCargo to create an optimistic long-term plan for the expansion of its route network and
the augmentation of its aircraft fleet.
63 .7
57 .1
55 .5
2002
62 .1
62 .2
62
60 .9
56 .9
56 .6
55 .4
2003
international routes
domestic routes
2004
2005
2006
In 2006, 66.2 thousand tons of cargo were carried on Aeroflot cargo planes (compared
to 67.8 thousand tons in 2005, 2.4% higher). The weight load factor increased from
69.4% in 2005 to 72.6% in 2006.
Flight hours totaled 14,262.8 hours 4.5% down from 15,140.8 hours in 2005). The total
volume of carried cargo per kilometer in 2006 was 509,961.0 thousand kilometer-tons
(compared to 517,498.2 thousand kilometer-tons in 2005, 1.5% higher).
In 2006, Aeroflot Group’s passenger aircraft carried 86.5 thousand tons of cargo and
mail 3.3% higher from 83.7 thousand tons in 2005.
Route Network
Aeroflot traditionally exploited DC-10-40s for its international transit cargo along the
Europe-Asia-Europe routes. The delivery of cargo on this type of aircraft is mainly done
on a “point-to-point” basis, i.e. without transfer on a passenger network.
Active commercial work has allowed for the modernization of route networks for the
purpose of cutting costs and increasing the volume of air traffic and revenues.
To ensure sales and the proper loading of cargo onto planes, Aeroflot continues to
work with major shipping companies in the world, namely Schenker, Nippon Express,
Pan Alpina and Danzas.
Aeroflot-Cargo also continues to work with the major European freight hub Frankfurt Hahn.
For the first half of 2006, the freight traffic through the Frankfurt Hahn Airport grew by 20%,
with Aeroflot as one of the top airlines in terms of cargo planes processed at the airport.
Along with its usual commercial activity, Aeroflot-Cargo continues its socially important programs by providing socially essential cargo service to the Far East and Northern Russia.
Safety and Security
Flight Safety
Aeroflot’s daily operations and long-term strategic goals largely revolve around the
objective to successfully meet the raising flight safety requirements. The Company
strives to create a modern, international airline, maintaining the best traditions of
Russian civil aviation while improving the engineering and technical quality of aircraft
and adhering to Russian and European official regulations for the flight suitability of
aircraft.
The flight safety in 2006 reached 99.965%, which was higher than the average figures
for both 2005 (99.96%) and 2004 (99.95%). This improvement testifies to the fact
that the airline continues to improve its flight safety system, update its fleet with new
modern aircraft, and advance the training of its in-flight personnel.
The priority areas for the improvement of flight safety are:
• raising the quality of technical maintenance and reliability of the aviation equipment;
• eliminating errors by personnel that influence the level of flight safety (minimalizing
the human factor).
In 2006, more attention was given to the process of updating the fleet and tracking
the condition of the aircraft. As such, in accordance with the ICAO regulations for all
Tu-154s, shoulder harnesses were installed in the seats for flight attendants, flight engineers and navigators, and an early Ground Proximity Warning System (GPWS). Smoke
detectors were installed in the toilet compartments of all IL-96s, as were the GPWS systems. A radio receptor system with a frequency of 406 Hz was installed on all types of
planes.
In 2006, the Company’s Aviation Technical Center (ATC) continued work on improving
flight safety and maintenance, drawing upon the experiences of Russian and international airlines that have successfully followed the aviations regulations of the Russian
Federation and the recommendations of auditors.
Through the collaborative work between the ATC and Aeroflot Training Center for Aviation Personnel (TCAP), the Company trained 50 flights pilots for Tu-154s and 24 pilots
for Tu-134s. In 2006, Aeroflot’s system of continuous professional training (computer
training programs) for flight crew of aircraft A319/320/321, Boeing 767, DC-10, IL-96300, and Тu-154 was approved by the Federal Agensy for Transport Supervision. The
transition to this system will allow for the significant reduction of training time without
affecting the quality.
AEROFLOT
ANNUAL REPORT 2006
38
39
Thus, with the participation of the Civil Aviation Academy, the Company developed
a training plan for civil aviation pilots, which is to be used in higher training institutes in
Russia, as well as a strategy for attracting young specialist-pilots to Aeroflot.
To increase the operating efficiency of flight crew when interacting with passengers
who violate in-flight rules, Aeroflot instituted a training program for personnel under
the title “Unruly Passengers.” The program, which began in September 2006, is a new
direction for Russian civil aviation and should enable flight crew to better restrain the
actions of disruptive passengers.
In December 2006, Aeroflot launched a simulator facility center for emergency/rescue
training of flight crews known as “Water-Land,” which is based in the Company’s TCAP.
The training center of such a scale is so far the first of its kind in the CIS, and its opening was a major event not only for Aeroflot, but also for Russia’s civil aviation industry
as a whole.
The modern facility complies with all the requirements set forth by international and
intergovernmental aviation authorities for flight and cabin crew training, as well as the
training standards for Aeroflot and other airlines in Russia, CIS, and abroad.
In 2006, work also continued on improving the other existing goals of the security program, including baggage checks for every passenger, the presence of security staff on
high-risk flights, and a complex system of security checks at Aeroflot facilities.
Route network
In 2006, Aeroflot served flights along 93 routes with an average flight frequency of 7.9
flights a week per route. Including the joint operations with partner airlines, Aeroflot offered passengers 128 routes with an average flight frequency of 8.6 flights per week.
The complex has a mobile simulator, supplied with exits, ladders, and equipment in the
passenger cabin, which is used to train both cabin crew and pilots in the emergency landing and escape procedure for IL-96 airplanes. The training modules simulate emergency
conditions most similar to those that may occur in reality. The Center is also equipped
with fully operational training modules of emergency escapes for IL-96-300, Tu-154,
A320 and Boeing 767 airplanes. A pool and rescue floating facilities corresponding to
all types of domestic and foreign made airplanes are available to ensure that employees
receive full-scale training and excellent skills for emergency landing on water surfaces.
The simulator is also equipped with all necessary means to create a real fire in order to
train crew in fire-fighting.
On the domestic market, Aeroflot carried its own flights to 26 destinations with an
average flight frequency of 11 flights per weeks. As such, flights to ten destinations
operated a minimum of once per day, while flights to six various destinations operated
two or more times per day.
There are 51 international routes that are considered mid-haul, with an average flight
frequency of 8 flights per week.
In 2006, the Company worked to have its operational license prolongation. Two inspections of the company’s subdivisions were conducted by an inspection commission, and
Aeroflot was subsequently permitted to extend the validity period of its operational license No. 001 until November 9, 2008.
Another 16 international routes are considered long-haul, with an average flight frequency of 4.4 flights per week.
The number of connecting flights on Aeroflot’s own flights increased by 30.6% in 2006,
while the factor of transfer flights rose by 20.2%, totaling 8.3 transfers per flight.
Aviation Safety
Aeroflot continually works to ensure that all aspects of aviation safety are upheld and
that the lives and welfare of passengers and crew are protected from any acts of illegal
interference or attempts to inflict physical or economic damage.
In 2006, Aeroflot’s flight security service conducted audits to ensure that all aviation
security requirements are being met for the ground maintenance of Aeroflot flights
at airports in Barnaul, Mineralye Vody (Russia), Ulaan Baator (Mongolia) and Nicosia (Cyprus), as well as audited the local Aeroflot representative offices in these cities. The Company also monitored representative offices in Baku (Azerbaijan) and Kiev
(Ukraine) to assess whether regulations for security, personnel, and accounting are
being properly observed.
Beginning five years ago, Aeroflot established a patrol dog department of the aviation
security service in order to improve security in light of the heightened threat of terrorist attacks. Security dogs are trained to find explosives on the planes, passenger
terminals, public zones, and service zones for luggage and cargo.
Structure of carrying on regular routes in 2006–2005
Region
Passengers
carried
(thousands)
Revenue passenger
kilometers
(millions)
Available seat
kilometers
(millions)
Passenger
load factor
(%)
2006
2005
2006
2005
2006
2005
2006
2005
America
306.9
318.5
2,671.5
2,749.6
3,685.6
3,770.6
72.5
72.9
Middle East
& Africa
575.3
588.2
1,458.0
1,465.8
2,121.8
2,203.2
68.7
66.5
Asia (include.
Japan)
895.6
852.6
5,751.0
5,402.8
7,842.4
7,628.0
73.3
70.8
Europe
2,596.8
2,429.6
5,698.9
5,321.7
8,943.2
8,305.6
63.7
64.1
Russia
3,562.4
3,145.8
7,151.1
6,164.7 10,027.3
8,935.5
71.3
68.8
CIS
Total
732.3
664.5
1,331.8
8,669.3
7,999.2
24,062.3
1,894.2
1,736.8
70.3
68.0
22,285.6 34,514.5
1,181.0
32,579.7
69.7
68.4
AEROFLOT
ANNUAL REPORT 2006
40
41
Domestic Traffic
In 2006, Aeroflot continued to increase the number of domestic destinations and the
flight frequency of domestic routes.
In order to build up potentially lucrative routes that currently have low yields, Aeroflot
furthered its collaboration with the airlines Aeroflot-Don, Aeroflot-Nord, Dalavia, State
Transportation Company Rossia, and Tatarstan. The cooperation between the airlines
enables the coordination of route networks and schedules, code-sharing and the use
of partners’ fleet in the Aeroflot route network.
necting flights and raise the volume of transfer traffic, especially from the Russian
regions. In fact, the percentage of transfer passengers from the Russian regions
grew by 5.9% in 2006, thereby comprising 30.6% of the total volume of Aeroflot
transfer traffic.
Compared to the previous year, the total number of transfer passengers grew by 5.4%,
topping 1.9 million people, which represents 26.11% of the total volume of Aeroflot’s
passenger traffic.
Cooperation with Partner Airlines
International Traffic
The development of Aeroflot’s international route network is designed to most effectively use Russia’s geographical position, realize the transit potential of the country, as
well as increase the Company’s traffic on highly remunerative markets.
In 2006, Aeroflot held codesharing agreements with 29 other airlines. As a result, compared to 2005, the number of passenger carried on the jointly-operated flights grew by
15.8%, equaling 790.5 thousand people.
In 2006, Aeroflot began operating regular flights in Carlsbad (Czech Republic), Hanover
(Germany), and Jidda (Saudi Arabia), as well as reestablished regular flights to Hanoi. The
frequency of flights to a number of various other destinations was also increased.
As of the beginning of 2007, Aeroflot has codesharing agreements with 34 international and Russian airlines, which are the following:
• 20 agreements in which Aeroflot acts as both partner-operator and marketing partner with: CSA, LOT, Air France, KLM, SAS, Маlev, Finnair, Austrian, Bulgaria Air,
Cyprus Airways, Korean Air, Аlitalia, JAT, АeroMexico, Continental Airlines, NWA,
Delta, Air Baltic, Dalavia, and Rossia;
• 5 agreements in which Aeroflot acts as only the partner-operator with: Tarom, Cubana, Iran Air, Cathay Pacific, and Air India;
• 9 agreements in which Aeroflot acts as only the marketing partner with: Slovak
Airlines, Аdria, Estonian Air, Lithuanian Airlines, Aeroflot-Don, Aeroflot-Nord, Air
Malta, Belavia, and Tatarstan.
The expansion of the network of international routes and the increase of flight
frequency has enabled the Company to substantially increase the number of con-
The Russian regions provided the base of Aeroflot’s passenger traffic for codesharing flights.
The development of the route network mainly entails increasing the number of destinations and the frequency of flights, both on the Company’s fleet and the fleet of partner
airlines. It is also vital to increase the network of connecting flights to better serve the
flows of transit passengers coming in from the Russian regions and flying abroad, as
well as those passengers flying from Asia to Europe or America and back.
Share of transfer passenger turnover
by region in 2006
Share of transfer passenger turnover
by region in 2006
Share of passenger traffic on codesharing
flights out of Aeroflot’s total traffic
Share
of passenger
volume
in 2006 traffic
on codeshare flights out of Aeroflot’s
total traffic volume in 2006
Breakdown of passenger turnover
on codesharing flights by region, 2006
Regional Distribution of Aeroflot Passenger
Turnover on Сodesharing Flights
4.8% 2.1%
12.9%
0.9% 0.9%
30.6%
9.8%
13.3%
60.7%
19.2%
90.2%
24.2%
30.5%
Russia
Europe
Asia
CIS
America
MidEast and Africa
Jointlyoperated flights
Aeroflot only flights
Russia
Europe
CIS and Baltics
MidEast and Africa
Asia
AEROFLOT
ANNUAL REPORT 2006
42
43
Fuel efficiency of the aircraft fleet, gram/kkm
Топливная эффективность парка воздушных судов, грамм/ккм
Development Plan for Route Network in 2007
In order to increase the efficiency of route network in 2007, the Company plans to further expand the geographical coverage of flights, increase flight frequencies on highlyremunerative markets that offer considerable passenger traffic, and develop domestic
air traffic.
40
38
38
38
37
37
29
The main focus will be on the development of medium-haul routes network. The significant expansion of the long-haul traffic segment will not be planned until new long-haul
aircraft are delivered to the fleet at the end of 2008.
Aircraft Fleet
2001
Fleet Development Strategy
The development program for Aeroflot’s aircraft fleet aims to accommodate the company’s increasing airline traffic, which is expected to grow to 12 million passengers
a year by 2010.
The development objectives for the aircraft fleet through 2010 include replacing the
fleet of Tu-134s and Tu-154s, withdrawing the IL-86s, expanding the capacity of the
medium-haul Airbus family of A320s, acquiring the long-haul Airbus A330-200s and
IL-96s, and the Sukhoi SuperJet (SSJ) regional planes.
2001
Medium-haul
Long-haul
2003
2004
2005
2006
2010
From the period between 2001 until 2006, while restructuring the aircraft fleet with
modern models, the Company managed to save nearly USD 200 million due to the higher jet fuel efficiency of the updated models.
Aeroflot introduced an integrated program aimed at increasing the aircraft utilization
and fuel savings. As part of this program, structural changes are being made to ameliorate the Tu-154 model, such as redesigning the wing and replacing the wooden floors
of the cabin with more modern and light composite materials.
Structure of the Aircraft Fleet in 2006
Unification of the aircraft
Short-haul
2002
Tu -134
В737
Tu -154
IL-86
IL-96
В767
IL-62
A310
Tu -154
2005
2010
2016
As of December 31, 2006, the aircraft fleet totaled 93 airplanes, including 39 foreignmade and 54 Russian-made (of which 53 are owned and 40 are leased).
Tu -134
SSJ
SSJ
In the course of the year, the number of aircraft in the fleet grew by 8 units.
IL-86
А320
IL-96
А320
А320
Withdrawals were as follows:
• one Tu-134 with business-lounge interior was returned due to the expiration of its
lease from Stroitransgaz;
• one DC-10 was transferred to Aeroflot-Cargo;
IL-96
IL-96
Additions were as follows:
• one IL-86 was returned after having been leased to Continental Airways;
• two B767s, three A320s, and four A321s.
A330
B767
B777
9 models, of
which 4 are
foreign-made
Total
(101aircraft)
A350
В767
6 models,
of which
2 are foreign-made
Total
(81 aircraft)
5 models, of
which 3 are
foreign-made
Total
(117 aircraft)
4 models, of
which 2 are
foreign-made
Total ( > 150
aircraft)
AEROFLOT
ANNUAL REPORT 2006
44
45
Total
(changes in
2006)
Owned by
Aeroflot
In
operating
lease
11 (+2)
–
11
–
9
14.1
2(+1)
1
1
–
28
0
6
6
–
–
13
10.2
Airbus A319
8
–
4
4
3
10.2
Airbus A320
10 (+3)
–
9
1
2
11.5
Model
In
financial Average
lease
age
Average
daily flight
hours
between 2008 and 2010. Aeroflot has chosen this particular aircraft model as the interim
solution to updating its fleet until the new A350s are delivered between 2014 and 2017.
Long-haul
Boeing B767
IL-62М
IL-96-300
Medium-haul
Airbus A321
Tu-154М
IL-86*
7 (+4)
–
–
7
1
11.5
27(+2)
25
2
–
19
7.3
9 (+1)
9
–
–
19
1.9
Short-haul (regional)
Tu-134
13 (–1)
12
1
–
27
4.9
3 (–1)
–
3
–
28
9.9
96
53
31
12
Cargo planes:
DC10-40F
TOTAL:
8.2/10.9**
* Starting November 15, 2006, Aeroflot ceased operating IL-86 aircraft.
** The average daily utilization for one aircraft on balance is 8.2 hrs; the average for one aircraft in service is 10.9 hrs.
Plans for 2007
Product and Brand Development
In line with its strategy to develop the Aeroflot product, the Company continued throughout 2006 to devise new ways to increase the competitive edge of their product offering.
The main objectives were to meet the requirements of passenger service regulations
at an 85% level (the performance level required for airlines in the SkyTeam alliance,
who are all leaders in the field of customer satisfaction) and to increase the quality of
Aeroflot’s product offering, matching it to the quality of European industry leaders.
According to results of the Company’s research, the most influential factor for the overall value of an airline’s product is the in-flight service.
As a result, Aeroflot has concentrated its efforts on strengthening the competitive edge
of its product offering for passengers in the higher classes, as well as stabilizing the
product for passengers of all classes.
Aeroflot flights now offer completely new classes of service for passengers in the premium segment, which are as follows:
• President class — a qualitatively new business class with higher comfort for passengers
traveling on long-haul flights (over 6 hours), trans-Atlantic flights (to USA and Canada)
and Asia flights (to Tokyo, Bangkok, Shanghai, Hong Kong), available on Boeing 767
aircraft;
• Premier class — an improved business class on Airbus A319, A320, and A321 aircraft,
designed for passengers traveling to priority European destinations and several other
destinations within mid-distance (flights from 2 to 5 hours).
After the withdrawal of IL-86s in November of 2006, the company plans to gradually
replace its Tu-134 fleet. All 13 Tu-134 aircraft are scheduled to be taken out of operation by January 1, 2008.
These classes are positioned as “the modern way to fly, with an unmatched level of
comfort, care, and individual service from the heart of the new Russia.” Completely new
menus have also been made available for these two higher classes.
By 2010, Aeroflot plans to replace the outdated Tu-154 planes with modern models. In
place of the Tu-134s and Tu-154s will come the new generation of aircraft — the shorthaul SSJ-100s, developed by the Russian company CJSC Sukhoi Civil Aircraft, and the
middle-haul A320s family aircraft. Delivery of the SSJ-100s should begin at the end of
2008.
The Company’s successful in-flight entertainment program for business class passengers, Video on Demand, was expanded in 2006 with the purchase of more DigEplayers
(750 units), which is a portable device allowing real-time choice between feature films
(Hollywood blockbusters and Russian films), short films, cartoons, audio programs,
and a channel for kids. The program is updated once every two months with new international and domestic films.
In 2007, three Airbus A319s, three A320s, and three A321s are scheduled to join
the fleet. By the end of 2007, the total number of aircraft from this aircraft family will
amount to 34 units.
In the coming year, there will be no changes made to the inventory of IL-96-300s, Boeing 767s, and Tu-154s, which will continue to fly long-haul and medium-haul routes.
In the long term, Aeroflot plans to gradually replace the Boeing 767s with the long-haul
A330s, which will be a new model in Aeroflot’s fleet. The leasing of these aircraft will occur
In 2006, the Kommersant class was tested out on flights to Geneva, Nice, and Helsinki.
The Kommersant class is an improved economic class on the new fleet of Airbus A319,
A320, and A321 aircraft, available for passengers flying to priority destinations in Europe. The Company positions this class as “travel fit for business professionals.”
In the last year, the in-flight entertainment program was reintroduced for economicclass passengers on flights longer than 6 hours (B767s). The programs are updated
monthly.
AEROFLOT
ANNUAL REPORT 2006
46
47
Likewise, in order to further develop the Aeroflot product, the Company determined
several important objectives for ground service, including creating a single call hotline
for information and bookings (+7(495) 223-5555) and another number for free calls
from the Russian regions (8-800-333-5555). The Company’s existing representative
call centers in Germany and Ukraine have a total sales volume of over USD 10 million
per year. Now, with just one call, clients can receive all necessary information, reserve
tickets, find questions about the Aeroflot Bonus program, leave their opinion about the
service quality, and receive consultation about Internet sales and many other topics.
In the last year, significant steps have been taking to strengthen passenger service at
airports, including the following:
• developing the technology for registering Aeroflot passengers with electronic tickets;
• installing self-registration desks for passengers at Sheremetyevo terminals;
• introducing express registration at Sheremetyevo for connecting flights to the following destinations: London, Zürich, Geneva, Los Angeles, New York, Delhi, Nice,
Belgrade, Damascus, Hamburg, Helsinki, Milan, Berlin, Venice, Mumbai, Bucharest,
Budapest, Hanoi, Havana, Sofia, Larnaca, Ulaan-Baator, Beirut, Düsseldorf, Riga,
Rome, Tehran, Zagreb, Istanbul, Cairo, Amsterdam, Brussels, Paris, Kiev, Munich,
Prague, Kaliningrad, Omsk, Volgograd, Yekaterinburg, and Baku;
• installing automated service stations at exits for passengers arriving in terminal 2
at Sheremetyevo;
• equipping storage areas in terminal 2 at Sheremetyevo airport with a system for
local announcements;
• setting up tape dividers to regulate lines while passengers check-in and board.
Since March 2006, passengers flying out of Sheremetyevo have had access to a new service; now, passengers can register for flights at the Savelovsky train station in Moscow
and reach the airport on comfortable electric trains. The use of public transportation
instead of private cars reduces pollution levels and facilitate traffic on the highways.
Aeroflot successfully implemented the SkyTeam standards for passenger and baggage
control, which included redefining the parameters for the acceptable amount of luggage and adjusting the definition of carry-on luggage and unregistered luggage to correspond with international standards.
Furthermore, special services are available to passengers with disabilities and unaccompanied children. Improvement has also been done on passenger handling during emergency situations, as well as procedures for passenger service during the cancellation/delay of fights or changing components of the aircraft (Denied Boarding Compensation). In
order to provide a maximum level of comfort and service, passengers who have Aeroflot
Bonus gold cards and passengers who are participants of the SkyTeam loyalty program,
Elite Plus, are welcome to use the business class waiting rooms at the airport.
Aeroflot Bonus Program for Frequent Flyers
In the process of joining the global SkyTeam alliance, Aeroflot concluded contracts
with all SkyTeam member airlines regarding their partnership in the Aeroflot Bonus
program. This in turn raised the program to an international level, making its loyalty
incentives more attractive and competitive on both the domestic and global markets.
In the past year, Aeroflot Bonus significantly broadened its network by forming new
partnerships with the Oreanda Hotel (Riga), Grand Palace (Svetlogorsk), Palace Berlin
(Berlin), Zarya, Irbis, and Golden Apple Hotel (Moscow), the AviaCollection Internet
store, the company Service VIP (Moscow), and the company EF Education (Moscow).
In cooperation with its partners, Aeroflot Bonus has created a variety of special offers
and schemes for program participants, the most successful of which have been the
Visa-Aeroflot credit card, offered in cooperation with Sberbank, and the special offers
from the company R-Club and the RIXOS hotel chain.
Aeroflot’s joint project with Alfa Bank for the issuing of the Alfa-Bank Aeroflot MasterCard Card was initiated in December 2005 and had been widely praised among its
participants. The card is offered in Standard, Gold and Platinum formats with a varied
points reward structure on all MasterCard expenditures. Within a year of the project’s
launch, around 50 thousand Alfa-Bank Aeroflot MasterCard Cards were issued. The
project was also highly appraised by the MasterCard payment system and was named
one of the winners among the European partners of MasterCard payment system for
co-branding for 2006. The project also won the nomination for Best Program Launch
2005/2006.
In addition, the Aeroflot Bonus program has earned several well-known, international
accolades, including the following highly regarded Freddie Awards:
• 1st place for the Best Website;
• 2nd place for the Program of the Year;
• 2nd place for the Best Member Communications;
• 3rd place for the Best Customer Service
Number of participants of Aeroflot Bonus program
Количество участников программы “Аэрофлот Бонус”
677,165
478,761
In addition, to improvement the control over service quality, a monitoring system was
launched with the use of “undercover passengers,” and the ISO 9000 Quality Management System was also introduced.
Development will continue in 2007 on the program to introduce new classes of service
(Premier, President, Kommersant), as well as on the plan to achieve an average rating
that is not below the airline’s rating in 2006 (80-82%).
325,958
242,633
14,394
1999
65,698
2000
110,080
2001
175,626
2002
2003
2004
2005
2006
AEROFLOT
ANNUAL REPORT 2006
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In 2006, Aeroflot Bonus also worked to expand its list of services available on program’s
website and to introduce various automated services for participants. To accomplish
this, the Company plans to update the website with new information about the SkyTeam,
launch a new service for emailing information about personal accounts to participants,
as well as work with the Sabre Company in order to fulfill SkyTeam requirements.
To improve the quality of the Aeroflot Bonus loyalty program, the Company transferred
all information services to a single customer service center for information and bookings. The regional service centers are also becoming increasingly popular among program participants, with centers currently located in New York, Frankfurt, Vladivostok,
Novosibirsk, and Khabarovsk.
In the upcoming year, the Aeroflot Bonus will strive to improve its service quality without slowing the program’s growth. New regional service centers are scheduled to be
opened, while the functions of the existing centers will be expanded. The program also
plans to improve information services, develop technical support program, introduce
new Internet services, attract new partners, as well as create more special offers.
Our favorite Aeroflot Brand
In the past year, the Company worked to improve in-flight service levels, refine other
available services, and update the company’s style in order to reach out to both target
groups and the macro media in general. Positive responses from passengers and
favorable comments in the mass media confirm that Aeroflot’s efforts have been wellnoted and approved by the public.
From June 1 to July 31, 2006, the Company conducted a joint product advertisement
campaign for the Visa-Aeroflot Card, issued by Sberbank. The purpose of the advertisement campaign is: to attract new participants to the Aeroflot Bonus program and encourage them to use their cards to collect bonus miles; to strengthen Aeroflot’s image
as an airline that offers quality service and satisfies the needs of the modern traveler,
making personal, business, and tourists trips around Russia and abroad.
In November 2006, the Company began a new image campaign featuring the slogan
“Making your world crystal clear!” Previous campaigns had been devoted to building
the company’s image as a national airline with international standards: Aeroflot — the
people’s company, open and friendly, who loves its passengers and cares about them,
staying true to the company’s slogan — “Sincerely Yours!”
The purpose of the current image campaign is to assure that Aeroflot is regarded as a reliable, stable, and constantly improving airline. The campaign is also designed to provide
reasons why Aeroflot is a good choice of airline. The Company recently launched a new
marketing concept — “Globes” — that is being promoted through television commercials,
such as “International destinations,” “All Russia,” and “Trust and Comfort with Aeroflot.”
The creative concept for the Aeroflot brand encompasses the following ideas and slogans:
• Idea: Aeroflot is constantly expanding the geographical coverage of its flights across
the country. Slogan: “Travel throughout Russia with pleasure and comfort”;
• Idea: Aeroflot is a member of international SkyTeam alliance. Slogan: “Travel with us
over the whole world”;
• Idea: Aeroflot cares about passengers’ comfort and safety and is replacing its fleet
with new aircraft. Slogan: “We strive to be accommodating and reliable.”
All aspects of the creative concept focus on the passengers as the main concern of
the company. This direction of campaigning is the logical progression from previous
image campaigns.
Another step in developing the Aeroflot Brand is the AviaCollection project, which allows
members of the Aeroflot bonus program to exchange miles for AviaCollection products
through the online store. The catalogue of international top brands, exclusive Aeroflot products and fascinating Russian designer items can be found at www.aviacollection.com.
Awards for Brand Quality
In 2006, the Aeroflot brand received the Grand Prize in the nomination of New Image at the Brand of the Year/EFFIE Competition, becoming the first Russian airline to
receive such a high rating. In addition, Aeroflot was named “Superbrand-2006” in the
categories of business-to-business (B2B) and business-to-consumer (B2C). This award,
which is granted by independent experts from the Superbrands International, recognizes the results of the airline’s notable performance and aggressive branding campaign in consumer and inter-corporate business in Russia.
Aeroflot’s work was also commended during the competition for Company of the Year,
which has an excellent reputation in Russian business circles. The airline won the
award for transportation services and received the title of “Best Airline of 2006.”
Furthermore, the organizers of the international tourism exhibit, “Relaxation 2006,”
presented Aeroflot with an award in recognition of its “Reliable and stable work.”
The Company also received an award as Official Carrier of the 2006 Kremlin Cup,
an annual tennis tournament held in Moscow.
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Passenger Ticket Sales
On the territory of the Russian Federation, passenger ticket sales are carried out by:
• the Company’s representative offices in the regions;
• agencies in Moscow and the region;
• the Company’s own sales offices in Moscow.
The largest share of proceeds in Russia comes from the Moscow agencies, which are
able to cater to all consumer groups, while the largest share of regional proceeds comes
from the regions of Siberia and the Far East.
The opening of new representative offices and branches should allow the company
to develop its regional network and secure a steady flow of transit traffic through
Moscow. The Company’s joining in the SkyTeam alliance has allowed Aeroflot’s sales
offices across Russia to rise to a qualitatively new level of service.
Aeroflot also participates in regional tourism exhibitions in order to better promote its
services on the local markets in Yekaterinburg, Novosibirsk, Khabarovsk, St. Petersburg, Volgograd, Astrakhan, Samara, and Krasnodar. As part of the exhibitions, representatives and employees from the Aeroflot sales departments gave presentations
to regional airline ticket agencies in order to endorse Aeroflot’s new product and new
level of passenger services.
Sales breakdown of regular flights in 2006*
Sales location
Moscow agencies (including sales through
the Transport Clearing Chamber)
Earnings,
USD mln
Growth of
earnings,
USD mln
Growth
of revenues,
%
896.44
+ 199.23
+ 28.6
Regional representative offices and supervised
regional agencies
278.27
+ 73.86
+ 36.1
The Company’s own sales offices in Moscow
176.61
+ 43.47
+ 32.6
1,351.32
+316.56
+30.6
Total:
*JSC Aeroflot only.
In order to accelerate the development of Russian regions in 2006, Aeroflot opened
representative offices in Krasnoyarsk, Yuzhno-Sakhalinsk, Magadan, as well as a
branch in St. Petersburg. In addition, Aeroflot’s Board of Directors approved the decision to open other branch in Magadan.
Sales breakdown in Russia*
Sales breakdown of regional representative
offices*
Passenger revenue breakdown by sales offices in Russia
Passenger revenue breakdown by regions
of Russian Federation
6%
11%
66.3%
29%
The increased revenues in tickets sales can be attributed to the following:
• increased number of corporate clients;
• the establishment of the new Sabre Sonic reservation system and its integration
with the finance management system AirMax, which has allowed for more effective
control over seat occupancy, thereby increasing this factor to 70.1% in 2006 (from
69.0% in 2005). The new technology has also enabled the Company to exceed its
forecasted revenue from passenger traffic by UDS 111.8 million (+7.1%). Earnings
per seat/kilometer were 4.8% higher than planned.
• improvements to the automized management system to properly loading of planes,
catering to the growing market demand in the economic classes and maximizing the
capacity of the business and first class segments;
• development and diversification of sales and information support at the information
and reservation center by:
– putting into operation a telephone number for taking calls from Aeroflot passengers in Germany;
– transferring calls for the Aeroflot Bonus program to 10 specially-designated operators at the information and reservation center;
– putting into operation free telephone numbers in 13 regions of the world;
– organizing a special group of operators who provide round-the-clock consultation
for question concerning online payment and reservation services.
The following initiatives allowed the information and reservation center to increase
Scheduled passenger revenue
breakdown by regions, 2006
6.5%
Scheduled cargo revenue
breakdown by region, 2006
2.2% 1.6%
8.4%
18.5%
21.4%
42.2%
20.6%
7.4% 0.2%
38.4%
15%
29%
13.1%
16%
Moscow agencies
Regional agencies
Company’s own offices
*JSC Aeroflot only.
Siberia
Far East
North West
23%
Urals
Krasnodar
Volga region
Europe from/to Moscow
Domestic flights
Asia from/to Moscow
North America from/to Moscow
Other international flights
Other international flights from/to Moscow
24.2%
Asia from/to Moscow
Europe from/to Moscow
Domestic flights
North America from/to Moscow
Other international flights from/to Moscow
AEROFLOT
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their total earnings to USD 42.64 million.
• selling discount tickets through promotional campaigns, such as “Spring 2006,”
“Second World War Battlefields,” and “Fall 2006,” which helped to attract an additional 34,51 thousand passengers;
• the development of sales through the Internet, which has allowed for a tenfold increase in the number of tickets reserved on the website throughout the financial
year, with the price of the web segment lowered by 2.5 times, while the share of
online payments for increased to 50% of ticket sales. For the accounting period,
around 40 thousand tickets totaling USD 4.5 million were sold through the website,
including USD 3 million just from November-December. The website is available in
six European and two Asian languages; additional services include hotel and car
rental reservations across the whole world. The implementation of an Internet bookings system has enabled both a growth in passenger ticket sales and a decrease in
operational costs.
Ticket sales abroad were carried out in the following ways:
• directly in the representative offices of the airline;
• through the BSP/ARC system of neutral agents;
• by official agents and firms having direct agreement with Aeroflot;
• thought the Internet.
In 2006, the total revenue from ticket sales abroad increased by 12.7%, as compared to 2005.
The Company’s own ticket sales on international markets are conducted by the Company’s 73 representative offices. In order to increase its presence on the international
market, Aeroflot opened a new representative office in Hannover (Germany) in 2006.
In 2006, Aeroflot continues its work to activate ticket sales through the Billing and
Settlement Plan/Airline Reporting Corporation System (BSP/ARC), which allows for
coordinated bookkeeping between agents and airlines. Aeroflot joined the BSP in
Ukraine and is currently working on joining the BSP in Israel, Thailand, and Sri-
Passenger
revenue
Sales breakdown
onbreakdown
international
generarated
by sales offices
market
18%
53%
29%
BSP/ARC
Official agents
Representative offices
Lanka. According to the year’s figures, earnings from tickets sales though this channel grew by 15.6%.
The Company also reconsidered its terms of cooperation with 263 official agents.
As compared to 2005, the total earnings from official agents grew by 9.0%. At the
same time, the agents’ commission fees were cut down, so that the base level of
commission fees lowered from 7.4% in 2005 to 7.0% in 2006.
Internet sales were introduced in 2006, thereby creating and effective and mobile sales instrument that is available 24 hours, 7 days a week. Online ticket payment (using a credit card on the website) provided 40% of the earnings from online
sales.
Aeroflot’s joining the global SkyTeam alliance and the increased standards of service quality has attracted a new sector of passengers. As such, the growth of earnings from passenger tickets sales on the flights of SkyTeam partners was 108% up
from 2005.
IT Development
Effective business in such a high-technology industry as the airline business would
be inconceivable without modern IT solutions. Accordingly, in 2006, Aeroflot
worked together with the consulting company Accenture to develop an IT Development Strategy for the Company in 2006–2008.
The most important objective for developing this area is preparing the Company for
the introduction of online ticketing technology. In 2006, the technical and regulatory preparations were completed for the issuance and complete functional use of
e-tickets. In January 2007, legislative acts permitting the use of e-tickets in Russia
came into force, and in March 2007, Aeroflot began to issue e-tickets, beginning
sales abroad through interline partners.
A major landmark in the company’s technological development was the introduction of the Sabre automated booking system. Thanks to the program, the yields of
Aeroflot ticket sales offices appreciably increased in 2005 (by more than 30%).
Moreover, on account of the automatic management system, the Company managed
to receive an additional profit of USD 20 million.
One of the conditions for Aeroflot’s entrance in SkyTeam was the integration of
its IT-system with the systems of other SkyTeam members. As such, throughout
2006, the Company installed the required functions, including a function to allow
SkyTeam members to see each other’s bookings in the Sabre reservation system,
as well as a function to convert the bonus points of various SkyTeam partners’
frequent flyers.
In 2006, significant work was made on establishing a fully functional service for
online ticket sales. The Company initiated its online reservation and payment ser-
AEROFLOT
ANNUAL REPORT 2006
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vice for countries in Europe, North America, and Southeast Asia, with the website
available in Russian, English, Spanish, Japanese, German, French, and Italian.
As a result of the website, around 40 thousand tickets for a total of USD 16.8 million
were sold in the financial year, with the following results obtained:
• the number of reservations through the Company’s website increase tenfold throughout the year;
• there was a steady growth rate (5% per week) of the number of paid online reservations;
• by the end of the year, the number of tickets purchased online represented 50% of all
tickets sold through the Internet (in June 2006, it was a mere 22%).
Considering the achieved level of sales and the growing number of paid online reservations, the Company is confident that this type of sales will continue to grow in 2007.
Aeroflot continues to actively introduce modern technologies that can help reduce the
check-in time for passengers at the airport. Since 2006, six passenger self-registration
desks have been operating in terminals 1 and 2 at Sheremetyevo airport, allowing passengers to independently register, chose their seats, and print their own tickets. However, at
this early stage, the desks may only be used by passengers who are not checking luggage
and by passengers traveling to countries where it is not required to register on the APIS
(Advance Passenger Information System — a system with additional information about
passengers to be used by customs and border control services in the country of arrival).
The company also began to install automatic registration systems for Aeroflot flights in
airports of the Russian Federation. In 2006, the automatic registration system was introduced in airports in the following 10 cities: Anapa, Barnaul, Vladivostok, Volgograd,
Yekaterinburg, Irkutsk, Kaliningrad, Kemerovo, Omsk, and Chelyabinsk. In 2007, this list
will grow to include airports in St. Petersburg, Astrakhan, Perm, Krasnoyarsk, Krasnodar, Tyumen, Mineralye Vody, and Ufa.
The SAP R/3 accounting software system has also been put into operation, with prep-
Growth performance of online bookings and ticket sales in 2006, per one ticket
per one ticket
air ticket
12,502
booking
8,081
7,116
468
156
u
ary
Jan
1,961
987
Feb
r
y
uar
1,994
1,909
1,128 1,057
rch
Ma
il
Apr
2,350 2,514
1,362
y
Ma
3,346
4,695
10,541
7,107
3,133
5,425
3,735
2,313 2,224
1,699
e
Jun
July
ust
Aug
ber
r
ber
ber
em
em
obe
Oct
nov
dec
tem
sep
in september, the “days of happy tickets” promotional deal was offered .
in november, there was a sale for tickets “only through the internet” .
arations being made to increase the system’s functions by introducing new SAP R/3
modules. Likewise, the first stage of the project to create an integrated corporate system application, built with IBM Websphere, has also been completed.
Quality Management
One of Aeroflot’s main priority in 2006 was to continue the Company’s compliance
with IOSA standards (IATA Operational Safety Audit — an international operational
safety audit), as well as introduce a Quality Management System (QMS) throughout the
company’s subdivisions.
After undergoing a certification audit and eliminating any detections of discrepancy
in March 2006, Aeroflot became the first Russian airline to be included on the IOSA
register. Adherence to the required international standards for operational safety is the
most important criteria for guaranteeing the quality and security of Aeroflot’s services.
Aeroflot had to successfully pass the IOSA audit in order to join the SkyTeam alliance and
attract new partners for the code-sharing agreements.
The benefits of implementing the IOSA standards are as follows:
• the airline’s reputation as a safe and reliable carrier on the international market is
enhanced;
• Aeroflot’s adherence to IOSA regulations is taken into account during the complex
process of appraising risks and calculating insurance premiums for the next policy
period, which thereby results in lowered insurance premiums for the Company;
• the number of audits conducted by partner companies is reduced, thereby lowering the amount paid for auditing services, as well as curbing the level of distraction
faced by personnel during audits. As a result, for just external audits alone in 2006,
the Company saved around 100 thousand euro.
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In 2006, Aeroflot continued its work on installation of a quality management system in
the subdivisions of the Company’s marketing segment. In June 2006, these divisions
underwent QMS audits and received certificates of compliance with ISO 9001–2000
standards, which were issued by TUV CERT certification agency.
During the same period, all subdivisions of Aeroflot’s production segment successfully
underwent an observation audit, which confirmed the validity of the certificates and
the production segment’s compliance to ISO-9001-2000 standards. Overall, these certificates help bolster the competitive advantage of Aeroflot during tenders for services
rendered by outside companies.
Since training personnel in the ways of quality service needs systematic improvement, an educational program was developed under the title “Quality Management
System and ISO-9000 Standards.” The program is held at Aeroflot’s personnel training base.
The main priorities for 2007 are as follow:
• ensuring that the production activities of Aeroflot comply with the requirements
for the second edition of IOSA standards. An audit should be conducted to confirm
the airline’s adherence to IOSA standards and make certain that Aeroflot maintains its place on the register of IOSA-approved operators, as these also are necessary requirements for Aeroflot’s membership in the IATA and SkyTeam:
• preparing the airline’s subdivisions for an international quality certification audit
to prove compliance to IS0 9001-2000 requirements and obtain a single certificate for Aeroflot.
SkyTeam Alliance
After fulfilling all the SkyTeam admission requirements and successfully passing the
Alliance’s commercial audit on April 14, 2006, Aeroflot became the tenth full-fledged
member of SkyTeam. Throughout the year, all divisions of the airline worked to become
better integrated and prepared to uphold the SkyTeam standards.
The following agreements were concluded with the SkyTeam airlines:
• bilateral agreements for joint operation (code-sharing);
• agreements for the mutual acceptance of tickets, including e-tickets (interline);
• bilateral agreements for the frequent flyer programs (FFP).
The Company now participates in the following joint initiatives of the SkyTeam:
• electronic services offered through self-registration desks and on the airlines’ websites;
• overall services quality development;
• creating a database to track passengers’ miles for the frequent flyer program;
• cancellation in the event of a delay, or over-booking of a flight, offering compensation that can be used on any SkyTeam airline;
• the “Ambassador” program, a special training for personnel who work directly with
passengers (front-line personnel), while maintaining SkyTeam standards;
• 2D barcodes on boarding passes;
• easy flights transfers;
• the project “Global Meetings,” designed to attract participants of major international events;
• SkyTeam’s global corporate contracts;
• shared accommodations in airports, which allows airlines to significantly lower operational expenses at the major airports in the world. The first agreement has already been signed between the SkyTeam and Heathrow Airport (London), according
to which SkyTeam air traffic will be placed all together in terminal 4 in 2008–2009.
The system of cooperation through code-sharing agreements is planned to be broadened in the near future, and in 2007, Aeroflot’s code should appear on the flights of the
following airlines:
• Alitalia: from Rome/Milan to destinations in Italy, Africa, North and South America;
• AirFrance: from Paris to destinations in France, Europe, Africa, and South America;
• Delta, Continental, NorthWest, KLM: from New York and several European points to various destinations within the USA.
Participation in the Safety, Security & Quality Functional Executives
(SSQ FE Council)
The cooperation and coordinated work between SkyTeam members is made possible
only by members’ participation in the semi-annual meetings of the SkyTeam’s Safety, Security & Quality Functional Executives (SSQ FE) Council, as well as monthly telephone
conferences. In the period between general sessions, SSQ FE Council members actively
exchange information through individual telephone conferences.
On September 2006 in Montreal, Aeroflot participated in a session of the SSQ FE Council
for the first time.
The SSQ FE Council’s main areas of focus and the functions of its subgroups are as follows:
• Operational Safety Functional Expert Group (OSFE):
– appraising operational risks;
– implementing a strategy of risk management;
– monitoring the Safety Management System (SMS) for flight safety;
– observing the five priorities of flight safety;
• Aviation Security Functional Expert Group (ASFE):
– monitoring the Security Management System (SMS) for aviation security;
– standardizing aviation security regulations;
– conducting risk analysis;
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– exchanging intelligence information;
– establishing responsive measures in the event of security threat or terrorist act;
• Emergency Response Functional Expert Group (ERFE):
– organizing mutual aid in the event of an emergency;
– organizing line stations for general use;
– periodic trainings to prepare for emergency situations (LERAP);
• Operational Review Functional Expert Group (ORFE):
– maintaining an order and process of supervision in accordance with IOSA standards;
– ensuring that all SkyTeam members are currently registered under the IOSA and
they successfully complete all IOSA audits and registration requirements;
– monitoring the IOSA registration status of SkyTeam members and their partners;
– cooperating with the supervising council of the IOSA (IOC).
Iimplement its strategic development plan, which aims to attract more transit flow and
increase the service quality for passengers.
The future terminal complex will include:
• the terminal building, built to serve 9 million passenger per year, with the possibility
of increasing passenger flow to 12 million passengers per year;
• a multi-level parking garage with 2,800 spaces, as well as an opening parking lot
for 560 automobiles;
• internal networks and extranets;
• road system;
• ramp and taxiways, calculated to hold 32 parked aircraft.
Construction is scheduled to be completed at the end of 2007.
According to a resolution by the ICAO, beginning in 2008, all airlines are required to
introduce a Safety Management System (SMS) for flight operation. As a result of this
decision, SSQ FE Council commissioned a group of experts in the field of operational
flight safety to study the materials about the SMS that have been published by the ICAO,
IATA, FAA USA, and other authorities. The experts are also to prepare recommendations for the SkyTeam’s members on how to implement the SMS system in a way that
will satisfy future global requirements. The preparations of materials and recommendations should be completed by mid-2007.
Sheremetyevo-3 Airport Terminal Complex
A key factor in strengthening the competitive position of Aeroflot is the creation of a
new transport-transfer zone at the Sheremetyevo airport. The new terminal will provide
easy flight transfers and high standards of service. This project will help the Company
More than 50% of building and over 40% of the parking areas are ready, while the
outfitting of the interior spaces of the terminal is beginning. The main architectural
feature of the complex is a 17-meter wide dome.
The project also includes the installation of an advanced baggage-processing system, which is being installed by one of the world’s leading manufactures, who has
experience installing such systems in 16 airports around the world.
In the future, terminal 2 and 3 at Sheremetyevo airport will be connected to the center of Moscow by a railway line.
The builder of the project is OJSC Terminal. In June 2006, Aeroflot concluded a
sales agreement for the shares of Terminal to Vneshtorgbank and the Vnesheconombank (see Appendix, List of Major Transaction and Deals with Interested Parties).
In addition, in accordance with the existing agreement, Vneshtorgbank and the
Vnesheconombank will open a credit line to Terminal for a sum of USD 475 million
dollars for a period of 13 years. According to this agreement, Vneshtorgbank will
provide USD 264 million and the Vnesheconombank will provide 211 USD million.
Business of Aeroflot Subsidiaries
As of the end of 2006, Aeroflot was a member of 29 commercial and non-commercial organizations.
Overall, the year 2006 is characterized by the growth of the net assets of the majority of Aeroflot Group enterprises, particularly OJSC Terminal (builder of the
Sheremetyevo-3 airport terminal complex).
In 2006, Aeroflot approved the strategic goals for cooperation with its subsidiary companies, the most important of which is the collective effort to develop air traffic in Russia.
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The strategy for cooperation with subsidiary companies is aimed at the following:
• increasing the capitalization of the group;
• decreasing certain expenditures;
• increasing return on investment.
Hotel Operations
Novotel-Sheremetyevo-2, the hotel owned by CJSC Sherotel and managed by the
French firm Accor, kept its leadership of the Moscow hotel market in 2006 with 92.02%
occupancy rate.
Air Traffic
The biggest share in profits from room rental at the hotel is from individuals (26%),
followed by non-Aeroflot air crew (22%), Aeroflot air crew (14%), tour groups (16%),
corporate customers (11%), seminars (7%), tourist agencies (2%), and delayed flights
and transit (1%).
Subsidiaries providing air carrying services are Aeroflot-Don, Aeroflot-Nord, AeroflotPlus and Aeroflot-Cargo. The main volume of services is provided by Aeroflot-Don and
Aeroflot-Nord.
Aeroflot-Nord carried 875,300 passengers in 2006, of which 65,500 on international
flights and 809,800 on domestic flights. Principal company routes included: Arkhangelsk-Moscow; Moscow-St.Petersburg; Moscow-Simferopol; Moscow-Samara; Moscow-Ekaterinburg; Moscow-Chelyabinsk, and others. In addition, regular flights have
begun to Krasnodar, Magnitogorsk and Perm. New regular flights began to run to Moscow-Naryan-Mar, Petrozavodsk-Solovki. The number of flights to Moscow-Murmansk
was increased.
The flight network, offered by Aeroflot-Don did not change significantly in 2006,
and included the following main routes: Rostov-on-Don-Moscow; Moscow-Murmansk; Moscow-Sochi; Moscow-Dnepropetrovsk; Rostov-on-Don-Frankfurt; Rostov-onDon-Tashkent, and others. The company carried 588,200 passengers in the course
of the year, of which 170,200 on international flights and 418,000 on domestic
flights.
Aeroflot-Plus offers VIP charter flights.
Revenue from this segment in 2006 was USD 2.944 billion, which is 17.9% more than
in 2005. Operating costs increased by 14.1% to USD 2.579 million. As a result operating profit increased by 53.3% to USD 364.9 million.
Revenue from hotel business in 2006 was USD 22.0 million, which is 14% more than in
2005. Operating profit of USD 7.2 million in 2006 was 36% higher than in 2005.
Principle Subsidiaries of Aeroflot Group and the Nature of Their Business
Airlines
OJSC Aeroflot-Don (passenger traffic)
CJSC Aeroflot-Nord (passenger traffic)
CJSC Aeroflot-Cargo (cargo traffic)
CJSC Aeroflot-Plus (business traffic)
Providers of air
and ground-based services
rendered to passengers
OJSC Terminal (Sheremetyevo-3)
CJSC Aeromar (catering)
LLC Airport Moscow (cargo handling)
CJSC AeroMASH (aviation security)
CJSC TZK Sheremetyevo (fuel trading company)
CJSC Aerofirst (duty free retail)
CJSC Sherotel (hotel)
In-flight Catering
The Aeroflot subsidiary, Aeromar, specializes in preparation and sale of in-flight meals for
airlines. LSG Sky Chefs, the global leader in airline catering, is an Aeromar stake holder.
Aeromar controls 90% of the market for in-flight meals at Sheremetyevo Airport.
Aeromar made 9.9 million in-flight meals during 2006, which is 6.4% more than in
2005, and served 60,908 flights (11.7% more than the year before).
Revenue in 2006 from in-flight catering was USD 58.8 million, which is 42% more than
in 2005. Operating costs increased by 6.2% to USD 49.9 million. Operating profit was
USD 8.9 million.
CJSC ZAO DATE (business-class facility)
Transnautic Aero GMBH (cargo agent)
Financial, telecommunications, OJSC Moscow Insurance Company (insurance)
logistics, and personnel
Non-state pension fund Social Partner (pensions)
training providers for Aeroflot
Aviabusiness (flight crew training)
LLC Avia-leasing (leasing company)
S.I.T.A. (telecommunications provider)
CJSC TKP (clearing)
LLC EMS Garantpost (express mail)
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ANNUAL REPORT 2006
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63
OJsC dalavia
Priority Projects with the Companies of Aeroflot Group in 2006
OJsC Aeroflotdon
Aeroflot has increased its ownership to 100%
of stock capital
Merger of Airlines
of the Far East
Region on the Basis
of Aeroflot
OJsC vladivostok Avia
OJsC sakhalin Airlines
CJsC AeroflotCargo
Business operations running since 01.11.2006
Program underway to update aircraft fleet
CJsC Aeroflotplus
Decision made to obtain a license for the operation
and development of VIP air traffic business
increasing the authorized capital stock of JsC Aeroflot
Mechanisms
of Consolidation
exchange of state funds of the airlines of the Far east
for newly issued shares of Aeroflot
OJsC terminal
CJsC Aeromar
CJsC AeroMAsh
to increase the availability of air transport for the population
Agreements being prepared concerning the joint use
of space in the future Terminal 3 at Sheremetyevo airport
to create a competitive transportation hub in the Far east
and to attract international transit traffic
CJsC sheremetyevo Airport
CJsC ZAO dAte
Project goals
to ensure effective air transport communications
in the region, the employment of highlyqualified staff,
and the protection of the social stability in the region
CJsC sherotel
Construction underway on a new modern hotel building
to increase the tax returns into the budget on all levels
npF social partner
A project to reorganize the pension funds is underway
in order to consolidate assets and strengthen clients’
protection under pensions
to simplify the management of government assets
and increase their value
The development strategy for the Aeroflot Group in the upcoming year mainly entails developing the market of domestic passenger traffic and attracting a greater flow of transfer passengers.
In 2006, Aeroflot’s Board of Directors approved a project to consolidate the various enterprises of Russian civil aviation. The first stage of the project is to integrate the airlines
of the Far Eastern Federal Region in order to make them into one big competitive airline.
The project is scheduled to be completed by 2009.
Kamchatka
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4
main RISKS AND RISK MANAGEMENT
Risk management
As the largest competitor on the Russian aviation market, Aeroflot is subject to all the
risks inherent to the industry. The main risks that had a particularly significant impact
in 2006 are as follows:
• severe competition;
• increase in prices of resources and services required by airlines;
• seasonality of the business;
• national and regional risks;
• legal risks;
• increased operational risk for transport.
Industry Risks
The competitive situation on the Russian aviation market is characterized by two
features: reduction of presence of Russian airlines and increase in the amount of
foreign airlines, whose activity on the Russian market has distinctly risen up. That’s
why Aeroflot is focusing on the quality of its services, expansion and efficiency of
route networks, cooperation with reliable partners and agents, as well as a rebranding program.
There was a visible growth of prices of airline resources and services in 2006. First
of all it’s connected with the rise of prices of services from natural monopolies such
as jet fuel providers, aircraft repair facilities, air navigation systems, and airports.
Accordingly air ticket prices increased, which forced Aeroflot to raise the fuel, airport and air navigation components of its prices.
The seasonal nature of the airline business comes from dependence on the amount
of potential passengers throughout the year. Aeroflot adapts its route network to
seasonal market trends in the best possible way and holds a flexible tariff policy.
National and regional risks, which appear mainly when dealing with international
flights, include local armed conflicts, political instability, and natural disasters. Aeroflot considers the analysis of such factors to be of great importance. In the event of
a safety threat, responsive measures are as follows: suspension of flights to some
countries, changing routes, providing higher safety measures, and stricter sanitary
and epidemic control.
AEROFLOT
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RISKS AND RISK MANAGEMENT
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69
Among the potential legal risks are severe changes in Russian and international aviation regulations, tax and currency legislation, and licensing requirements. At present several international conventions regulating air transport activities are being
amended, while Russian legislation is constantly changing.
Aeroflot plays an active role in improving the Russian Federation legislation. Thus
in 2006 following the initiative of the Company, several changes were made in the
federal law entitled “On Currency Regulations and Control.” Representatives of the
airline also participated in the development of the project to amend the Air Code of
the Russian Federation, focusing on the clauses that concern the responsibility and
insurance of air carriers.
The increased operational risks in the transport industry are mainly connected with
flight safety, aviation security, operational reliability of equipment, and the qualifications of personnel. Aeroflot pays close attention to creating of a complex system to
monitor operational risks.
Preventative Measures in Operational Risk Control
ICAO regulations and IATA standards require that airlines take a systemic approach
to providing flight safety and aviation security. Aeroflot has developed a risk management system with the following goals:
• determine the Company’s risks in relation to flight safety;
• assume corrective measures to maintain an acceptable level of flight safety;
• continually monitor and regularly assess the level of flight safety;
• take measures aimed at constant improving the overall level of flight safety.
Special attention is paid to the influence of the human factor on flight safety. The basic
factors for reduction of this risk include:
• creation of a system for training different categories of specialists on how to reduce
the influence that the human factor has on the execution of official duties;
• development of a personnel motivation system and perfection of personnel training;
• maintaining the professional aptitude and high level of efficiency of personnel.
The success of the Company’s work in creating a risk management system to guarantee
flight safety and aviation security was confirmed by independent auditors, who appraised Aeroflot for the IOSA certification in 2006.
Operational Risk Control Program for Aeroflot
Operational Risk on Air Transport
Insurance Programs
Insurance, as one of the risk management instruments, allows to transfer a part of
Aeroflot’s risks to external financing. The complex system of insurance coverage
can be divided in to two components: aviation and non-aviation.
Prevention
Reducing Financial Consequences
Flight safety
risk management
insurance standards
and requirements
Aviation security
risk management
Aircraft hull
and liability insurance
human factor
risk management
posing a claim
to a guilty party
Aircraft maintenance
risk management
sharing risk
among partners
Aircraft ground handling
risk management
Crisis management
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71
Aviation Insurance
As leading international air carriers, Aeroflot considers a reliable passengers and airline insurance protection one of the Company’s main obligations.
Aviation insurance includes Aircraft Hull Insurance and Third Party, Passenger, Cargo,
Baggage and Mail Legal Liability Insurance . These types of insurance are not only a
will of the airline to minimize its risks, but also are requirements of civil aviation authorities, Aeroflot partners and counterparties, both in Russia and abroad.
Aeroflot’s positioning on the international aviation insurance market and the creation
of a positive Company image allow to gain steady lowering of Aircraft Hull and Legal
Liability Insurance rates.
Reduction of Aviation Insurance Premiums by Policy Periods*
Type of Insurance
Non-Aviation Insurance
Aeroflot insures its real estate, hull and legal liability risks for auto transport, and has
other types of insurance to secure the company’s business activities.
More than that in terms of insurance for personnel, the company offers social guarantees, as well as protection and operating safety for its employees. In the total insurance
packet, there is voluntary medical insurance for Aeroflot employees and their families,
professional disablement and accident insurance for flight crew and technical maintenance staff, and insurance for employees flying on business trips abroad. There are
also medical insurance programs for Aeroflot representatives and their families who
are located abroad.
Policy Period
2004-2005
in comparison
with 2003-2004
2005-2006 in
comparison with
2004-2005
2006-2007 in
comparison with
2005-2006
Aircraft Hull insurance for foreign made
aircraft (including IL-96s and spares)
–24.8%
–21.7%
–25.8%
Third Party, Passenger, Cargo, Baggage
and Mail Legal Liability Insurance
–11.5%
–0.9%
–11.9%
* Aeroflot’s policy period begins July 2 of the current year and is valid for a year.
In the last four years, the Aircraft Hull Insurance rate for foreign made aircraft and
IL-96s reduced by 2.16 times. Legal Liability Insurance rate decreased by 1.4 times
for international flights and by 1.3 times for domestic flights. The total reduction of
aviation insurance costs in last four years comes to 39.2%, while the overall industry
figures, which determine insurance costs, grew during this period.
Financial Risks
The financial risks that airlines face can be divided into two categories: price risks and
credit risks. Aeroflot singles out three basic types of price risks that are induced by
market price and interest rate fluctuations:
• changes in aviation fuel prices, which account for the largest part of the airline’s
budget;
• changes in exchange rates;
• changes in interest rates.
In 2006, Aeroflot continued its efforts to hedge risks associated with the purchase of
aviation fuel. The company concluded non-deliverable option contracts for aviation
kerosene on the St. Petersburg Stock Exchanges in order to enable a better financial
and budgetary planning.
Aeroflot operates flights to 47 countries, securing Third Party, Passenger, Cargo,
Baggage and Mail Legal Liability Insurance as required by the aviation authorities of
foreign governments, as well as by the SkyTeam and codesharing partner airlines.
Aeroflot’s combined single limit for liability insurance is USD 900 million. It’s is the
maximum sum that will be paid to passengers, third parties, cargo/baggage/mail
owners if an incident occurs.
Aeroflot has voluntarily set the combined single limit for passengers, third parties,
cargo/baggage/mail owners for domestic flights higher than it is required by Russian
legislation.
Aeroflot’s aviation insurance is provided by OJSC Moscow Insurance Company. The
re-insuring of risks is provided by the leading insurance companies in Great Britain,
France, Germany, and Switzerland, that are all world leaders in aviation insurance,
with a high reliability ratings.
Insurance Expenses Aeroflot in 2006
1.2%
1.5%
4.2%
72.1%
21%
Aviation insurance
Auto transport insurance
Medical insurance
Other types of insurance
Professional disability
and accident insurance
AEROFLOT
ANNUAL REPORT 2006
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73
Liquidity, currency and interest rate risks are most relevant to airlines as regards the
ratio between currencies used for company accounting purposes, payment/revenue
currencies; currencies, in which cash moves between company bank accounts, and
currencies, in which sales are made and bills are presented. Risks are inevitable in view
of a large number of Aeroflot representative offices abroad. The Company was able to
achieve a balance in its currency position due to the new methodology for calculating
that position and the introduction of an internal exchange rate within the company for
ticket sales inside Russia.
Credit and leasing agreements present the main interest rate risks for the airline, as
such agreements use a variable interest rate that is adjusted according to changes
in LIBOR rates (London Interbank Offered Rate). In view of the individuality of each
contract (agreement), the standard stock instruments for hedging interest rate risk
do not satisfy the requirements of the airline. According to the decision of the Financial Committee, Aeroflot is currently reviewing the possibility of concluding a general
agreement to use derivative instruments on the OTC (over-the-counter) market, which
will satisfy the Company’s requirement for non-standard hedging instruments for each
individual agreement. At present, new leasing agreements for aircraft allow the floating
exchange rate to be fixed.
In order to reduce credit risk for the organization of passenger ticket sales and non-fulfillment of transactional obligations to the Company by debtors/counterparties, Aeroflot sets minimum deposits for ticket blanks, uses standardized bank guarantees, and
sets different limits for different credit organizations as regards to bank guarantees
issued to customers of those banks who are ticket agents for Aeroflot.
The Company’s financial risk was substantially reduced by the introduction to the new
Sabre reservation and sales system, new paperless technologies for tickets sales, such
as online ticket sales. The Company will be able to improve developing e-ticket sales
operations and thereby reduce financial risk once the Russian legislation concerning
e-ticketing is amended in 2007.
Aeroflot maintains its efforts to properly share responsibility and obligations between
the Company and partner airlines in regards to accident and third-party risk insurance
and civil liability. These efforts are aimed to reducing the likelihood of non-fulfillment
or inadequate fulfillment of obligations under bilateral commercial agreements with
partner airlines. So, along with the existing standards for third-party risk insurance
and civil liability of subsidiary companies, similar standards were determined and approved in 2006 for Aeroflot’s partner airlines.
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5
SOCIAL DEVELOPMENT
Aeroflot’s business imparts certain social obligations on the Company. In 2006,
Aeroflot Group carried 8.7 million people to various points on the planet, with Company planes operating more than 100 routes. With a global scope of work, the airline
fully realizes how interconnected and interdependent the modern world is and how
important it is to build a responsible business in it.
Personnel
The formation of an effective system of cooperation within the airline, which contributes to the company’s competitive edge, is currently one of the main goals of Aeroflot’s
corporate policy.
The conception of the airline’s company and social policy focuses on the following
three factors:
• encouraging efficiency in the workplace;
• personnel training and development;
• an effective social policy.
The increasing role of the human factor in the modern business world has demanded
a new approach to personnel management. Accordingly, the airline’s management considers the following to be the most important measures in this regard:
• personnel development;
• training to give employees a full understanding of the company’s priority tasks, mission, goals, and role in the Russian and international economic arena.
The directors of all divisions of the airline integrate their activities in a general system
of company management. This system is focused on individual work, the development of
incentives, and other factors that influence an employee’s relationship to his/her work.
The system also provides for the continual professional growth of employees and noticeably improves the quality of employee services and social benefits, including retirement
pension plans.
The Company widely uses both material and non-material types of incentives. In 2006,
for example, several hundred employees were selected to receive awards. As such,
166 people received the medal for Best employee of Aeroflot; 421 received the Aeroflot
Certificate of Honor, and another 12 people were entered in the Aeroflot Book of Honor.
My dear friend! I am happy that we will soon embrace
again and remember the days of our youth in battle.
By the way, in honor of Victory Day, Aeroflot is granting
veterans free passage!
AEROFLOT
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SOCIAL DEVELOPMENT
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79
In the financial year, Aeroflot’s human resources management, for the second year in a
row, was a winner at the 2nd All-Russian Competition for the Best Russian Human Resours Service — 2006.
Number of Aeroflot Group Personnel
2006
2005
17,503
17,064
14,717
14,871
OJSC Aeroflot-Don
1,072
1,137
CJSC Aeroflot-Nord
1,427
1,056
CJSC Aeroflot-Cargo
287
–
Catering (CJSC Aeromar)
1,084
1,060
316
323
93
62
18,996
18,509
Airline
including
JSC Aeroflot
Hotel (CJSC Sherotel)
Others
Total
The average monthly salary of Aeroflot personnel in 2006 totaled 34 thousand rubles,
while the average age of employees is 42.
Development of Corporate Philosophy
The following tasks were implemented in 2006 to develop Aeroflot’s corporate philosophy:
• a work group was created, comprising of consultants, SkyTeam ‘ambassadors,’
brand supervisors as well as the people in charge of implementing the Care Quality
Management and Training Program;
• a platform for discussing the corporate philosophy within the company was created
on the basis of the Aeroflot Corporate Club;
• training in the corporate philosophy was provided for employees from 11 divisions
(more than 140 people), as well as for the company’s senior staff;
• a corporate film, conveying the value of the Aeroflot brand, was produced.
The company’s upcoming plans for the development of the corporate philosophy include:
• the publication of a dictionary of aviation terms and information materials for new
and existing company employees;
• improvement on the system of personnel incentives and certifications;
• the inclusion into the professional training programs of personnel who work directly
with the corporate philosophy.
Professional Training and Raising the Qualifications
of Employees
The professional training and development of personnel in 2006 was carried out in
two programs:
• professional training programs for flight and technical staff, cabin crew, and ground
control personnel;
• improving the qualification and certification levels of personnel.
Average salary, thousand rubles
Средняя заработная плата (тыс. руб.)
34 .0
30 .1
19 .4
22 .4
25 .4
16 .3
2001 2002 2003 2004 2005 2006
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ANNUAL REPORT 2006
SOCIAL DEVELOPMENT
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81
In 2006, the Aeroflot Training Center for Aviation Personnel (TCAP) organized and
conducted 983 training events to raise the qualifications, re-train and orientate personnel, including:
• 126 — for flight staff;
• 263 — for engineering-technical personnel;
• 291 — for cabin crew;
• 212 — for ground control personnel;
• 91 — language training.
Aeroflot’s transition to the Sabre booking and sales system required that personnel to
receive additional training. In 2006, 267 company employees underwent the training
programs “Reservations and ticket-printing in the Sabre system” and “Registration of
electronic airline tickets in the Sabre system.” The training programs were conducted
at TCAP, instead of at an outside center. This decision allowed the company to lower
their expenditures on training and forced them to raise their in-house training program
to a higher level.
To further perfect Aeroflot’s quality service, a training program “System Management
of ISO Series 9000 Quality and Standards” was organized for 131 company employees.
The program was also conducted at TCAP.
In 2006, to further train and improve their qualifications, Aeroflot employees actively
attended outside educational institutes. The selection of civil aviation institutes for
employee training is largely determined by flight safety requirements. These training
bases were presented by:
• Center for Further Training of Air Transport Personnel at the Moscow Civil Aviation
Institute, where 15 company employees were trained;
• Institute for Senior Staff and Specialists at the St Petersburg Civil Aviation Institute,
where 19 company employees were trained.
Following Aeroflot’s admission into the SkyTeam, company personnel underwent training on how to use the alliance’s various programs and uphold the SkyTeam standards.
As such, 117 Aeroflot employees had studied the program “Service oriented on the
brand,” 290 employees had studied the program “Assisting with ticketing operations,”
and 87 airline employees were trained in foreign languages, with 50 studying Chinese
and Korean and 37 studying English.
IATA study courses were organized for 3 Aeroflot employees (at the IATA Training and
Development Institute), while another 9 people had studied economics and advanced
manufacturing sciences at the Center for Modern Technologies and Standards in Aviation at the Moscow branch of the IATA Studies Center. In addition, 36 senior staff members and specialists at Aeroflot had studied at Air France Consulting.
Labor SAFETy
In 2006, the company’s labor and environment protection services were reorganized,
the supervision of the test laboratory that is responsible for supervising the work space
was changed, and a special Service for Production Control was created.
Throughout the financial year, this Service conducted scheduled tests of work spaces
and equipment, evaluating their compliance with the requirements and norms for labor
protection. The Service monitors the condition of ventilation and sanitary systems, appliances, machinery, and the mechanisms for protecting employees, both individually
and collectively.
The Service also supervises the observance of federal and other regulations for labor
protection, such as instruction in the work place to protect employees, both according to
their profession and type of performed work. The Service also ensures that equipment,
machinery, and other mechanism are routinely serviced and inspected. Furthermore,
great attention is given to the training and testing of employees who occupy high-risk
jobs (crane operators, riggers, electricians, machine drivers, and others).
In correspondence with the Program for manufacturing Control, planned medical,
sanitary, and hygienic checks were conducted. Periodic medical examinations are conducted at Aeroflot’s base medical center.
In December 2006, Aeroflot presented a new form of work clothes for employees of
ground services, as well as new designs for the uniforms of flight and cabin crews, created by the prominent Russian designer Viktoria Andreyanova. The Company regards
the new uniforms not only as an important element of the Company’s brand and image,
but also as functional clothing that needs to be practical and suitable for the particular
work environment. For this reason, modern, thermo-insulated material was used, making the new uniform comfortable, but at the same time durable and warm.
Social responsibility
Aeroflot is traditionally recognized for having outstanding social programs for its
personnel. The company’s efforts in this respect were officially recognized when the
company won the All-Russian Competition for Efficient Corporate Social Policy in the
nomination for “Best Implementation of Social Programs.”
In 2006, the following measures were taken to develop the company’s social programs:
• Resort facilities for the health and wellness of employees and their children: 1,857
Aeroflot employees were treated at sanatorium facilities, while 648 children of airline employees were treated at pediatric sanitary-health centers.
• Housing Assistance: The Company provided special-purpose interest-free loans to
22 employees for a total sum of 14.2 million rubles; other material help in the total
sum of 2 million rubles was granted to 57 employees who requested it.
• Private pension schemes: 461 individual contracts for private pension schemes
were concluded; 372 applications from former workers of the Company were reviewed, with 358 applicants receiving private pensions; pension plans were recalculated for 39 employees.
• Transport and other privileges: the company provides employees’ transportation to
work on 22 buses, making 97 trips a day, which helps to relieve the strain on the
city’s transport infrastructure and the toll on the environment; company workers
receive discounted rates for children’s preschools; food services for company employees were organized.
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SOCIAL DEVELOPMENT
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83
• Recreational and sporting events: Aeroflot representatives have competed in the
Ski Racing World Cup (Italy), Orienteering World Cup (Austria), World Hockey Tournament (Bangkok), the international football tournament between the world’s airline
companies (Prague), the International Issyk-Kul Sports Games, the major football
tournament Delovaya Rossiya, and a major volleyball tournament (Zelenograd);
Aeroflot’s council for physical training and sport successful organized a football festival at the Aeroflot Cup, two tennis tournaments held on the Aeroflot Day, as well as
a New Years tennis tournament.
• Meeting with veterans: meetings were arranged between veterans and youth during
the anniversary of the Battle of Moscow during World War II; veterans of the battle
received material aid in the amount of 10 thousand rubles.
Social and charity activities
Aeroflot does not shy away from the problems faced by both employees and those in
needs. The company consistently engages in social and charitable works and oversees
the implementation of several integrated social programs.
Moscow-Kaliningrad Air Bridge
The objective of the Moscow-Kaliningrad Air Bridge program is to create an “air
bridge” between Kaliningrad region and the rest of Russia (the Baltic region of Kaliningrad has been an enclave, without land connection to Russia, since break-up
of the USSR). The program helps to ensure that every Russian citizen has the right
to the freedom of movement. Aeroflot provides transport to and from Kaliningrad
at affordable prices for needy passengers as part of the program.
Support to Vulnerable Social Groups
Comrades in Arms
The Comrades in Arms program provides veterans of World War II with free seats on
regular Aeroflot flights to any destination in the Russian Federation or Europe, including the CIS and Baltic countries. Since 2005, this service has been fully available to
WWII veterans and invalids, living in the CIS and Baltic countries.
In six years, the Comrades in Arms program has provided free tickets to more than
24,000 veterans. In 2006 alone, over 3,000 former front-line soldiers, prisoners of
war, and survivors of the Leningrad blockade participated in the program.
Helping Sick Children and Invalids
In 2006, Aeroflot continued to support the “Wings of Hope” program, which renders
assistance to children in the Russian regions suffering from cardiovascular diseases.
Children in need of advanced medical assistance were flown to Moscow for treatment
at the Bakulev Scientific Center for Cardio-Vascular Surgery. The Children’s Hearts
Charity Foundation also contributed to the development of the project.
The Company also participated in a program to support non-relative bone marrow
transplants for children with oncological conditions. Aeroflot provided hematologists
with tickets to Europe for purposes of obtaining and transporting back to Russia bone
marrow to be used for the treatment of children with severe leukemia.
The Chance program is another Aeroflot’s unique contribution to saving sick children’s
lives by providing them with tickets to go abroad for medical treatment.
Support of the Art and Culture
Aeroflot has always made the support of Russian art and culture one of it main priorities of
its social works. In particular, the airline has focused on promulgating Russian classical arts
in both Russia and abroad by supporting major performing and fine art events.
As a result of Aeroflot’s five-year collaboration with the Moscow State Tchaikovsky Conservatory, many Russian musicians have had the opportunity to participate in prestigious
international competitions, festivals, and symposia, as the Company has provided transport
for the artists to destinations in Europe and the USA.
Aeroflot was also chosen as the official carrier for the Benua de la Dance award ceremony,
also knows as the Ballet Oscars.
Since 2002, the Company’s partnership with the Moscow International House of Music has
produced some of the most memorial classical music concerts in the city. The successful
collaboration of the airline and music hall continued throughout 2006.
Thanks to Aeroflot’s services, organizers of last year’s V Elena Obraztsova Young Opera
Singers’ Competition were able to assemble an outstaying panel of judges, which included
leading musicians and singers from the world’s top opera stages.
In May 2006, the airline continued its charitable work by transporting the family archives
of the Russian philosopher Ivan Ilin from New York to Moscow. The archives are valuable
relics of Russian history, and their return to Russia will replenish the country’s archives and
strengthen its sense national identity and heritage.
Also in 2006, the airline transported around 3 thousand Russian Muslim pilgrims out of
Jordan, where they had gone to participate in the Hadji.
Aeroflot also was the official carrier for the two thousand participants of the 59th World
Newspaper Congress and the 13th International Editors’ Forum, which were held in Moscow
under the aegis of the World Association of Newspapers (WAN).
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ANNUAL REPORT 2006
SOCIAL DEVELOPMENT
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85
Sports Support Program
Environmental Protection
For the fifth year, the company hosted the Aeroflot Open International Chess Tournament with USD 175 thousand of available prize money. The Company acts as both the
organizer and financial sponsor of the tournament, which is jointly hosted together
with the Association of Chess Federations and the Tourist Bureau of the Moscow Government. In 2006, around 600 players from 57 countries participated, including 130
international grand masters.
Aeroflot’s work to minimalize impact on the environment can be divided into two
categories: current work on a daily basis and longer-term strategic work. The first
one is conducted systematically and regularly in accordance with the environmental regulations of the Russian Federation and other countries in which the company
operates. The company’s strategic work aims to qualitatively change the toll that the
industry takes on the environment.
Aeroflot traditionally acts as a part of the Olympics Committee of the Russian Foundation. In 2006, Aeroflot flights delivered the Russian Olympic team, members of the
official delegation, guests, and tourists to the Winter Olympics Games in Turin, Italy.
The airline’s planes also transferred large-sized sports equipment and other complex
luggage to Italy.
One of the Company’s major strategic tasks for environmental protection is updating
the aircraft fleet with more fuel-efficient planes. As such, Aeroflot’s new aircraft adhere to the strictest ecological standards in terms of noise, emission of contaminants,
and other pollutions.
The Company pays particular attention to supporting children and youth sports, as well
as helping handicapped athlets. Since 2005, Aeroflot has supported the Russian Football Union, carrying the Russian national team and national youth team to international
and national competitions.
Program in Support of Science and Education
For the sixth year, Aeroflot assumed all costs for the transport of gold and silver graduates from schools all across Russia to Moscow for exams and interviews to enter higher
education institutions in the Russian capital. In 2006, the program extended its framework to include new participants — school children who won the all-Russian and the
International Olympiad in General Education. The company’s planes carried 250 medalists to their places of future study.
Aeroflot systemically supervises all company divisions to insure that the ecological protection standards are being observed, including the temporary storage and
disposal of production waste. Aeroflot also maintains an inventory of the stationary
source emissions and contaminants, as well as continually monitors and adjusts all
fuel systems, maintaining a level of gas and contaminant discharge within the acceptable limits.
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6
CORPORATE GOVERNANCE
Governing Bodies
Shareholders’
meeting
Audit
Committee
Revision
Committee
Board
of Directors
Strategy
Committee
Personnel and
Incentives Committee
Internal
Auditing Service
General
Director
Executive
Board
Shareholders’ Meeting
In 2006, three general meetings of Aeroflot shareholder’s were held.
An EGM of shareholders was held in absentee vote on April 10, 2006 to approve the
following transactions with interested parties:
• purchase-sales agreement 9,490,001 of the common shares of OJSC Terminal between JSC Aeroflot (seller) and OJSC Sheremetyevo International Airport;
• purchase-sales agreement 9,490,001 of the common shares of OJSC Terminal between JSC Aeroflot (seller) and the Vneshtorgbank;
• purchase-sales agreement 7,591,998 of the common shares of OJSC Terminal between Aeroflot (seller) and Vnesheconombank.
Owners of 44.92% of voting shares in the Company, who were also not interested parties
in the deal, had the right to vote. 70% of shareholders actually voted, with the EGM deciding
to approve the deals (Minutes No. 18 from April 10, 2006).
I booked a ticket
for you to come
on my birthday!
It is beautiful here, like a
fairy tale!
On May 16, 2006, the Meeting met to approve Aeroflot’s deal with interest from an investor for the acquisition of 30 new jet-engine planes of the regional class from CJSC Sukhoi
Civil Aircraft.
AEROFLOT
ANNUAL REPORT 2006
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91
Owners of 48.81% of voting shares in the Company, who were also not interested parties
in the deal, had the right to vote. 31.07% of shareholders actually voted, with the EGM deciding to approve the deal (Minutes No. 19 from May 16, 2006).
The annual general meeting of shareholders was held June 17, 2006, upon which the
following was approved (Minutes No. 20 from June 17, 2006):
• the Company’s annual report for 2005;
• the annual financial report, including the report of profits and losses of Aeroflot for
the 2005 accounting year;
• Aeroflot allocation of profit (including payment of (declareds) dividend), which according to results of the 2005 financial year,amounted to 0.82 rubles per one share
in pecuniary form;
• new compositions of the Aeroflot Board of Directors and Revision committee;
• the auditor for 2006 the auditing firm HLB Vneshaudit;
• changes and annexes to sections 8.3 and 8.4 of article 8 and section 19.2 of article
19 of the Aeroflot Charter, including the increased number of declared shares of the
Company to 250 million.
Further information about the decisions of AGM can be found in the “Shareholder and
Investors” section of the Aeroflot website — www.aeroflot.ru.
Board of Directors
The Board of Directors of Aeroflot is comprised of 11 people, three of which are non-executive independent directors.
Members prior
to the AG M
Ivanov V. P.
Antonov V. N.
Butrin M. R.
Members elected
by the AGM (17.06.2006)
Year Elected
to Board of Directors
Ivanov V. P.
2004
Antonov V. N.
2003
Danilitskiy A. A.
2006
Dushatin L. A.
2003
Kopeikin М. Yu
2004
Kopeikin М. Yu.
Nikitin G. S.
2006
Okulov V. M.
Okulov V. M.
1997
Tikhonov A. V.
2005
Shablin V. N.
2003
Sharonov A. V.
2006
Yurchik A. A.
2006
Grechukhin I. N.
Dushatin L. A.
Tikhonov A. V.
Uvarov A. K.
Fedorov A. V. .
Shablin V. N.
The structure of the Board of Directors as of December 31, 2006 is as follows:
Viktor Petrovich Ivanov —
Chairman of the Board of
Directors, Advisor to the
President of Russia.
Born in 1950, graduated from the Bonch-Bruevich Leningrad Electrotechnical
Telecommunications Institute.
2000–2004 — Deputy Head of the Russian Presidential Administration.
Does not have ownership in Aeroflot share capital.
Vladimir Nikolaevich
Antonov —
First Deputy CEO of Aeroflot for
Business Operators.
Born in 1953, graduated from the Moscow Railway Engineering Institute
1995–2002 — Deputy CEO of Aeroflot for Economic and Aviation Security, Deputy
CEO for Aviation Security, Deputy CEO for Aviation and Operating Security.
Ownership in Aeroflot share capital — 0.000425%.
Anatoly Antonovich
Danilitskiy
General Director of National
Reserve Corporation
Born in 1952, graduated from the Moscow State Institute for International
Relations.
2001–2004 — deputy, first deputy of general director at National Reserve Bank.
Independent non-executive director, member of the HR and Remuneration
Committee and the Strategy Committee of the Board of Directors.
Leonid Alekseevich
Dushatin —
First Deputy CEO of National
Reserve Corporation.
Born in 1960, graduated from Moscow Financial Institute.
1996–2002 — Vice President and Head of the Fuel and Energy Section, Deputy
Executive Chairman, Member of the Executive Board of the National Reserve Bank.
Independent non-executive director, Chairman of the Audit Committee for the
Board of Directors.
Mikhail Yurievich Kopeikin —
Deputy Head of the Cabinet
Office of the Government
of the Russian Federation.
Born in 1954, graduated from the Ordzhonikidze Management Institute in Moscow.
1996–2003 — Head of Economics Department, Head of Economics and Property
Management at the Cabinet Office of the Government of the Russian Federation.
Chairman of the HR and Remuneration Committee of the Board of Directors.
Gleb Sergeevich Nikitin —
Head of the Federal Agency for
Federal Property Management.
Born in 1977, graduated from St. Petersburg University of Economics and Finance
and the St. Petersburg State University.
1999–2004 — senior specialist, head of department, Head of the Federal Property
Management Committee, St. Petersburg.
Chairman of the Strategy Committee, member of the Audit Committee of the Board
of Directors.
AEROFLOT
ANNUAL REPORT 2006
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93
Changes in the structure of the Board of Directors in 2006
Valery Mikhailovich
Okulov —
CEO of Aeroflot.
Born in 1952, graduated from the Civil Aviation Academy.
1996–1997 — first deputy CEO of Aeroflot for Operations and Administration.
Alexander Vasilievich
Tikhonov —
Director of Department
of the Ministry of Transport
Born in 1957, graduated from the Kiev Higher Naval Political College.
From 2000–2004 — Deputy Head of Department, Head of Department of the
Ministry of Transport of the Russian Federation; Head of the Federal Agency for
Management of Federal Property.
Member of the Audit Committee of the Board of Directors.
Vladimir Nikolaevich
Shablin —
Senior Vice President
of National Reserve Bank.
Born in 1951, graduated from the Leningrad Makarov Naval Engineering College
and the Financial Academy attached to the Russian Government.
2000–2003 — Deputy CEO of Unicom Management Services (Limassol, Cyprus).
Non-executive director, member of the HR and Remuneration Committee of the
Board of Directors.
Andrey Vladimirovich
Sharonov —
Secretary of State — Deputy
Minister of Economic
Development and Trade of the
Russian Federation.
Born in 1964, graduated from the Ufa Aviation Academy, Russian Academy of State
Service.
2000–2003 and 2004–2005 — Deputy Minister of Economic Development and
Trade of the Russian Federation.
2003–2004 — Chief Deputy Minister.
Member of the Audit Committee of the Board of Directors.
Alexander Alekseevich
Yurchik —
Assistant Minister of Transport
Born in 1957, graduated from the Leningrad Military Academy of Rear Services and
Transport at the Ordzhonikidze State Management Institute.
1974–2004 — served in the Armed Service, since 1989, served on the Committee
of Military Communication for Aviation for the regional level and industrial civil
aviation unions.
2004–2007 — Deputy Director, Director of the Federal Agency of Air Transport.
Member of the HR and Remuneration Committee and Strategic Committee of the
Board of Directors.
At the Annual general meeting of shareholders on June 17, 2006, the following members of the previous Board of Directors were re-elected to the new Board of Directors:
V. N. Antonov, L. A. Dushatin, V. P. Ivanov, M. Yu. Kopeikin, V. M. Okulov, A. V. Tikhonov,
and V. N. Shablin.
The new chosen members of the Board of Directors are: A. A. Danilitskiy, G. S. Nikitin,
A. V. Sharonov, and A. A. Yurchik.
Report of the Board of Directors
The activities of the Board of Directors in 2006 were compiled in accordance with
the requirements of the Federal Law on Joint-Stock Companies, the Aeroflot Company
Charter, and the Company regulations concerning the Board of Directors.
Issues that were considered at the meetings of the Board and the lengths of their examination were determined in the Board of Directors Action Plan for the period from
June 2005 to June 2006 and from June 2006 to June 2007.
In 2006, the Board of Directors held 15 official meetings. Around 100 questions were
examined at these meetings, with 220 decisions made on the most pressing questions
of current activity and long-term development plans.
Particular attention was given to the following issues:
• flight safety;
• the implementation of the Aeroflot strategic development concept up to 2010;
• increasing the quality of passenger service;
• consolidation of airlines in the sector;
• reconstruction of the aircraft fleet;
• IT development;
• running the business of the Company subsidiary, Terminal, and work on construction of the Sheremetyevo-3 terminal complex;
• financial and commercial activity.
As in previous years, remuneration and/or compensation to members of the Board of
Directors were not paid in 2005.
The Aeroflot Board of Directors provisionally approved the Annual Report for 2006
(Minutes No. 13 from May 17, 2007).
AEROFLOT
ANNUAL REPORT 2006
94
95
Executive Board
The structure of the Executive Board as of December 31, 2006 is as follows:
Valery Mikhailovich Okulov —
Executive Board Chairman,
CEO of Aeroflot.
Vasily Nikolaevich Avilov —
Head of Aeroflot Administration.
Born in 1952, graduated from the Dzerzhinsky Higher
Naval Engineering College.
Vladimir Nikolaevich Antonov —
First Deputy CEO
for Business Operations.
Born in 1953, graduated from the Moscow Railway
Engineering Institute.
Yury Ilyich Belykh —
Technical Director and Head of Aviation
and Technical Section.
Born in 1941, graduated from the Moscow Aviation
Technology Institute.
Anatoly Ivanovich Volymerets —
Director of Aeroflot’s Ilyushin IL-96/IL-86
Flight Team.
Graduated from the Civil Aviation Academy.
Vladimir Vladislavovich
Gerasimov —
Deputy CEO for Material and Technology
Procurement.
Born in 1957, graduated from Lomonosov
Moscow State University.
Boris Petrovich Eliseev —
Deputy CEO, Director of the Aeroflot Legal
Department.
Born in 1957, graduated from the State University
of the Far East.
Alexander Alexandrovich
Koldunov —
Deputy CEO, Head of Flight Safety
Inspectorate.
Mikhail Igorevich Poluboyarinov —
Deputy CEO for Finance and Planning.
Born in 1966, graduated from the Moscow Financial
Institute.
Aleksey Albertovich Sidorov —
Commercial Director.
Born in 1952, graduated from the Moscow Institute of
Engineering and Economics.
Vladimir Vladimirovich Smirnov —
Deputy CEO, Director of Aeroflot Ground
Control.
Stanislav Georgievich Tulsky —
Deputy CEO for Flight Operations,
Director of Flight Section.
Changes in the Executive Board
By decision of the Board of Directors (minutes No. 15 from May 22, 2006), Executive
Board member E. V. Bachurin was relieved of his duties following his transfer to the
Federal Air Transport Agency.
Report of the Work of the Executive Board in 2006
In 2006, the Executive Board held 46 meetings, during which 128 issues were examined. Matters discussed included:
• flight safety;
• financial state of the Company;
• restructuring of the aircraft fleet;
• reconfiguration of the aircraft fleet;
• construction of the new terminal, Sheremetyevo-3;
• installation of new IT solutions;
• passenger services;
• management of companies in which Aeroflot has stakes;
• social issues;
• insurance.
Remuneration to Executive Board Members
In accordance with Article 5.8 of the Statute on the Services and Remuneration of
Aeroflot Executive Board Members, including benefits and social guarantees, members’ remuneration and bonuses shall be specified in accordance with the positions
they hold, statutory legal acts of the Russian Federation and of the Company, which
regulate conditions of payment for employees, definition and amount of benefits and
social guarantees for Company employees, as well as the staff list, and will be laid down
in employment contracts signed between Executive Board members and the Company.
The amount of remuneration and bonuses payable to Executive Board members shall
be specified by the Company’s Board of Directors.
As specified by the standard contract, which was approved by the Aeroflot Board of
Directors, a monthly remuneration equal to RUR 10,000 (ten thousand rubles) is paid
to each member of the Executive Board in addition to the salary paid for official duties
in their primary positions.
AEROFLOT
ANNUAL REPORT 2006
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97
Financial and Business Control
Revision Committee
Andrey Nikolaevich
Khvostunkov —
Chairman of the Aeroflot Revision
Committee, Deputy Head of Federal
Tariff Service.
Born in 1962, graduated from the Moscow Engineering Institute
of Civil Aviation, Russian Academy of State Service.
1999–2002 — Chief of Department, Deputy Director of the AntiMonopoly Ministry of Russia
2002–2004 — Deputy Director of Department, Head of
Department at the Federal Energy Commission of Russia.
Dmitriy Yuryevich Galkin —
Head of the Internal Auditing Service
at Aeroflot.
Born in 1963, graduated from the Ordzhonikidze Management
Institute in Moscow.
1988–2002 — Economist, Chief Economist, Head of
Department, Deputy Chief of the Control-Inspection Service at
Aeroflot.
Tatyana Vladimirovna
Gorbachik —
Director of the Finance Department
at the Ministry of Transport of the
Russian Federation.
Born in 1970, graduated from the Moscow Technical Institute of
Light Industry.
1993–2004 — Chief Expert, Senior Treasurer, Head Treasurer,
Deputy Department Chief, Head of Department in the Central
Administration of the Federal Treasury of the Ministry of Finance
of Russia.
Changes in the Revision Committe
At the annual metting of shareholders on June 17, 2006, one member of the previous
Revision Committee, V. G. Mironova, was re-elected to the new Revision Committee.
Dmitriy Galkin, Tatyana Gorbachik, Andrey Khvostunkov, and Irina Svyatova were also
elected to the new Revision Committee.
Revision Committee Activity
In the previous year, the Revision Committee conducted four meetings, at which members analyzed the extent to which the Company’s planned tasks had been implemented,
as well as participated in a special working group that was created to investigate the
terms of the financial leasing agreement for IL-96-300 planes. The issues reviewed are
as follows:
• analyzing the series of tenders that were conducted with international companies,
firms, and interested organizations for rendering of services for the purchase of
goods (executed work);
• reviewing accounts receivable and accounts payable;
• checking the expenditures on aeronavigation service.
Remunerations to Member of the Revision Committee
Vera Grigorievna Mironova —
Head of the Finance and Economics
Section of the Federal Air Transport
Agency.
Born in 1950, graduated from the All-Union Correspondence
Institute of the Food Industry.
2000–2004 — Deputy Head of Department at the Ministry of
Transport of the Russian Federation.
Irina Nikolaevna Svyatova —
worked as Deputy Director of
the Department of Finance and
Consolidated Financial Reports at the
Federal Agency of Air Transportation
until November 25, 2005.
Born in 1950, graduated from the Moscow Railway Engineering
Institute
No salaries or other material reward for members of the Audit Commission were envisaged for payment or actually paid during 2005.
Internal Audit
The internal audit of the Company is conducted by the Company’s Internal Audit Service
in accordance with the Aeroflot Internal Audit Regulations established by the Board of
Directors. The main tasks of the Internal Audit Service are:
• to ensure that internal control mechanisms are efficient and correspond to the size
and character of the Company’s activities;
• to analyze and audit the efficiency of operational, commercial, financial and other
processes (procedures);
• to ensure that the activities of Company’s divisions, representations, and subsidiaries are efficient and comply with the Company Charter.
At the end of 2006, the service had a total of 21 members.
The Internal Audit Service conduct its work based on a quarterly plan, as established
by the general director. Throughout 2006, the Service carried out more than 40 checks
of the various accounts of the Company and its divisions. The results of the checks were
summarized in official documents, which served as the basis of any further investigation of any financial violations.
AEROFLOT
ANNUAL REPORT 2006
98
99
External Audit
Audit of Aeroflot’s financial statements for 2006 was conducted by:
• CJSC HLB Vneshaudit, in accordance with Russian Accounting Standards.
• CJSC Deloitte & Touche CIS, in accordance with International Financial Reporting.
Information Disclosure
Aeroflot continually works to ensure that its business operations are transparent
and that information about its activities is properly disclosed. The Company pays
particular attention to communications with company shareholders. In order to optimize information exchange and interactive communication, Aeroflot, in keeping
with the latest trends, has created a special division for shareholder and investor
relations. The service is responsible for creating and maintaining direct contacts
with Russian and holders of Aeroflot international shares or depository receipts.
Aeroflot discloses information about its business in compliance with Russian law, maintaining a corporate information policy that is in line with the best international practice
in the sphere of information disclosure. The main principles of the information policy are
as follows:
• regular and timely supply of information;
• access to all shareholders and other interested parties;
• accuracy and completeness;
• maintenance of a proper balance between transparancey and confidentiality to ensure the protection of the Company’s business interests.
Accordingly, Aeroflot has implemented an optimal communications policy, which entails issuing press releases, hosting press conferences, briefings and investors meetings with senior Company officers and representatives at which information about the
current business status of the Company is disclosed.
Further information about Aeroflot is available on the Company’s official websites
www.aeroflot.ru. Information about JSC Aeroflot may also be found on www.skrin. ru
and www.db.com.
Compliance with the Code of Corporate Conduct
In all its business activities, Aeroflot adheres to the recommendation of the Corporate
Code of Governance the FSFM (Federal Commission for the Securities Market of Russia).
The Code of Corporate Governance of Aeroflot, as was approved by the Company’s
Board of Directors in 2004. It is designed to strengthen the confidence of interested
parties, ensure the accountability of the Company before its shareholders, as well as
develop and support the effective cooperation with parties interested in the Company’s
activities.
Sochi
103
7
SHAREHOLDERS AND INVESTORS
Shareholders Capital
Aeroflot’s share capital did not change in 2006, remaining at 1,110,616,299 rubles
divided into 1,110,616,299 common shares with a par value of 1 ruble.
As of December 29, 2006, the number of shareholders of Aeroflot was 11,377 .
Structure of Share Capital (Major Holders of Aeroflot Stock as of 29.12.2006)
Total number
of shares
(per unit)
Share of
stock capital, %
1,018,712,441
92.08
Holder
568,335,339
51.17
CJSC Depository Clearing Company
Nominal holder
394,688,578
35.54
National Depository Center
Nominal holder
18,612,561
1.68
LLC Deutsche Bank
Nominal holder
16,875,900
1.52
ING Bank (Eurasia), CJSC
Nominal holder
7,403,121
0.6
J.P. Morgan International Bank
Nominal holder
5,903,243
0.53
CJSC Raiffeisen Austria
Nominal holder
4,710,450
0.42
CJSC Citybank
Nominal holder
3,984,900
0.36
Joint-stock commercial bank Rosbank
Nominal holder
1,474,200
0.13
CJSC UBS NOMINEES
Nominal holder
464,200
0.04
Holders
Status
Total legal entities — 31, including:
Russian Federation (as the Federal
Agency for Federal Property Management)
Total individual — 11,346
Group arrives from
Frankfurt.
Flight number SU104
(Frankfurt — Sochi).
7.92
On June 17, 2006, amendments to the Aeroflot Corporate Charter concerning the set
number of common shares were approved at the Shareholders AGM. As such, in addition to the shares outstanding, the Company has the right to issue 250,000,000 (twohundred fifty million) common shares with a par value of 1 (one) ruble each (authorized
shares).
AEROFLOT
ANNUAL REPORT 2006
104
105
Securities
Main share indicators
Information about Securities
Type, category
Number of shares
outstanding
(per unit)
Par value of
one share
(rubles)
73-1 p-5142,
22.06.1995
Common, registered,
non-documentary
3,164,149
1
1-02-00010-А,
05.04.1999
Common, registered,
non-documentary
1,107,452,150
1
1-01-00010-А,
23.01.2004
(these share issues were
combined)
Common, registered,
non-documentary
State registration number, date of registration
Share price, USD
2002
2003
2004
2005
2006
0.42
0.27
4.3
8.0
383
0.69
0.33
6.0
11.4
1,368
1.23
0.69
7.9
15.9
1,368
1.73
1.13
8.3
17.9
1,566
2.35
1.44
9.3
24.3
2,418
Max
Min
P/E
Earnings per share, US cents
Market capitalization, USD millions
Total Trade Volumes
1,110,616,299
1
Weekly averages*
Yearly total, USD
Total transactions
112,579
5,628,936
146
MICEX**
5,071,576
253,578,799
87,861
Total
5,184,155
259,207,735
88,007
RTS
The main stock exchanges at which Aeroflot shares are traded:
• The Russian Trading System (RTS), quote list A2, where Aeroflot shares have the
trading code AFLT and AFLTG — www.rts.ru;
• Moscow Interbank Currency Exchange (MICEX), quote list A2, where Aeroflot shares
have the trading code AFLT — www.micex.ru.
* 50 weeks.
** The average nominal exchange rate in 2006 was 27.18 rubles per one US dollar.
The common shares of Aeroflot are included in the RTS and MICEX indexes.
Performance of quoted shares of Aeroflot in comparison with the RTS index and the indexes of the aviation industry (graph title)
Aeroflot stock performance compared to the RTS index and the indexes of aviation industry
Structure of Share Capital
Structure of Share Capital
Aeroflot market capitalization, USD millions
Aeroflot market capitalization, USD millions
2,418
8%
1,368
51%
1,566
250
$2 .5
200
$2 .0
150
$1 .5
100
$1 .0
50
$0 .5
0
766
41%
383
Russian Federation
Legal entities
Individual
2002 2003 2004 2005 2006
$
02 .01 02 .02 02 .03 02 .04 02 .05 02 .06 02 .07 02 .08 02 .09 02 .10 02 .11 02 .12
AFltAvrg
BwAirl index
rt si/10
xAl index px last
AFltAvrg — average quote for Aeroflot in the rts
rtsi/10 — rts index
BeuAirl — Bloomberg index of the leading european airlines
BwAirl — Bloomberg index of the leading international airlines
xAl — us airline stock index
BeuAirl index
AEROFLOT
ANNUAL REPORT 2006
106
107
In order to attract investments and facilitate purchase of company’s securities by international investors in 2000, Aeroflot initiated a depository receipts program.
Important Events since December 31, 2006
In December 2000, Aeroflot and Bankers Trust Company signed a depository agreement, according to which level-1 global depository receipts (GDR) are to be issued for
Aeroflot shares.
January
Aeroflot’s Board of Directors approved the Plan for Consolidation of Airlines in the Far East, which stipulates
the integration of the Far Eastern major airlines — Dalavia, Sakhalin Airlines, and Vladivostok Avia. The next
phase of the plan calls for the addition of several other regional airlines.
Under Aeroflot’s GRD program, shares are converted into depository receipts and vice
versa, based on the ratio of 100 common shares to one GDR. The issuance of GDRs is
implemented according to Rule 144A/Regulation S for circulation in Europe and USA.
The receipts are traded on level one of the Frankfurt Stock Exchange (as part of the
Deutsche Borse Group).
February
On February 6, Aeroflot began operating regular flights along the Sochi-Frankfurt-Sochi route. As a quickly developing resort destination, Sochi stands to greatly benefit from the opening of air service to a major European
transport hub, especially in terms of strengthening its chances to win the bid for the 2014 Winter Olympic and
Paralympic Games.
On February 15, Aeroflot’s Board of Directors approved the program to gradually replace Tu-134 aircraft. All
13 Tu-134s currently in the Aeroflot fleet will be taken out of operation by January 1, 2008.
Aeroflot participated in the XII International Forum “Security and Safety Technologies 2007.” At the exhibition,
the airline demonstrated the work of its patrol dogs department, which uses trained dogs to find explosives.
The Company also participated in the competitive program for “The Best Technological Innovations for Security
2007,” winning the award for “Protection of People’s Vital Function,” and also received an award and medal for
the “Mobile Patrol Dogs Complex.”
March
On March 10 and March 14, Aeroflot received two new A320s under an operational lease contract. The new
aircraft were named in honor of two great Russian painters — K. Bryullov and V. Surikov.
On March 15, Aeroflot approved a new program for the use of interline-tickets with the SkyTeam partners:
Aeromexico, Continental, Korean Air, KLM, and Delta.
On March 20-21, the SkyTeam’s Council for Flight Safety and Aviation Security and Quality held a regular
meeting in Mexico.
On March 22, Aeroflot signed a protocol of intent with Airbus for the acquisition of 22 long-haul A350 XWB
planes. The delivery of the aircraft will occur throughout the period from 2014 to 2017.
On March 26, the Aeroflot brand name celebrated its 75th year anniversary. The Aeroflot trademark is one of
the classic symbols of Russia and the most famous commercial brand in the country.
On March 29, Aeroflot signed a protocol of intent with the leasing company AerCap (AER) for the operational
lease of ten new long-haul A330-200 planes. The first two A330-200s will be delivered to Aeroflot in 2008,
with 5 more in 2009 and 3 more in 2010.
On March 30, Aeroflot and the United Aircraft Building Corporation (UABC) signed a protocol of intent for
the financial lease of six new wide-body IL-96-400T cargo planes, to be delivered throughout the period from
2008-2010.
April
On April 3, the Board of Directors approved a decision to create an Aeroflot branch office in Sochi in order to
strengthen the airline’s presence in one of the most dynamically growing regional aviation markets.
On April 4, Aeroflot won the national award “Wings of Russia — 2006” in two top nominations — Russia’s best
passenger carrier on domestic and international routes (among major airlines).
May
Aeroflot began operating regular passenger flights along the Moscow-Surgut-Moscow route.
On May 22, Aeroflot and CJSC Sukhoi Civil Aircraft announced the signing of an Agreement, according to
which Sukhoi will deliver to Aeroflot 15 aircraft from the new line of Sukhoi Superjet 100. In compliance with
the Agreement, the airline will obtain the fifteen SSJ100/95s in a basic configuration. The deliveries are scheduled to begin May 2011.
June
On June 1, Aeroflot began issuing electronic tickets on the territory of the Russian Federation.
On June 23, the Aeroflot shareholders annual general meeting was held.
Deutsche Bank is a depository bank for this program, which in turn has the shares
registered through a special Aeroflot registrar — NRC.
According to a special depository agreement, up to 20% of Aeroflot’s voting shares can
be converted into GDRs.
Dividend History
Total accrued
amount (USD)
Number of shares
at cut-off date
Dividend per one
share (US cents)
1999
441,339.37
1,110,616,299
0.040
2000
1,183,184.98
1,110,616,299
0.107
2001
2,210,914.99
1,110,616,299
0.199
2002
10,133,210.02
2003
16,476,837.00
1,110,616,299
1.5
2004
28,016,858.70
1,110,579,386 2
2.5
2005
31,650,213.86
1,110,616,299
2.9
Dividend period
1,110,460,578
1
0.913
As of the ex-dividend date, 155,721 shares were on the issuer’s client account and dividends on these shares were
not accrued
1
2
As of the ex-dividend date, 36,913 shares were on the issuer’s client account and dividends on these shares were
not accrued.
Krasnoyarsk region
111
8
FINANCIAL REPORT
STATEMENT OF MANAGEMENT’S RESPONSIBILITIES FOR THE PREPARATION
AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 31, 2006
The following statement, which should be read in conjunction with the independent auditors’ responsibilities stated in the independent auditors’ report set out on pages 120–121, is made with a
view to distinguishing the respective responsibilities of management and those of the independent
auditors in relation to the consolidated financial statements of Open Joint Stock Company “Aeroflot – Russian Airlines” and its subsidiaries (the “Group”).
Management is responsible for the preparation of the consolidated financial statements that present
fairly the consolidated financial position of the Group as of December 31, 2006, and the consolidated
results of its operations, cash flows and changes in equity for the year then ended, in compliance
with International Financial Reporting Standards (“IFRS”).
In preparing the consolidated financial statements, management is responsible for:
• selecting suitable accounting principles and applying them consistently;
• making judgments and estimates that are reasonable and prudent;
• stating whether IFRS have been followed, subject to any material departures disclosed and explained in the consolidated financial statements; and
• preparing the consolidated financial statements on a going concern basis, unless it is inappropriate to presume that the Group will continue in business for the foreseeable future.
Management is also responsible for:
• designing, implementing and maintaining an effective system of internal controls, throughout the
Group;
• maintaining proper accounting records that disclose, with reasonable accuracy at any time, the
financial position of the Group, and which enable them to ensure that the consolidated financial
statements of the Group comply with IFRS;
• maintaining statutory accounting records in compliance with local legislation and accounting
standards in the respective jurisdictions in which the Group operates;
• taking such steps as are reasonably available to them to safeguard the assets of the Group; and
• preventing and detecting fraud and other irregularities.
The consolidated financial statements for the year ended December 31, 2006 were approved on
May 29, 2007 by:
Business Trip
Things to do before leaving:
– buy some Siberian nuts for the kids
– buy mom and mother-in-law
Beresta hats
– take pictures along the Yenisei river
General Director
V. M. Okulov
Deputy General Director
Finance and Planning
M. I. Poluboyarinov
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
112
113
Passenger yield (USc/RPK)
Passenger yield (USc/RPK)
Financial Results
In 2006, Aeroflot earned revenues of USD 2,982.7 million, representing an 18.1% increase
compared with 2005 level. Operating costs rose 14.1% from 2005, totaling USD 2,605.7
million. Operating income was USD 377.0 million, which is 55.7% more than in 2005.
Income before taxes grew by 39.1% in 2006 to USD 387.9 million. The net income of Aeroflot Group increased by 36.0%, totaling USD 258.1 million.
7 .3
6 .9
6 .4
8 .2 8 .0
9 .2 8 .9
6 .4
5 .4
5 .1
scheduled
Headline financial results (USD millions)
Revenue
Operating costs
Operating income
Non-operating income (loss), net
Income before taxation and minority interest
Taxation
Minority interest
Net Income
scheduled
domestic flights
2006
2005
%
2,982.7
2,526.3*
18.1
(2,605.7)
(2,284.2)*
14.1
377.0
242.1
55.7
(9.5)
62.2
387.9
278.8
(129.8)
(89.0)
(2.7)
(5.6)
258.1
189.8
39.1
2002
2003
2004
2005
2006
the 2005 level. The growth was achieved due to the increase in the passenger traffic
volumes and the higher passenger yield.
Revenues from domestic passenger traffic grew by 28.3%, totaling USD 636.0 million.
The growth was achieved owing to higher passenger yield.
Cargo Revenue
36.0
* A certain reclassification has been made to the financial statements for the year ended December 31, 2005 to bring
it in line with current year presentation. Such reclassifications do not affect retained earnings.
Revenues from cargo and mail traffic grew by 6.6% in 2006, totaling USD 264.4 million. Most of the cargo revenues (84.2%) were earned from traffic on international
routes. The growth in revenues was due to higher yields.
Cargo yield* (USc/CTK)
Cargo yield (USc/CTK)
Revenue Components
In 2006, Aeroflot generated 74.1% of revenue from passenger traffic, 8.9% from cargo and mail traffic, 13.3% from commercial agreements with foreign airlines on joint
route operations, and 3.7% from other business.
28 .3
21 .8
20 .5
30 .2
23
Passenger Traffic Revenue
Passenger traffic revenue rose by 20.7% in 2006 to USD 2,209.9 million. This growth
is the results of the Company’s optimization of route networks, effective tariff policy,
and the improvement of the commercial operations of the Group.
Revenues from scheduled international passenger traffic totaled USD 1,573.9 million,
which represents 71.2% of the total volume of revenues and a 17.8% increase from
2002 2003 2004 2005 2006
*Scheduled flights.
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
114
115
Revenue from Agreements with Airlines
Revenues from commercial agreements with foreign airlines on joint operation of
routes totaled USD 396.1 million, which represents at 11% growth from the 2005
level. The increase in revenues was due to increase in flight frequency and carrying
volumes.
Other Revenue
Profits from other activities includes revenue from ground services at Sheremetyevo airport, from refueling aircraft of other airlines, and other services. Revenue in
2006 from other business totaled USD 112.3 million, representing an increase of
24.8% from 2005.
Operating costs breakdown, 2006
7.0%
1.8%
2.9%
3.7%
5.2%
Sales and marketing
Operating lease expenses
15.7%
6.4%
Administration and general expenses
Passenger services
Communication expenses
Other expenses
6.9%
15.1%
Revenue (USD millions)
2006
2005
%
Passenger revenue
2,209.9
1,831.2
20.7
incl. international*
1,573.9
1,335.6
17.8
domestic
636.0
495.6
28.3
Cargo revenue
264.4
248.1
6.6
Airline revenue agreements
396.1
357.0
11.0
Other revenue
112.3
90.0
24.8
2,982.7
2,526.3
18.1
Total revenue
Aircraft fuel
Staff costs
Aircraft and traffic servicing
Maintenance
35.3%
* All charter passengers are included in the international segment.
Operating Costs
Aeroflot’s operating costs in 2006 totaled USD 2,605.7 million, which represents
a 14.1% growth from 2005.
In 2006 operating costs are dominated by three groups of expenses, which are:
• fuel (35.3%);
• aircraft service (15.1%);
• employee wages (15.7%);
• technical service (6.9%).
The biggest impact on change in the structure of costs in 2005 was from growth of
aircraft fuel, of prices for airport and air navigation services, and from increase of
flight hours.
Aeroflot Group’s expenditures on jet fuel increased by 24.2% in 2006, topping off at
USD 179.1 million. Compared to the same period last year, fuel price went up 18.4%,
totaling USD 96.7 per ton. The increase of flight hours in the financial period also influenced the growth of expenditures on jet fuel.
The Company’s expenses for aircraft maintenance grew by USD 46.2 million, a 13.3%
jump from 2005. The increase is mainly due to higher prices for airport and air navigation services, as well as increased flight hours.
Expenses for employee wages grew by USD 66.9 million, a 19.6% increase from the
previous year. This growth is due to raises in employee salaries, a 6.5% increase in
flight hours, as well as the additional personnel needed for subsidiary companies on
account of the increased volume of work.
Expenses for the technical maintenance of aircraft decreased by USD 22.5 million, an
11.1% drop. The reduced expenditures can mainly be attributed to the Company’s efforts to update the aircraft fleet and regularly repair aircraft in the reporting period, as
well as the decreased costs for repairing Russian-made aircraft.
Unit costs (USc/RTK)
Unit costs (USc/RTK)
85 (+7 .5%)
79 .1
68 .4
63 .4
12 .4
13 .6
69 .8
30
25 .5
17 .7
(+17 .6%)
aircraft fuel
51
54 .8
52 .1
53 .6
55
(+2 .6%)
2002
2003
2004
2005
2006
other expenses
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
116
117
Expenses for the operational lease of aircraft grew by USD 6.0 million in 2006 (a 4.7%
increase), which is due to the acquisition of new aircraft under operational lease, including three A320s and two B767s.
Expenses for sales and marketing activities grew by USD 23.9 million in 2006 (a 16.8%
increase), which is mainly due to increases in agents’ commissions in light of the Group’s
growing profits.
The Company’s other types of expenses lowered by USD 19.0 million, or 13.2%. The
main reasons for this decrease are as follows:
• less costs for insurance;
• a decrease in accrued reserves (for bad debt, depreciation of investment, etc.)
Operating costs (USD millions)
2006
2005
%
Aircraft fuel
920.3
741.2
24.2
392.6
346.4
13.3
Staff costs
409.2
342.3
19.5
Maintenance
179.9
202.4
(11.1)
Sales and marketing
166.3
142.4
16.8
134.5
128.5
4.7
96.6
92.6
4.3
Depreciation
97.2
80.0
21.5
48.0
41.8
14.8
161.1
166.6
(3.3)
2,605.7
2,284.2
14.1
Other expenses*
Total operating costs
Non-Operating Income
Non-operating income (loss) (USD millions)
2006
2005
(30.7)
(25.3)
Interest income
4.0
6.9
Share of result of equity accounted investments
8.4
5.7
Foreign exchange and translation gain, net
38.7
(12.8)
Other non-operating (expenses)/ income, net
(9.5)
62.2
Total
10.9
34.6
Interest expense
The decrease of other non-operating income this year compared to the last year is
explained by non-operating income items that are non-existent for this year, i.e. tax
restructuring charges, changes in accounting of VAT on cargo transportation services
outside of Russia, and income on fuel option.
Capital Expenditures
In 2006, the capital expenditures totaled USD 534.1 million. The biggest expenses
were related to the acquisition and modernization of aircraft and equipment for them
(67.02%), construction and renovation of buildings and facilities (27.87%), and the
acquisition of vehicles and transportation equipment, computer equipment, and other
operating and commercial inventory (4.02%).
In line with the Company’s program to modernize the aircraft fleet, four Airbus A-321s
and five Boeing 737-500s were obtained under financial lease contracts in the accounting year. Advances were also given for the acquisition of three Airbus A-321s and
30 RRJ95B aircraft.
In 2006, construction continued on the new “Water-Land” training system for the
emergency rescue training of flight and cabin crew. The purpose of the new facility,
which opened 28.12.2006, is to create an Aeroflot training base that complies with the
European JAP OPS standards and ICAO recommendations. Work was also carried out
to modernize existing training systems.
As part of the Company’s work to guarantee flight safety, Aeroflot replaced depreciated
equipment for the ground servicing of aircraft at Sheremetyevo Airport (Elephant and
VTS machines, lifts, etc), and machinery used for technical servicing of aircraft.
Over the course of the year, Aeroflot made investments in the development of corporate
information technologies (such as the acquisition and modernization of computing and
business equipment) in order to raise the overall level of automation in the Company,
keep IT systems up to date, and introduce electronic systems for reservations and passenger registration, as well as internet sales.
The largest share of capex in 2006 was invested in the construction of the new terminal complex Sheremetyevo-3, the construction of a new office building for the Company, as well as the acquisition of office space for the airline’s representative offices in
Astrakhan, Vladivostok, St. Petersburg, Yekaterinburg, Perm, and Sochi.
The most significant types of other capital expenses include the acquisition of new
uniforms, special clothing, and catering equipment.
Borrowings
The structure of the Company’s credit portfolio changed significantly in 2006, as there
was an pre-term redemption of all long-term borrowings (a syndicated credit of USD
150 million and a unsecured credit of USD 30 million, provided by the bank WestBL
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
118
119
Vostok), as well as the early redemption of the 5-year project loan from ATB bank to finance the acquisition of Tu-154s. The optimization of short-term borrowing terms with
bank agents, in particular Sberbank Russia, offered a revolving credit line, with a fixed
rate and unsecured (previously aircraft were pledged); borrowing from other credit
banks under the agreement in structuring bank margins in accordance with credit
terms; a 2.5 year syndicated credit loan was given for USD 33.1 million at the rate of
LIBOR+1.75% for the advanced payment for seven Airbus A321-200 aircraft to the
company Airbus S.A.S. The deal was organized by Calyon, Natexis Transport Finance,
and Natexis Banques Populaires.
In 2006, OJSC Terminal was credited by Vnesheconombank for a total of USD 99.2 million towards the construction of the Sheremetyevo-3 airport terminal complex.
Group’s total interest expenses in 2006 amounted to USD 10.7 million, as compared to
USD 11.5 million in 2005.
In order to optimize debt expenses, Aeroflot achieved the reduction of bank margins
on credit facilities. Reduction of the average weighted bank margin of debt portfolio
from 2.41% in 2005 to 2.11% in 2006 (during which the average margin for shortterm borrowings reduced from 2.33% in 2005 to 1.49% in 2006, while the margin for
long-term credit lowered from 2.5% to 2.15%) was achieved through detailed analysis
of the current state of the corporate debt market, which resulted in a savings of USD
233 thousand in absolute terms.
Cash flows (USD millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Effect of exchange rate change
Cash and cash equivalents at the end of the year
Segment information
Financial data (USD millions)
Years ended December 31
2006
2005
%
2,943.5
2,497.4
17.9
–
–
–
2,943.5
2,497.4
17.9
(2,578.6)
(2,259.4)
14.1
364.9
238.0
53.3
External sales
16.3
13.7
19.0
Inter-segment sales
42.5
27.8
52.9
Total revenue
58.8
41.5
41.7
(49.9)
(47.0)
6.2
8.9
(5.5)
261.8
17.1
14.2
20.4
4.9
5.1
(3.9)
Airline:
External sales
Inter-segment sales
Total revenue
Operating costs
Operating income
Catering:
Operating costs
Operating income
Hotels:
External Sales
2006
2005
371.7
211.9
(279.7)
(190.6)
(21.5)
23.3
70.5
44.6
1.3
(0.3)
181.3
109.5
Inter-segment sales
Total revenue
22.0
19.3
14.0
(14.8)
(14.0)
5.7
7.2
5.3
35.8
External Sales
5.8
1.0
480.0
Inter-segment sales
2.1
1.1
90.9
Total revenue
7.9
2.1
276.2
(11.4)
(0.7)
1 528.6
(3.5)
1.4
(350.0)
–
–
(49.5)
(34.5)
(43.5)
Operating costs
Operating income
Other businesses:
Operating costs
Short-term and long-term loans (USD millions)
Operating income
2006
2005
22.5
60.6
Loans and credit lines in Russian rubles
206.3
40.3
Short-term loans
228.8
100.9
5.7
76.0
234.5
176.9
Loans and credit lines in USD
Long-term loans in USD
Total
Intercompany eliminations:
Inter-segment sales
Operating costs
Consolidated:
Total revenue
Operating costs
Operating income
2.982.7
2,526.3
18.1
(2,605.7)
(2,284.2)
14.1
377.0
242.1
55.7
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
120
121
independent auditors’ report
To the Shareholders of Open Joint Stock Company “Aeroflot — Russian Airlines”:
Report on the financial statements
We have audited the accompanying consolidated financial statements of Open Joint
Stock Company “Aeroflot — Russian Airlines” and its subsidiaries (the “Group”),
which comprise of the consolidated balance sheet as of December 31, 2006 and
the related consolidated statements of income, cash flows and changes in equity
for the year then ended, and a summary of significant accounting policies and other
explanatory notes.
Management’s responsibility
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial
statements that are free from material misstatement, whether due to fraud or error;
selecting and applying appropriate accounting policies; and making accounting
estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements
based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those
risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the
overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Group as of December 31, 2006 and its consolidated financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
May 29, 2007
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
122
123
OJSC “AEROFLOT — RUSSIAN AIRLINES”
CONSOLIDATED statement of income
FOR THE YEAR ENDED DECEMBER 31, 2006
CONSOLIDATED BALANCE SHEET
As of DECEMBER 31, 2006
(Amounts in millions of US Dollars, except shares and earnings per share amounts)
(Amounts in millions of US Dollars)
Notes
2006
2005
Traffic revenue
6
2,474.3
2,079.3
Other revenue
7
508.4
447.0
2,982.7
2,526.3
Revenue
Operating costs
8
(2,099.3)
(1,861.9)
Staff costs
9
(409.2)
(342.3)
20
(97.2)
(80.0)
(2,605.7)
(2,284.2)
377.0
242.1
(30.7)
(25.3)
4.0
6.9
Depreciation
Operating costs
Operating income
Interest expense
10
Interest income
Share of result of equity accounted investments
17
Foreign exchange and translation gain/(loss), net
Other non-operating (expenses)/income, net
11
Profit before income tax
Income tax
12
Profit for the year
8.4
5.7
38.7
(12.8)
(9.5)
62.2
387.9
278.8
(129.8)
(89.0)
258.1
189.8
255.4
184.2
2.7
5.6
258.1
189.8
24.3
17.9
1,060
1,060
Attributable to:
Equity holders of the parent
Minority interest
Earnings per share, basic and diluted (US cents)
Weighted average number of shares outstanding (millions)
27
The accompanying notes form an integral part of these consolidated financial statements.
The Independent Auditors’ Report is presented on pages 120–121.
Notes
2006
2005
13
14
15
181.3
44.9
701.3
–
79.0
1,006.5
109.5
30.5
574.9
4.4
61.6
780.9
21.5
18.9
4.7
7.1
119.9
1,227.5
1,399.6
2,406.1
14.1
16.8
4.4
5.0
6.7
794.3
841.3
1,622.2
485.4
123.6
228.8
7.2
52.2
897.2
333.2
99.6
100.9
7.2
26.1
567.0
25
26
22
12
23
5.7
453.0
76.1
32.5
152.7
720.0
76.0
281.3
81.4
36.5
12.5
487.7
27
27
51.6
(33.5)
11.0
2.7
752.7
51.6
(32.9)
8.8
0.3
530.8
784.6
4.3
788.9
2,406.1
558.6
8.9
567.5
1,622.2
ASSETS
Current assets
Cash and cash equivalents
Short-term investments
Accounts receivable and prepayments, net
Short-term aircraft lease deposits
Expendable spare parts and inventories
Non-current assets
Equity accounted investments
Long-term investments
Aircraft lease deposits
Deferred tax assets
Other non-current assets
Property, plant and equipment
16
17
18
12
19
20
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities
Unearned transportation revenue
Short-term borrowings
Provisions
Current portion of finance lease payable
Non-current liabilities
Long-term borrowings
Finance lease payable
Provisions
Deferred tax liabilities
Other non-current liabilities
Capital and reserves
Share capital
Treasury stock
Investments revaluation reserve
Cumulative translation reserve
Retained earnings
Equity attributable to equity holders of the parent
Minority interest
TOTAL LIABILITIES AND EQUITY
21
24
22
26
28
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
124
125
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006 (CONTINUED)
2006
2005
387.9
278.8
Repayment of capital element of finance lease
Dividends paid
Adjustments to reconcile income before taxation to net cash
provided by operating activities:
Depreciation of property, plant and equipment (Note 20)
Purchases of treasury stock
97.6
80.0
Sale of treasury stock
7.5
(3.4)
Proceeds from borrowings, net
(8.4)
(5.7)
Restricted cash movements
1.5
5.5
(Decrease) / increase in provisions and assets impairment
(4.8)
14.8
Reversal of payable no longer due
(2.5)
–
–
(8.6)
Unrecoverable VAT (Note 11)
18.8
1.0
Other non-cash loss / (income)
6.8
(2.5)
504.0
359.9
(112.2)
(120.1)
(Increase) / decrease in expendables and inventory
(17.4)
2.9
Increase in accounts payable and accrued liabilities
115.0
(6.3)
24.0
1.0
Loss / (gain) on disposal of property, plant and equipment (Note 8)
Share of result in equity accounted investments (Note 17)
Loss on impairment of property, plant and equipment (Note 9)
Gain from restructuring and settlements of tax penalties (Note 11)
Operating profit before working capital changes
Increase in accounts receivable and prepayments
Increase in unearned transportation revenue
Income tax paid
Net cash provided by operating activities
513.4
237.4
(141.7)
(25.5)
371.7
211.9
(261.5)
(182.5)
Cash flows from investing activities:
Purchases of property, plant and equipment and intangible assets
Proceeds from sale of property, plant and equipment
Investments in aircraft lease deposits
Purchases of investments
3.6
1.1
(1.9)
(4.9)
(43.6)
(36.2)
Proceeds from sale of investments
29.3
30.1
Acquisition of minority interests
(6.6)
–
Dividends received
Net cash used in investing activities
2005
(46.5)
(25.9)
(34.2)
(31.5)
(1.0)
(1.9)
Cash flows from financing activities:
Cash flows from operating activities:
2006
1.0
1.8
(279.7)
(190.6)
Net cash (used in) provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year (Note 13)
Effect of exchange rate change
Cash and cash equivalents at the end of the year (Note 13)
0.1
3.5
57.2
82.4
2.9
(3.3)
(21.5)
23.3
70.5
44.6
109.5
65.2
1.3
(0.3)
181.3
109.5
29.8
(25.6)
4.0
8.8
Supplemental cash flow information:
Interest paid
Interest received
Non-cash investing and financing activities:
Property, plant and equipment acquired under finance lease
Gain from early termination of finance lease
287.9
2.8
–
7.5
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
126
127
CONSOLIDATED STATEMENT OF ChANGES IN EQUITY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Invest
Attributable
ments Cumulative
to equity
Share Treasury revaluation translation Retained
holders of Minority
capital
stock
reserve
reserve earnings
the parent interest
As of December
31, 2004
Profit for the year
Purchase
of treasury stock
Sale of treasury
stock
Gain on disposal
of treasury stock
Loss on investments
available-for-sale
Foreign currency
translation
for the year
Dividends
As of December
31, 2005
Profit for the year
Purchase
of treasury stock
Sale of treasury
stock
Gain on disposal
of treasury stock
Gain
on investments
available-for-sale
Purchase
of minority interests
Foreign currency
translation
Dividends
As of December
31, 2006
Total
51.6
–
(35.4)
–
12.0
–
1.2
–
373.5
184.2
402.9
184.2
–
(1.9)
–
–
–
(1.9)
–
(1.9)
–
0.6
–
–
–
0.6
–
0.6
–
2.9
–
–
–
2.9
–
2.9
–
–
(3.2)
–
–
(3.2)
–
(3.2)
–
–
0.9
–
–
–
(0.9)
–
–
(26.9)
–
(26.9)
(0.6)
(4.7)
(0.6)
(31.6)
51.6
–
(32.9)
–
8.8
–
0.3
–
530.8
255.4
558.6
255.4
–
(1.0)
–
–
–
(1.0)
–
(1.0)
–
0.1
–
–
–
0.1
–
0.1
–
0.3
–
–
–
0.3
–
0.3
–
–
–
–
2.2
–
–
–
–
2.2
(2.8)
(2.8)
–
–
–
–
–
–
2.4
–
–
(30.7)
2.4
(30.7)
51.6
(33.5)
11.0
2.7
752.7
784.5
8.6 411.5
5.6 189.8
8.9 567.5
2.7 258.1
–
(4.2)
0.5
(3.5)
1. NATURE OF THE BUSINESS
OJSC “Aeroflot — Russian Airlines” (the “Company” or “Aeroflot”) was formed as a joint
stock company following a government decree in 1992. The 1992 decree conferred all
the rights and obligations of “Aeroflot‑Soviet Airlines” and its structural units, excluding its operations in Russia and Sheremetyevo Airport, upon the Company, including
inter-governmental bilateral agreements and agreements signed with foreign airlines
and enterprises in the field of civil aviation.
The principal activity of the Company is the provision of passenger and cargo air transportation services, both domestically and internationally, and other aviation services from its
base at Moscow Sheremetyevo Airport. The Company and its subsidiaries (the “Group”)
also conduct activities comprising airline catering, operation of a hotel, and construction of Shremetyevo-3 Terminal. Associated undertakings mainly comprise cargo-handling services, fuelling services and duty-free retail businesses.
As of December 31, 2006 and 2005, the Government of the Russian Federation
owned 51% of the Company. The Company’s headquarters are located in Moscow at
37 Leningradsky Prospect.
The principal subsidiary undertakings are:
Percentage
held as of
December
31, 2006
Percentage
held as of
December
31, 2005
Hotel
100.0%
100.0%
Moscow region
Project
Sheremetyevo-3
100.0%
100.0%
CJSC “Aeroflot Plus”
Moscow region
Airline
100.0%
100.0%
OJSC “Insurance
company “Moscow”
Moscow
Captive insurance
services
100.0%
100.0%
CJSC “Aeromar”
Moscow region
Catering
51.0%
51.0%
OJSC “Aeroflot-Don”
Rostov-on-Don
Airline
100.0%
51.0%
CJSC “Aeroflot-Nord”
Arkhangelsk
Airline
51.0%
51.0%
CJSC “Aeroflot-Cargo”
Moscow
Cargo transportation
services
100.0%
–
Company name
Place of incorporation
and operation
Activity
CJSC “Sherotel”
Moscow region
OJSC “Terminal”
2.2
(7.0)
2.9
(34.2)
4.4 788.9
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129
In 2006 the Company increased its share in OJSC “Aeroflot-Don” up to 100% by purchasing of minority interests for a total cash consideration of approximately USD 6.6 million.
Also during 2006 a new wholly owned entity CJSC “Aeroflot-Cargo” was created. During
2006 all of the cargo operations and the related assets were transferred to this entity.
The significant entities in which the Group holds more than 20% but less than 50%
of equity are:
Company name
Place of incorporation
and operation
Activity
LLC “Airport Moscow”
CJSC “Aerofirst”
CJSC “TZK Sheremetyevo”
CJSC “AeroMASH — AB”
Moscow region
Moscow region
Moscow region
Moscow region
Cargo handling
Trading
Fuel trading company
Aviation security
Percentage
held as of
December
31, 2006
Percentage
held as of
December
31, 2005
50.0%
33.3%
31.0%
45.0%
50.0%
33.3%
31.0%
45.0%
All the companies listed above are incorporated in the Russian Federation.
The table below provides information on the Group’s aircraft fleet as of December 31, 2006:
Type of aircraft
Ownership
Ilyushin IL-96-300
Ilyushin IL-62M
Ilyushin IL-86
Tupolev Tu-154
Tupolev Tu-134
Antonov An-24
Antonov An-26
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Tupolev Tu-134
Airbus A-319
Airbus A-320
Airbus A-321
Boeing 737-500
Finance lease
Finance lease
Finance lease
Finance lease
Finance lease
Tupolev Tu-134
Tupolev Tu-154
Ilyushin IL-62M
Antonov An-24
Antonov An-26
Airbus A-319
Airbus A-320
Boeing 767-300ER
McDonnell
Douglas DC10-40F
Aeroflot —
Russian Aeroflot- Aeroflot- AeroflotGroup
Airlines
Don
Nord
Cargo
total
(number) (number) (number) (number) (number)
6
1
9
25
12
–
–
–
–
–
8
2
–
–
–
–
–
1
4
2
1
–
–
–
–
–
–
–
6
1
9
34
18
2
1
–
4
1
7
–
–
–
–
–
2
3
–
–
–
3
–
–
–
–
–
3
4
1
7
5
Operating lease
Operating lease
Operating lease
Operating lease
Operating lease
Operating lease
Operating lease
Operating lease
1
2
1
–
–
4
9
11
1
–
–
–
–
–
–
–
–
2
–
1
1
–
–
–
–
–
–
–
–
–
–
–
2
4
1
1
1
4
9
11
Operating lease
3
96
–
13
–
18
1
1
4
128
2. Presentation of financial statements
Basis of presentation — The consolidated financial statements of the Group have
been prepared in accordance with International Financial Reporting Standards
(“IFRS”). The consolidated financial statements are presented in millions of US Dollars,
except where it specifically noted otherwise.
All significant subsidiaries directly or indirectly controlled by the Company are included in the consolidated financial statements. A listing of the Group’s principal subsidiary
undertakings is set out in Note 1.
The Group maintains its accounting records in Russian rubles and in accordance with
Russian accounting legislation and regulations. The accompanying consolidated financial statements are based on the underlying accounting records, appropriately adjusted and reclassified for fair presentation in accordance with the standards prescribed
by the International Accounting Standards Board.
Functional and presentation currency — The functional and presentation currency of the Company is US Dollars. Transactions and balances not already measured
in US Dollars have been remeasured to US Dollars in accordance with International
Accounting Standard (“IAS”) 21 “The Effect of Changes in Foreign Exchange Rates”.
Any conversion of Russian ruble amounts to US Dollars should not be considered
as a representation that Russian ruble amounts have been, could be or will be in
the future, converted into US dollars at the exchange rate shown or at any other
exchange rate.
The assets and liabilities, both monetary and non-monetary, of the subsidiaries of the
Company with functional currencies other than US dollar have been translated at the
closing rate at the date of each balance sheet presented; income and expense items for
all periods presented have been translated at the exchange rates existing at the dates
of the transactions or a rate that approximates the actual exchange rates. All exchange
differences resulting from translation have been classified as equity and transferred to
the Group’s translation reserve.
The following table summarizes the exchange rate of the Russian ruble to 1 US Dollar:
Exchange rate
December 31, 2006
26.33
Average rate for 2006
27.19
December 31, 2005
28.78
Average rate for 2005
28.29
December 31, 2004
27.75
AEROFLOT
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3. new and revised international financial reporting
standards
Certain new standards and interpretations became effective for the Group from January 1, 2006. Their adoption has not resulted in any significant changes to the Group’s
accounting policies. The standards and interpretations that became effective from
January 1, 2006 are:
• Amendment to IAS 19 “Actuarial gains and losses, group plans and disclosures” effective for annual periods beginning on or after January 1, 2006.
• Amendments to IAS 39 “The fair value option”, “Cash flow hedge accounting of
forecast intragroup transactions” and “Financial guarantee contracts” (including
related amendment to IFRS 4) effective for annual periods beginning on or after
January 1, 2006.
• Amendment to IAS 21 “Net investment in a foreign operation” effective for annual
periods beginning on or after January 1, 2006.
• Amendment to IFRS 1 “First-time adoption of International Financial Reporting
Standards” effective for annual periods beginning on or after January 1, 2006.
• IFRS 6 “Exploration for and evaluation of mineral resources”, including related subsequent amendment to IFRS 6 and to IFRS 1, effective for annual periods beginning
on or after January 1, 2006.
• IFRIC 4 “Determining whether an arrangement contains a lease” effective for annual periods beginning on or after January 1, 2006.
• IFRIC 5 “Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds” effective for annual periods beginning on or after
January 1, 2006.
• IFRIC 6 “Liabilities arising from participating in a specific market — waste electrical and electronic equipment” effective for annual periods beginning on or after
December 1, 2005.
Certain new standards and interpretations have been published that are mandatory for
the Group’s accounting periods beginning on or after January 1, 2007 or later periods
and which the entity has not early adopted:
• IAS 23 (revised) “Borrowing costs” effective for annual periods beginning on or after January 1, 2009. The Group has significant capitalizable borrowing costs and is
currently evaluating the potential impact of IAS 23 (revised) on the financial statement presentation. Currently the Group treats the borrowing costs as expense when
incurred.
• IFRS 7 “Financial instruments: Disclosures” effective for annual periods beginning
on or after January 1, 2007 and a complementary Amendment to IAS 1 “Presentation of Financial Statements — Capital Disclosures” effective for annual periods
beginning on or after January 1, 2007. The Group expects that the adoption of IFRS
7 will result in significant additional disclosures for the Group.
• IFRS 8 “Operating segments” effective for annual periods beginning on or after January 1, 2009. The Group is currently evaluating the potential impact of IFRS 8 on the
presentation of segmental information.
• IFRIC 7 “Applying the Restatement Approach under IAS 29” effective for annual
periods beginning on or after March 1, 2006. Management does not expect the interpretation to be relevant for the Group.
• IFRIC 8 “Scope of IFRS 2” effective for annual periods beginning on or after May 1,
2006. Management does not expect the interpretation to be relevant for the Group.
• IFRIC 9 “Reassessment of Embedded Derivatives” effective for annual periods
beginning on or after June 1, 2006. Management believes that this interpretation
should not have a significant impact on the Group’s operations.
• IFRIC 11 “IFRS 2 — Group and treasury share transactions” effective for annual
periods beginning on or after March 1, 2007. Management believes that this interpretation should not have a significant impact on the Group’s operations.
• IFRIC 12 “Service concession arrangements” effective for the annual periods beginning on or after January 1, 2008. Management believes that this interpretation
should not have a significant impact on the Group’s operations.
4. PRINCIPAL ACCOUNTING POLICIES
The cosolidated financial statements have been prepared on the historic cost basis
except for the revaluation of certain non-current assets and financial instruments. The
principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.
Consolidation — The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company (its subsidiaries)
prepared through December 31 each year. Subsidiaries comprise entities in which the
Company, directly or indirectly, has an interest of more than one half of the voting rights
or otherwise has power to exercise control over their operations. Control is achieved
where the Company has the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities.
Subsidiaries are consolidated from the date on which effective control is obtained by
the Group and are no longer consolidated from the date of disposal or loss of control.
All intra-group transactions, balances and unrealized surpluses and deficits on
transactions between Group companies are eliminated on consolidation. Minority interests in the net assets of consolidated subsidiaries are identified separately
from the Group’s equity therein. The interest of minority shareholders is stated at
the minority’s proportion of the fair values of the assets and liabilities acquired adjusted by subsequent changes in the carrying value of net assets of those entities.
Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s
equity are allocated against the interests of the Group except to the extent that the
minority has a binding obligation and is able to make an additional investment to cover
the losses.
Business combinations — The acquisition of subsidiaries is accounted for using the
purchase method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any
costs directly attributable to the business combination. The acquirer’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under
IFRS 3 “Business Combinations” are recognized at their fair values at the acquisition
date, except for non-current assets (or disposal groups) that are classified as held for
sale in accordance with IFRS 5 “Non-Current Assets Held for Sale and Discontinued
Operations”, which are recognized and measured at fair value less costs to sell.
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The results of subsidiaries acquired or disposed of during the year are included in the
consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to
the financial statements of subsidiaries to bring their accounting policies into line with
those used by other members of the Group.
Purchases of minority interests — The difference between the cost of acquisition
and the carrying value of minority interests is recognized as adjustment to equity.
Investments in associates — Associates in which the Group has significant influence but not a controlling interest are accounted for using the equity method of accounting. Significant influence is usually demonstrated by the Group’s owning, directly
or indirectly, between 20 percent and 50 percent of the voting share capital or by exerting significant influence through other means.
Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the
net assets of the associate, less any impairment in the value of individual investments.
The Group’s share of the net income or losses of associates is included in the consolidated income statement. An assessment of investments in associates is performed
when there is an indication that the asset has been impaired or that the impairment
losses recognized in prior years no longer exist. Losses of an associate in excess of the
Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are not recognized.
received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of sales related taxes.
Passenger revenue: Ticket sales are reported as traffic revenue when the transportation service has been provided. The value of tickets sold and still valid but not used by
the balance sheet date is reported as unearned transportation revenue. This item is
reduced either when the Group completes the transportation service or when the passenger requests a refund. Sales representing the value of tickets that have been issued,
but which will never be used, are recognized as operating income at the date the tickets
are issued based on analysis of historic patterns of actual sales data. Commissions
which are payable to the sales agents are recognized as the commercial and marketing
expenses at the same time as revenue from the air transportation to which they relate.
Passenger revenue includes revenue from code-share agreements with certain other
airlines. Under these agreements, the Group sells seats on these airlines’ flights and
those other airlines sell seats on the Group’s flights. Revenue from the sale of codeshare seats on other airlines are recorded net in Group’s passenger revenue in the
consolidated income statement. The revenue from other airlines’ sale of code-share
seats on our flights is recorded in passenger revenue in the Group’s consolidated income statement.
Cargo revenue: Group’s cargo transport services are recognized as revenue when the
air transportation is provided. Cargo sales for which transportation service has not yet
been provided are shown as unearned transportation revenue.
Where a group entity transacts with an associate of the Group, profits and losses are
eliminated to the extent of the Group’s interest in the relevant associate. A listing of the
Group’s principal associated undertakings is shown in Note 1.
Catering revenue: Revenue is recognized when meal packages are delivered to the aircraft, as this is the date when the risks and rewards of ownership are transferred to the
customers.
Foreign currency translation — Transactions in currencies other than the functional currency are initially recorded at the rates of exchange prevailing on the dates
of the transactions. Monetary assets and liabilities denominated in such currencies at
the balance sheet date are translated into the functional currency at the year-end exchange rate. Exchange differences arising from such translation are included into the
consolidated income statement.
Other revenue: Revenue from bilateral airline agreements is recognized when earned
with reference to the terms of each agreement. Sales of hotel accommodation are recognized when the services are provided. Sales of goods and other services are recognized as revenue when the goods are delivered or the service carried out.
Non-current assets and disposal groups held for sale — Non-current assets and
disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the asset (or disposal group)
is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.
Any liabilities related to non-current assets to be sold are also presented on a separate
line in liabilities on the balance sheet. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ previous carrying amount
and fair value less costs to sell.
Revenue recognition — Revenue is measured at the fair value of the consideration
Borrowing costs — All borrowing costs are recognized as an expense in the period
in which they are incurred.
Segment reporting — For the purposes of segment disclosure the Group has identified the following segments:
(a) Business segments
The principal business segments are airline operations, airline catering, hotel operations and other. Business segment assets comprise all assets used directly in
the business area’s operations. Income tax assets are excluded from segment assets. Equity interests in affiliated companies are presented separately. Business
segment liabilities and provisions comprise all commitments that are directly attributable to the business segment’s operations.
AEROFLOT
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135
(b)Geographic segments
The operations of all segments are based in the Russian Federation. With respect
to scheduled passenger and cargo activities, the following geographic analysis is
provided:
(i) G
eographic analysis of revenue from flights — The analysis of revenue from
scheduled flights is based upon the geographic location of the place of flight
origin;
(ii)Geographic analysis of net assets — The major revenue-earning assets of the
Company are comprised of its aircraft fleet. Since the Company’s aircraft fleet
is employed flexibly across its worldwide route network, there is no suitable
basis for allocating such assets and liabilities to geographic segments.
Capitalized costs of aircraft checks and major modernization and improvements projects are depreciated on a straight-line basis to the projected date of
the next check or based on estimates of their useful lives. Ordinary repair and
maintenance costs are expensed as incurred.
(iv)Depreciation — The Group depreciates fleet assets owned or held under finance leases on a straight-line basis to the end of their estimated useful life. The
airframe, engines and interior of an aircraft are depreciated separately over
their respective estimated useful lives. Salvage value for airframes of the foreign fleet is estimated as 5% of historic cost, while salvage value for Russian
aircraft is zero. Engines are depreciated on a straight-line basis to the end of
the useful life of the related type of aircraft.
Useful lives of the Group’s fleet assets are as follows:
Property, plant and equipment — Property, plant and equipment are stated at cost,
or appraised value, as described below. Depreciation is calculated in order to amortize
the cost or appraised value (less estimated salvage value where applicable) over the
remaining useful lives of the assets.
Airframes of foreign aircraft
(a) Fleet
Engines of foreign aircraft
(i)Owned aircraft and engines — Aircraft and engines owned by the Group as of
December 31, 1995 were stated at depreciated replacement cost based upon
external valuations denominated in US Dollars. Subsequent purchases are recorded at cost Airclaims, an international firm of aircraft appraisers, conducted the valuation. The Group has chosen not to revalue these assets subsequent
to 1995.
(ii)Finance leased aircraft and engines — Where assets are financed through finance leases, under which substantially all the risks and rewards of ownership
are transferred to the Group, the assets are treated as if they had been purchased outright. The Group recognizes finance leases as assets and liabilities
in the balance sheet as amounts equal at the inception of the lease to the fair
value of the leased property or, if lower, at the present value of the minimum
lease payments. The corresponding obligation, reduced by the capital portion
of lease payments made, is included in payables. Custom duties, legal fees and
other initial direct costs are added to the amount recognized as an asset. The
interest element of lease payments made is included in interest expense in the
income statement.
(iii)Capitalized maintenance costs — The valuation of aircraft and engines as of
December 31, 1995 reflected their maintenance condition, as measured on the
basis of previous expenditure on major overhauls and estimated usage since
the previous major overhaul. Expenditure of modernization and improvements
projects that are significant in size (mainly aircraft modifications involving installation of replacement parts) subsequently are separately capitalized in the
balance sheet. The carrying amount of those parts that are replaced is derecognized from the balance sheet and included in gain or loss on disposals of
property, plan and equipment in the Group’s consolidated income statement.
Airframes of Russian aircraft
Engines of Russian aircraft
Interiors
20 years
25–32 years
8 years
8–10 years
5 years
(v)Capitalized leasehold improvements — capitalized costs that relate to the rented
fleet are depreciated over the shorter of their useful life and the lease term.
(b)Land and buildings, plant and equipment
Property, plant and equipment are stated at historical US Dollar cost. Provision is
made for the depreciation of property, plant and equipment based upon expected
useful lives or, in the case of leasehold properties, over the duration of the leases
using a straight-line basis. These useful lives range from 10 to 20 years. Land areas are not depreciated.
(c) Capital expenditure
Capital expenditures comprise costs directly related to the construction of property, plant and equipment including an appropriate allocation of directly attributable
variable overheads that are incurred in construction as well as costs of purchase
of other assets that require installation or preparation for their use. Depreciation
of these assets, on the same basis as for other property assets, commences when
the assets are put into operation. Capital expenditures are reviewed regularly to
determine whether their carrying value is fairly stated and whether appropriate
provision for impairment is made.
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(d)Gain or loss on disposal
The gain or loss arising on the disposal or retirement of an asset is determined as
the difference between the sales proceeds and the carrying amount of the asset
and is recognized in the consolidated income statement.
Impairment of non-current assets — At each balance sheet date, the Group reviews
the carrying amounts of its non-current assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). Where it is not possible to estimate the recoverable amount of
an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less
than its carrying amount, the carrying amount of the asset (cash-generating unit) is
reduced to its recoverable amount. An impairment loss is recognized immediately in
the consolidated income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(cash-generating unit) is increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognized for the asset
(cash-generating unit) in prior years.
Lease deposits — Lease deposits represent amounts paid to the lessors of foreign aircraft, which are held as security deposits by lessors in accordance with
the provisions of finance and operating lease agreements; these deposits are returned back to the Group at the end of the lease period. Lease deposits relating
to the operating lease agreements are presented as assets on the balance sheet. A part
of these deposits is interest-free. Interest-free deposits have been recorded at amortized cost using an average market yield of 6.3% percent. Lease deposits that are part
of finance lease arrangements are presented net as part of finance lease liability.
Operating leases — Payments under operating leases are charged to the consolidated income statement in equal annual installments over the period of the lease. Related direct expenses including custom duties for leased aircraft are amortized using
a straight-line method over the life of lease agreement.
Financial instruments — Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, marketable securities, investments, derivative financial instruments, trade and other accounts receivable, trade and other accounts payable, borrowings and notes payable. The accounting policies on recognition
and measurement of these items are disclosed below in this Note.
Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, and gains and losses relating to a financial instrument classified as a liability are reported as expense or income.
Distributions to holders of financial instruments classified as equity are charged directly
to equity. Financial instruments are offset when the Group has a legally enforceable
right to offset and intends to settle either on a net basis or to realize the asset and settle
the liability simultaneously. The result from the realization of the financial instruments
is determined based on the FIFO method.
(a) Credit risks
The sale of passenger and freight transportation is largely processed through
agencies that are normally linked to country-specific clearing systems for the settlement of passenger and freight sales. Clearing centers check individual agents
operating outside of the Russian Federation. Individual agents operating within
the Russian Federation are checked in-house.
Receivables and liabilities between major airlines, unless otherwise stipulated in
the respective agreements, are settled on a bilateral basis or by settlement through
a clearinghouse of the International Air Transport Association (IATA).
(b) Fair value
The fair value of financial instruments is determined by reference to various market information and other valuation methods as considered appropriate. At the
balance-sheet date, the fair values of the financial instruments held by the Group
did not materially differ from their recorded book values.
(c) Foreign exchange risk
The significant portion of the Group’s sales and purchases are linked directly or indirectly to US Dollars or a combination of US Dollars and other major currencies and
hence the foreign exchange risk to the Group is partially compensated. The Group’s
finance lease liabilities and some other borrowings are denominated in US Dollars,
thus further reducing foreign currency exposure in US Dollar terms. In 2006 the
Group did not manage foreign exchange risk through the use of hedging instruments but rather aimed to broadly match its assets and liabilities in the different currencies to limit exposure. The Group monitors changes in foreign exchange rates
to minimize the level of foreign currency exposure and to identify need for hedging
activities.
(d)Interest rate risk
The Group’s main exposure to interest-rate risk is from its finance lease liabilities
and short-term borrowings. In 2006 the Group did not use financial hedging instruments to hedge its exposure to the changes in interest rates, as they are not
generally available on the Russian market. The Group constantly monitors changes
in interest rates to minimize the level of its exposure and to identify need for hedging activities.
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
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139
(e)Non-financial risks — fuel hedging activities
Results of Group’s operations can be significantly impacted by changes in the price
of aircraft fuel. The Group periodically purchases derivatives such as jet fuel options in order to hedge its exposure from future price fluctuations in jet fuel. The
Group does not use derivatives instruments for speculative purposes.
Cash and cash equivalents — Cash and cash equivalents consist of cash on hand,
balances with banks and short-term interest-bearing accounts which are used in the
day-to-day financing of the Group’s airline activities.
Investments — The Group’s financial assets have been classified according to IAS
39 (amended 2004) “Financial Instruments: Recognition and Measurement” into the
following categories: trading securities, held-to-maturity investments, loans and other
receivables, and available-for-sale investments. Investments with fixed or determinable payments and fixed maturity, which the Group has the positive intent and ability
to hold to maturity, other than loans and receivables, are classified as held-to-maturity
investments. Derivative financial instruments and investments acquired principally for
the purpose of generating a profit from short-term fluctuations in price are classified
as trading. All other investments, other than loans and receivables, are classified as
available-for-sale.
Investments are recognized and derecognized on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the
investment within the timeframe established by the market concerned, and are initially
measured at fair value, plus directly attributable transaction costs.
Held-to-maturity investments are financial assets excluding derivative contracts which
mature on a specified date and which a company has the firm intent and ability to hold
to maturity. They are valued at allocated acquisition cost and they are included in longterm assets.
Investments other than held-to-maturity debt securities are classified as either investments held for trading or as available-for-sale, and are measured at subsequent reporting dates at fair value. Investments in equity instruments of other companies that do not
have a quoted market price are stated at cost less impairment loss, as it is not practicable to determine the fair value of such investments. For derivatives and other financial
instruments classified as held for trading gains and losses arising from changes in fair
value are included in profit or loss for the period. For available-for-sale investments,
gains and losses arising from changes in fair value are recognized directly in equity,
until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in the profit or loss for the
period. Impairment losses recognized in profit or loss for equity investments classified
as available-for-sale are not subsequently reversed through profit or loss. Impairment
losses recognized in profit or loss for debt instruments classified as available-for-sale
are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.
During the year ended December 31, 2006 and 2005, the Group did not have any
trading securities other than derivatives acquired specifically for hedging fuel pric-
es. The Group did not designate any such derivatives as hedging instruments for IAS
39 purposes.
Derivative instruments are accounted for as held for trading with related gains or
losses from remeasurement to fair value included in the current period consolidated
income statement as other non-operating gains or losses.
The Group assesses on each closing date whether there is any objective evidence that
the value of a financial asset item or group of items has been impaired. If there is objective evidence that an impairment loss has arisen for loans and other receivables
entered at allocated acquisition cost in the balance sheet or for held-to-maturity investments, the size of the loss is determined as the difference of the book value of the asset
item and the present value of expected future cash flows of the said financial asset item
discounted at the original effective interest rate. The loss is recognized in the consolidated income statement.
Loans and receivables — Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in an active market. Loans
and receivables are measured at initial recognition at fair value, and are subsequently measured at amortized cost using the effective interest rate method. Because the
expected term of an account receivable is short, the value is typically stated at the
nominal amount without discounting, which corresponds with fair value. Uncertain accounts receivable are assessed individually and any impairment losses are stated in
non-operating expenses.
Accounts payable — Trade payables are initially measured at fair value, and are subsequently measured at amortized cost, because the expected term of accounts payable
is short, the value is stated at the nominal amount without discounting, which corresponds with fair value.
Short-term borrowings — Short-term borrowings comprise the short-term portion
of interest-bearing long-term borrowings, i.e. the portion of the loans that is amortized
in the coming year, as well as other current interest-bearing liabilities with a term shorter than one year. These liabilities are measured at amortized cost and reported on the
settlement date.
Long-term borrowings — Long-term borrowings, i.e., liabilities with a term longer
than one year, consist of interest-bearing loans which are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate
method, as of the settlement date.
Expendable spare parts and inventories — Inventories, including aircraft expendables, are valued at cost as determined by the “first-in, first-out” method (“FIFO”) or
net realizable value, whichever is lower. Inventories are reported net of provisions for
slow-moving or obsolete items.
Value added taxes — Value added tax (“VAT”) related to sales is payable to the tax authorities on an accrual basis. For sales of passenger tickets this is when the tickets are
registered for a flight by the customers. Domestic flights are subject to VAT at 18% rate
and international flights are subject to VAT at 0% rate. Input VAT invoiced by domestic
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
140
141
suppliers as well as VAT paid in respect of imported aircraft and spare parts may be recovered, subject to certain restrictions, against output VAT. The recovery of input VAT
relating 0% rate VAT sales is typically delayed by up to 6 months and sometimes longer due to compulsory tax audit requirements and other administrative matters. Input
VAT claimed for recovery as of the balance sheet date is presented net of output VAT
liability. Recoverable input VAT that is not claimed for recovery in the current period is
recorded on the balance sheet as VAT receivable. VAT receivable that is not expected to
be recovered within the twelve months from the balance sheet date is classified as longterm asset. VAT balances are not discounted. Where provision has been made against
uncollectible receivables, the bad debt expense is recorded at the gross amount of the
account receivable, including VAT.
Frequent flyer program — The Company records an estimated liability for the incremental costs associated with providing free transportation under the “Aeroflot Bonus” program (see also Note 21) when a free air ticket or upgrade of service class are
earned. Principal incremental costs include aircraft fuel costs and third-party passenger services (such as catering services and airport charges). The liability is included in
accounts payable and accrued liabilities, and is adjusted periodically based on awards
earned, awards redeemed and changes to the “Aeroflot Bonus” program. The costs are
included in sales and marketing expenses in the consolidated income statement.
Provisions — Provisions are recognized when, and only when, the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable (i.e.
more likely than not) that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate can be made of the amount of
the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where expecting timing of cash flows can be estimated
and the effect of the time value of money is significant, the amount of a provision is the
present value of the expenditures required to settle the obligation.
Income tax — The nominal income tax rate for industrial enterprises in Russia in
2006 and 2005 was 24%. The nominal tax rate is subject to regional reductions by up
to 4%. The average nominal tax rate of the Group was lower than 24% as the tax rate
applicable to different entities within the Group varied from 20% to 24%.
Deferred income taxes — Deferred tax assets and liabilities are calculated in respect
of temporary differences in accordance with IAS 12 “Income Taxes”. IAS 12 requires
the use of the balance-sheet liability method for financial reporting and accounting for
deferred income taxes. Deferred income taxes are provided for all temporary differences arising between the tax basis of assets and liabilities and their carrying values
for financial reporting purposes. Deferred tax liabilities are generally recognized for all
taxable temporary differences and deferred tax assets are recorded only to the extent
that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred tax assets and liabilities are offset when
they relate to income taxes levied by the same taxation authority and the Group intends
to settle its tax assets and liabilities on a net basis.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
during the period when the asset is to be realized or the liability settled, based on tax rates
that have been enacted or substantively enacted as at the balance-sheet date. As of De-
cember 31, 2006 and 2005, deferred tax assets and liabilities have been measured based
on tax rates applicable to the Group’s companies range from 20% to 24%. It is charged or
credited to the consolidated income statement, except when it relates to items credited or
charged directly to equity, in which case the deferred tax is also dealt with in equity.
Employee benefits — The Company makes certain payments to employees on retirement, or when they otherwise leave the employment of the Company. These obligations,
which are unfunded, represent obligations under a defined benefit pension plan. For such
plans, the pension accounting costs are assessed using the projected unit credit method.
Under this method, the cost of providing pensions is charged to the income statement
in order to spread the regular cost over the average service lives of employees. Actuarial gains and losses are recognized in the income statement immediately. The pension
payments may be increased upon the retirement of an employee based on the decision
of management. The pension liability for non-retired employees is calculated based on
a minimum annual pension payment and do not include increases, if any, to be made by
management in the future. Where such post-employment employee benefits fall due more
than 12 months after the balance sheet date, they are discounted using a discount rate
determined by reference to the average market yields at the balance sheet date.
The Company also participates in a defined contribution plan, under which the Company has committed to contribute a certain percentage (15% to 20% in 2006) of the contribution made by employees choosing to participate in the plan. Contributions made
by the Company on defined contribution plans are charged to expenses when incurred.
Contributions are additionally made to the Government’s Pension fund at the statutory
rates in force during the year. Such contributions are expensed as incurred.
Treasury shares — The Company’s shares, which are held in treasury stock or belong
to the Company’s subsidiaries, are reflected as a reduction of the Group’s equity. The
disposal of such shares does not impact net income of the current year and is recognized as a change in shareholders’ equity of the Group. Dividends distributions by the
Company are recorded net of the dividends related to treasury shares.
Dividends — Dividends are recognized at the date they are declared by the shareholders at a general meeting.
Retained earnings legally distributable by the Company are based on the amounts
available for distribution in accordance with applicable legislation and reflected in
the statutory financial statements. These amounts may differ significantly from the
amounts calculated on the basis of IFRS.
Earnings per share — Earnings per share are calculated by dividing the income for
the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. The Group does not have any potentially
dilutive equity instruments.
Contingencies — Contingent liabilities are not recognized in the financial statements
unless they arise as a result of a business combination. They are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an
inflow of economic benefits is probable.
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
142
143
5. SIGNIFICANT ESTIMATES
8. OPERATING COSTS
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial
year, are discussed below.
Provisions — Provisions are made when any probable and quantifiable risk of loss
attributable to disputes is judged to exist.
Depreciable lives of property, plant and equipment — In reporting intangible assets and tangible fixed assets, an assessment is made of the useful economic life and an
assessment is made at least once a year to determine whether impairment exists.
Compliance with tax legislation — As discussed further in Note 34 compliance with
tax legislation, particularly in the Russian Federation, is subject to significant degree of
interpretation and can be routinely challenged by the tax authorities. The management
records a provision in respect of its best estimate of likely additional tax payments and
related penalties which may be payable if the Group’s tax compliance is challenged by
the relevant tax authorities.
6. TRAFFIC REVENUE
Scheduled flights:
Passengers
Cargo
Charter flights:
Passengers
Cargo
2006
2005
2,190.3
159.9
1,815.9
155.5
19.6
104.5
15.3
92.6
2,474.3
2,079.3
2005
Aircraft fuel
920.3
741.2
392.6
346.4
Maintenance
179.9
202.4
Sales and marketing
166.3
142.4
134.5
128.5
96.6
92.6
Passenger services
76.1
67.3
48.0
41.8
Cost of sales
35.4
24.1
Insurance expenses
20.3
22.3
Bank charges
9.2
9.1
Taxes other than income tax
7.0
17.4
Loss/(gain) on disposal of property, plant and equipment, net
7.5
(3.4)
Pilot’s certification and trainings
6.9
6.2
Increase of provision for impairment of fixed assets (Note 20)
1.5
5.5
(5.3)
21.3
2.5
(3.2)
2,099.3
1,861.9
2006
2005
Wages and salaries
346.9
291.8
Social security costs
17.2
14.1
Change in provisions (Note 22)
Other expenses / (income)
Total operating costs, net
9. STAFF COSTS
Pension costs
7. other revenue
Airline revenue agreements
Ground handling and maintenance
Catering services
Hotel revenue
Refueling services
Other revenue
2006
2006
2005
396.1
16.3
14.3
17.0
30.3
34.4
508.4
357.0
22.7
13.7
14.2
21.2
18.2
447.0
45.1
36.4
409.2
342.3
The Company continued its participation in a non-government pension fund to provide
additional pensions to certain of its employees upon their retirement. The pension fund
requires contributions from both employees and the Company, and is a defined contribution pension plan for the employer.
Furthermore, the Company makes payments, upon retirement, to employees participating in the plan with one or more years’ service. These obligations, which are unfunded,
represent obligations under a defined benefit pension plan.
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
144
145
Pension costs also include compulsory payments to the Pension fund of the Russian
Federation (“RF”), contributions to a non-government pension fund and an increase in
the net present value of the future benefits the Company expects to pay to its employees upon their retirement under a defined benefit pension plan, as follows:
Payments to the Pension Fund of the RF
2006
2005
43.7
34.4
Defined benefit pension plan
1.1
1.7
Defined contribution pension plan
0.3
0.3
45.1
36.4
2006
2005
Finance leases
20.0
13.8
Short-term and long-term borrowings
10.7
11.5
30.7
25.3
(ii)In 2006 the Group purchased jet fuel options to hedge aircraft fuel prices. Due
to decrease of fuel prices the option lapsed unexecuted. Total expense relating to
purchased fuel options during the year ended December 31, 2006 was approximately USD 1.5 million. In 2005 the Group purchased and exercised two jet fuel
options resulting in recognition of gain of USD 11.1 million.
(iii)Restructuring and settlement of tax penalties amounting to USD 8.6 million in
2005 represents a waver received in respect of tax penalties relating to payments of income tax, which were accrued for the period from 1997 to 2001.
(iv)USD 15.1 million represents VAT paid on amounts received from customers
for passenger tickets which were not used, of which USD 6.4 million relates to
the year ended December 31, 2005. In 2006 the management determined that
these amounts may no longer be recoverable.
10. INTEREST EXPENSE
11. other NON-OPERATING (Expenses) / INCOME, NET
Recovery of VAT paid in prior years (i)
2006
2005
–
29.0
Fines and penalties received from suppliers
17.1
11.9
(Loss)/gain on derivatives (ii)
(1.5)
11.1
–
8.6
0.8
Restructuring and settlement of tax penalties (iii)
Insurance compensation
(Loss)/gain from disposal of investments, net
Reversal of payables no longer due
Non-recoverable VAT (iv)
Other expenses
12. Income tax
Current income tax charge
Deferred income tax benefit / (expense)
2006
2005
(136.0)
(58.4)
6.2
(30.6)
(129.8)
(89.0)
Income before taxation for financial reporting purposes is reconciled to taxation as
follows:
2006
2005
387.9
278.8
3.4
Theoretical tax at statutory rate (24%)
(93.1)
(66.9)
(0.9)
3.7
2.5
–
Tax effect of items which are not deductible or
assessable for taxation purposes:
(18.8)
(1.0)
Effect of lower tax rates applied
8.9
8.9
(7.7)
(4.5)
Non-deductible expenses
(35.6)
(30.4)
(9.5)
62.2
Non-taxable income
Other permanent differences
(i)In 2005 the Company recorded a gain from recovery of VAT paid in prior years
in the amount of USD 29.0 million relating to change in accounting for VAT on
export cargo transportation services provided in 2003, 2004 and in the first
half of 2005 based on adjusted tax returns for the respective previous periods
filed with the tax authorities.
Prior period current tax adjustments
Income tax
6.7
8.3
–
1.1
(16.7)
(10.0)
(129.8)
(89.0)
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
146
147
Differences between IFRS and Russian statutory taxation regulations give rise to
certain temporary differences between the carrying values of certain assets and liabilities for financial reporting purposes and their values for profits tax purposes. The tax effect of the movement on these temporary differences is recorded at
the tax rates applicable to the Group’s companies and range from 20% to 24% for
the years ended December 31, 2006 and 2005.
2006
Movement
for year
2005
Movement
for year
2004
Tax effects of temporary differences:
5.2
3.3
1.9
(1.2)
3.1
Borrowings
1.5
(1.6)
3.1
–
3.1
Accounts receivable
0.2
0.2
–
–
–
Accounts payable
0.2
0.2
–
(0.2)
0.2
Deferred tax assets, net
7.1
5.0
6.4
(70.2)
(34.1)
(36.1)
(9.8)
(26.3)
Long-term investments
(10.6)
3.0
(13.6)
0.3
(13.9)
Accounts receivable
(16.5)
(15.6)
(0.9)
1.9
(2.8)
Accounts payable
64.8
50.7
14.1
(0.7)
14.8
Deferred revenue
–
–
–
(20.0)
20.0
Deferred tax liabilities, net
(32.5)
(36.5)
(8.2)
6.1
(29.7)
14. Short-term investments
Available-for-sale investments
Corporate and government bonds
Corporate shares
Other short-term investments
Promissory notes from third parties
Bank deposits with original maturities exceeding 90 days
Other short-term investments
Reserve for ST investments
2006
2005
2.2
7.8
10.0
0.6
1.2
1.8
4.8
7.5
23.1
(0.5)
34.9
44.9
3.3
21.7
3.7
–
28.7
30.5
Corporate and government bonds represent bonds denominated in Russian rubles issued by the Government of the Russian Federation and major Russian companies with
maturity dates from 2007 to 2010 and yield to maturity of 8.4–12.98 percent per annum as of December 31, 2006.
Corporate shares are publicly traded shares of Russian companies with readily available market prices.
In the consolidated financial statements of the Group investments in bonds and shares
are reflected at period-end market value based on last traded prices obtained from the
Moscow Interbank Currency Exchange (“MICEX”).
As of December 31, 2006 interest rate on bank deposits denominated in Russian
roubles with original maturities exceeding 90 days bore interest between 5.75 and
9.5 percent per annum. In 2005 the Company placed bank deposit denominated in
Russia roubles at the interest rates of 7.5 percent per annum and US dollars denominated deposit at 7.5 percent per annum.
13. CASH AND CASH EQUIVALENTS
2006
2005
54.2
34.3
101.4
17.4
8.2
3.4
13.3
5.6
Bank deposits
2.4
43.8
Cash in transit and other
1.8
5.0
181.3
109.6
Ruble denominated bank accounts
Bank accounts denominated in USD
Bank accounts denominated in Euros
Bank accounts denominated in other currencies
15. ACCOUNTS RECEIVABLE AND PREPAYMENTS, NET
Trade receivables
Prepayments and accrued income
Other receivables
Provision for bad and doubtful accounts
Income tax prepaid
VAT and other taxes recoverable, other than income tax
2006
2005
191.7
76.6
47.9
(18.2)
298.0
14.8
388.5
701.3
232.7
49.7
90.0
(18.3)
354.1
4.8
216.0
574.9
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
148
149
16. expendable spare parts and INVENTORIES
18. LONG-term investments
2006
2005
Expendable spare parts
39.7
25.6
Available-for-sale investments
Fuel
19.9
18.0
SITA Investment Certificates
Other inventory
19.4
18.0
Shares in France Telecom
79.0
61.6
Mutual investment funds
2006
2005
0.7
0.8
14.1
12.8
0.9
1.9
15.7
15.5
–
0.4
Loans and promissory notes from third parties
0.7
0.6
Other
2.5
0.3
3.2
1.3
18.9
16.8
Other long-term investments
17. Equity accounted investments
Loans and promissory notes from related parties
2006
Voting power Carrying value
CJSC “Aerofirst”
2005
Voting power Carrying value
33.3%
4.8
33.3%
4.4
CJSC “TZK Sheremetyevo”
31%
5.8
31%
3.6
CJSC “AeroMASH — AB”
45%
1.5
45%
1.1
LLC “Aeroimp”
25%
3.3
25%
–
50%
3.8
50%
2.9
Various
2.3
Various
2.1
LLC “Airport Moscow”
Other
21.5
14.1
Summarized financial information in respect of the Group’s affiliates accounted by
using equity method based on their respective financial statements prepared for the
years ended December 31, 2006 and 2005 is set out below:
2006
2005
Total assets
131.6
100.6
Total liabilities
(71.5)
(52.2)
60.1
48.4
Net assets
Impairment provision
Group’s share in net assets of equity accounted investments
Revenue
Profit for the year
Group’s share of result of equity accounted investments or the year
–
(3.5)
21.5
17.6
21.5
14.1
724.7
578.8
10.0
11.7
8.4
5.7
19. other non-current assets
Other non-current assets as of December 31, 2006 are VAT recoverable of approximately
USD 78.3 million relating to finance and operating leases of aircraft and capitalized
amount of custom duties of approximately USD 41.6 million relating to operating leases of aircraft.
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
150
151
20. PROPERTY, PLANT AND EQUIPMENT
Plant,
Capital
equipment expendiand other
ture (i)
As of December 31, 2006 and 2005, fixed assets, principally Russian aircraft and engines, with a net book value of USD 4.9 million and USD 14.0 million, respectively, were
pledged as collateral under loan agreements.
Owned
aircraft
and engines
Leased
aircraft
and engines
Land
and
buildings
482.6
446.8
179.2
189.2
54.3
1,352.1
Foreign currency translation
(0.8)
(0.1)
(0.4)
(0.5)
(1.4)
(3.2)
Additions
29.3
1.5
3.3
16.9
112.3
163.3
Capitalized overhaul costs
24.0
16.8
–
–
–
40.8
Transfers
10.5
5.2
–
3.6
(19.3)
–
Disposals
(53.6)
(80.7)
(0.3)
(13.9)
(11.0)
(159.5)
December 31, 2005
492.0
389.5
181.8
195.3
134.9
1,393.5
2.1
2.1
1.0
1.1
9.9
16.2
Additions (ii)
30.1
263.7
1.5
15.1
206.0
516.4
Capitalized overhaul costs (iv)
15.8
–
–
–
–
15.8
1.7
27.8
0.4
14.9
(44.8)
–
Disposals (iii)
(40.8)
–
(0.2)
(9.2)
(2.7)
(52.9)
December 31, 2006
500.9
683.1
184.5
217.2
303.3
1,889.0
(363.1)
(70.5)
(60.5)
(140.6)
–
(634.7)
0.2
–
0.1
0.4
–
0.7
Impairment reserve
(4.9)
–
–
0.5
(1.1)
(5.5)
Charge for the year
(35.7)
(22.2)
(9.1)
(13.0)
–
(80.0)
49.3
60.3
0.1
10.6
–
120.3
(354.2)
(32.4)
(69.4)
(142.1)
(1.1)
(599.2)
(1.1)
(0.1)
(0.4)
(1.1)
–
(2.7)
Impairment reserve
0.6
–
–
(2.1)
–
(1.5)
Charge for the year
(34.6)
(39.8)
(9.2)
(14.0)
–
(97.6)
32.2
–
–
7.3
–
39.5
(357.1)
(72.3)
(79.0)
(152.0)
(1.1)
(661.5)
December 31, 2005
137.8
357.1
112.4
53.2
133.8
794.3
December 31, 2006
143.8
610.8
105.5
65.2
302.2
1,227.5
Total
Cost
December 31, 2004
Transfers
Accumulated depreciation
December 31, 2004
Disposals
December 31, 2005
Disposals
December 31, 2006
Net book value
(i)Assets under construction include capital expenditures made by the Company
on the construction of the new Sheremetyevo-3 terminal. Capital expenditures
as of December 31, 2006 and 2005 amount to USD 209.3 million and USD 67.6
million, respectively. Also capital expenditures as of December 31, 2006 include
prepayment for delivery of three Airbus A-321 aircraft, which will be acquired by
the Company on finance leases terms, for the amount of USD 31.0 million.
(ii)In 2006 the Group acquired four Airbus A-321 aircraft, five Boeing 737-500
aircraft and three Tupolev Tu-134 under finance leases for the amount of USD
227.3 million, USD 51.9 million and USD 4.6 million, respectively. As of December 31, 2005 the amount of USD 27.8 million for the four Airbus A-321 have
been included in capital expenditures.
(iii)In 2006, the Company’s subsidiaries OJSC “Aeroflot-Don” and CJSC “AeroflotNord” sold aircraft owned by the Group: one Tupolev Tu-154 aircraft for the
amount of USD 0.1 million, five Tupolev Tu-134 aircraft and two Antonov An-24
aircraft for the amount of USD 3.1 million Also one aircraft Tupolev Tu-134 was
sold for the amount of USD 0.3 million.
(iv)Of the total costs of USD 45.9 million capitalized during 2006 in respect of owned
aircraft and engines USD 28.8 million related to regular checks and modernization of engines and USD 15.8 million related to the aircraft overhauls. In 2006 the
Company has continued the program of modernization of the interiors of Boeing
767-300 aircraft held under operating leases and finished the modernization of
nine aircraft. Total capitalized expenses incurred as a result of this modernization
as of December 31, 2006 amounted to USD 40.7 million, including USD 1.8 million capitalized in 2005 and partly shown as transfer from capital expenditure.
21. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Trade payables and accruals
Income tax payable
Wages and social contributions payable
Other payables
Advances received (other than unearned transportation revenue)
Taxes payable (other than income tax)
Merchandise credits
Frequent flyer program liability
Other accrued expenses
Dividends payable
Notes payable
2006
2005
243.4
1.7
50.2
137.4
19.2
4.2
7.4
12.6
7.0
2.3
–
485.4
186.6
42.0
40.3
16.6
11.3
9.6
8.5
7.8
5.8
2.7
2.0
333.2
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
152
153
The Group introduced the “Aeroflot Bonus” frequent flyer program in 1999. As of December 31, 2006 and 2005 approximately 676 thousand and 442 thousand passengers,
respectively, participated in the program. Frequent flyer program liability as of December 31, 2006 and 2005 represents incremental costs, which are included in sales and
marketing expenses, associated with providing free transportation under “Aeroflot Bonus” program.
23. OTHER NON-CURRENT LIABILITIES
22. PROVISIONS
2006
2005
Beginning of the year
88.6
67.3
Additional provision in the year
23.6
42.9
(28.9)
(21.6)
83.3
88.6
7.2
7.2
Release of provision
End of the year
vices in 1997-1998 to be void, as this contradicted Russian legislation and invoiced the
Company for approximately USD 7.2 million for underpaid amounts relating to 1997–1998
and interest accrued as of December 31, 2004. This amount is included in provisions as
of December 31, 2006 and 2005 in full and is presented as a current liability as of December 31, 2006. The liability was settled in March 2007.
2006
2005
Defined benefit pension obligation — non-current portion
11.5
10.5
VAT payable on leased aircraft
74.1
–
Custom duties payable on leased aircraft
67.1
–
–
2.0
152.7
12.5
Analyzed as:
Current liabilities
Non-current liabilities
76.1
81.4
83.3
88.6
The Group is a defendant in various legal actions. Provisions represent management’s
best estimate of the Group’s probable losses relating to various actual and potential legal
claims. Additionally, the Group provides against tax contingencies and the related interest and penalties based on management’s estimate of the amount of the additional taxes
that may be due. However, the range of potential exposures has not been disclosed to
avoid prejudicing the Group’s position.
The Company is a defendant in a claim by the owner of a cargo plane, which crashed in
Italy in October 1996, whilst on charter to the Group. The basis of the claim concerns liability for the loss of the aircraft and the responsibilities of the parties at the time of the
crash. According to a report prepared by Airclaims, compensation relating to crashed
aircraft ranges from USD 11.8 million to USD 15.3 million. Management had made their
best assessment of the likely outcome associated with this issue and recorded a provision
amounting to USD 12.0 million as of December 31, 2003. In April 2005, the Arbitration
court has decided in favor of the claimant regarding compensation and awarded damages amounting to USD 35.0 million, accordingly the reserve was increased to USD 35.0
million. The provision amounted to USD 35.0 million has been included in consolidated
financial statements as of December 31, 2006 and 2005. Currently, there is uncertainty
regarding final resolution. At the present time execution of the court decision is suspended and the Company has filed an appeal. Final adjustments (if any) to this uncertainty will
be made in the financial statements when the outcome of the issue is known.
In 2001 Federal Unitary Entity, Goscorporation OVD claimed the agreement with Federal Aviation Service on application of a 50 percent discount on aeronavigation ser-
Other non-current liabilities represent long-term portion of VAT and customs duties
relating to imported leased aircraft assets payable in equal monthly installments over
34 month period from the date these assets were cleared through customs. Amounts
payable related to custom duties have been discounted using discount rate of 8.05 percent with a related gain from discounting included in the amount of related assets.
24. SHORT-TERM BORROWINGS
2006
2005
–
10.8
10.0
1.7
–
60.2
–
–
–
0.4
99.2
45.0
5.3
8.3
39.3
9.2
–
–
5.4
–
34.0
0.9
228.8
100.9
Loans and credit lines in USD
West LB AG (Germany) (i)
NATEXIS BANQUES POPULAIRES (ii)
ABN Amro Bank (iii)
Other short-term bank loans
Amsterdam Trading Bank — current portion (Note 25)
Loans in Russian rubles
Vnesheconombank (iv)
Sberbank of the Russian Federation (v)
TransCreditBank (vi)
Alfa-bank (vii)
Vneshtorgbank (vi)
Other short-term bank loans
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
154
155
(i)The balance as of December 31, 2005 represented short-term portion of a credit
line amounting to USD 60.2 million and bears interest of LIBOR + 2.3 percent
per annum. The effective average interest rate for 2006 was 5.7 percent per
annum. During 2006 the loan was repaid in full.
(i)The balance as of December 31, 2005 consists of a credit line amounting to USD
30.0 million and bears interest of LIBOR + 1.9 percent per annum. The credit
was obtained to finance its current activities. The effective average interest rate
for 2006 was 6.65 percent per annum. The loan was fully repaid by the Company
in July 2006 before its contracted maturity dates.
(ii)The balance as of December 31, 2006 represented short-term portion of a credit
line amounting to USD 10.8 million and bears interest of LIBOR + 1.75 percent
annum.
(ii)The balance as of December 31, 2005 represented long-term portion of a credit
line amounting to USD 30.0 million and bore interest of LIBOR + 2.3 percent
annum. The loan was fully repaid by the Company in May 2006 before its contracted maturity date.
(iii)The balance as of December 31, 2006 represented short-term portion of
a credit line amounting to USD 10.0 million and bears interest of LIBOR + 1.05
percent per annum. The effective average interest rate for 2006 was 6.4 percent per annum.
(iii)The loan amounting to USD 8 million bore interest of 8.5 percent per annum and
was payable by December 1, 2009. The loan was obtained by the Company to
finance the purchase of property, plant and equipment with a net book value of
USD 5.2 million which were pledged as collateral under this agreement as of December 31, 2006. The effective average interest rate for 2006 was 8.5 percent
per annum. The loan was fully repaid by the Company in December 2006.
(iv)The credit line granted by the Vnesheconombank amounting to USD 99.2 million. Percentage rate for 2006 was 9.0 percent per annum. Since December
25, 2006 interest rate was 9.25 percent per annum. The effective average interest rate for 2006 was 9.2 percent per annum.
(iv)Long-term portion of the loan amounting to USD 2.6 million was payable by June
8, 2009 and bore interest of 8.0 percent per annum. The loan was obtained by
the Company to finance the purchase of fixed assets. Fixed assets with a net
book value of USD 3.1 million were pledged as collateral under this agreement
as of December 31, 2006. The effective average interest rate for 2006 was
8.0 percent per annum. During 2006 the loan was repaid in full.
(v)The credit line granted by the Sberbank of the Russian Federation amounting
to USD 45.0 million. The credit was obtained to replenish the Group’s working
assets and interest rate was 8.5 percent per annum. The effective average interest rate for 2006 was 7.0 percent per annum.
(vi)The amounts represent the net balance due under a series of short-term security sale and repurchase agreements bearing interest rates of 6.9 per cent.
(vii)The credit line granted by Alfa-bank amounting to USD 8.3 million. Property,
plant and equipment with a net book value of USD 0.15 million are pledged as
a collateral under this loan agreement. The effective average interest rate for
2006 under this credit line was 10.0 percent per annum.
On demand or within one year
In two to five years
Total
Less: amounts due to settlement within 12 months
2006
2005
West LB Vostok (i)
–
30.0
West LB AG (Германия) (ii)
–
30.0
Amsterdam trading Bank (iii)
–
8.0
Amsterdam trading Bank (iv)
–
2.6
Accor
2.6
2.5
Other long-term bank loans
3.1
2.9
5.7
76.0
Loans in USD
2005
228.8
100.9
The borrowings are repayable as follows:
After five years
25. LONG-TERM BORROWINGS
2006
Amounts due for settlement after 12 months
–
70.6
5.7
5.4
234.5
176.9
(228.8)
(100.9)
5.7
76.0
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
156
157
26. FINANCE LEASE PAYABLE
Ordinary shareholders are allowed one vote per share.
The Group leases aircraft under finance lease agreements. Leased assets are listed in
Note 1 above.
Total outstanding payments
Finance charge
Principal outstanding
Representing:
Short-term lease payable
Long-term lease payable
Due for repayment (principal and finance charge):
After five years
2006
2005
612.6
(107.4)
505.2
350.1
(42.7)
307.4
52.2
453.0
26.1
281.3
72.1
261.3
279.2
33.6
128.0
188.5
612.6
350.1
Interest unpaid as of December 31, 2006 and 2005 was approximately USD 2.3 million
and USD 1.1 million, respectively, and has been included in accrued expenses. In 2006
and 2005 the effective interest rate on these leases approximated 5.3 and 4.1 percent
per annum, respectively.
In 2006 the Group obtained four Airbus A-321s and five Boeing B-737-500 under finance leases. The related short-term and long-term finance lease liabilities as of December 31, 2006 amounted to USD 21.7 million and USD 194.5 million, respectively.
In 2005 the Company returned to a lessor one Airbus A-310 which resulted in termination of a related finance lease agreement. At the date of termination the net book value
of this aircraft was USD 19.4 million. The short-term finance lease liability decreased
by USD 26.8 million, thus producing a gain of USD 7.5 million included in gain on disposal of property, plant and equipment.
The Company’s aircraft leases are subject to both positive and negative covenants. In
accordance with those covenants, the Company maintains insurance coverage for its
leased aircraft.
27. SHARE CAPITAL
Number of shares
authorized and issued
Number of shares
in treasury stock
Number of shares
outstanding
(50,198,379)
(50,382,706)
1,060,417,920
1,060,233,593
Ordinary shares of one Russian ruble each:
As of December 31, 2005
As of December 31, 2006
1,110,616,299
1,110,616,299
During 2006 the number of treasury shares held by the Group increased by 184,327.
The Company’s shares are listed on the Russian Trade System (“RTS”) and MICEX and
as of May 29, 2007 were traded at USD 2.5 per share.
The Company launched a Level 1 Global Depositary Receipts (GDR) program in December 2000. The Company signed a depositary agreement with Deutsche Bank
Group, allowing the Company’s shareholders to swap their shares for GDR’s, which
trade over-the-counter on US and European markets. The swap ratio was established at 100 shares per GDR. Per depositary agreement the total volume of GDR
of the Company cannot exceed 20 percent of the Company’s share capital. In 2001,
the Company’s GDR’s were listed on the NEWEX (New Europe Exchange) stock exchange in Vienna and after closing of this exchange the GDR’s were transferred to
the third segment of the stock exchange in Frankfurt.
28. retained earnings, dividends
The statutory accounting reports of the Group companies are the basis for profit distribution and other appropriations. For the years ended December 31, 2006 and 2005,
the statutory profits of the Company, as reported in the published annual statutory
financial statements, were 7,981 million Russian rubles and 6,032 million Russian
rubles, respectively.
In respect of 2006, the Board of Directors recommended to approve dividends of RUR
1.29 per share (approximately 5 US cents per share), which will be paid to shareholders
between June 24 and August 22, 2007. This dividend is subject to approval by shareholders at the annual shareholders’ meeting and has not been recognized as a liability
in these financial statements.
29. SEGMENT INFORMATION
The Group is organized into three main segments:
• Airline — domestic and international passenger and cargo air transport and other
airline services;
• Catering — the preparation of food and beverages for air travel;
• Hotels — the operation of hotels.
All operations are based in the Russian Federation; therefore no geographical segment
information is disclosed.
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
158
159
Details of the geographical breakdown of revenues from scheduled passenger and
cargo airline activities are as follows:
By region
2006
2005
Europe
463.5
376.8
Asia
199.1
171.5
North America
72.3
68.8
Other
17.5
13.6
Europe
461.0
383.3
Asia
205.7
182.4
North America
69.5
66.0
Other
17.3
12.7
48.4
45.2
636.0
495.6
2,190.3
1,815.9
11.6
10.0
Asia
4.8
5.3
North America
4.6
4.7
Other
0.1
0.1
Europe
28.3
27.7
Asia
a) Scheduled passenger revenue
International flights from Moscow to:
International flights to Moscow from:
Domestic flights
b) Scheduled cargo revenue
International flights from Moscow to:
Europe
International flights to Moscow from:
53.9
54.4
North America
5.3
6.8
Other
0.1
0.2
9.4
13.1
41.8
33.2
159.9
155.5
Domestic flights
Reporting format — business segments
Year ended December 31, 2006
Airline
Catering
Hotels
Other
Eliminations
Total Group
External sales
Inter-segment sales
Total revenue
Operating profit
Interest expense
Interest income
Share of income in associates
Foreign exchange and translation
(loss) income, net
Non-operating income (loss), net
Income before taxation
Taxation
Net income
Segment assets
Associates
Unallocated assets
Consolidated total assets
Segment liabilities
Unallocated liabilities
Consolidated total liabilities
Capital expenditure
Depreciation
Other non cash expenses (income)
2,943.5
–
2,943.5
364.9
16.3
42.5
58.8
8.9
17.1
4.9
22.0
7.2
5.8
2.1
7.9
(3.5)
–
(49.5)
(49.5)
(0.5)
6.4
–
1.8
0.2
–
2,982.7
–
2,982.7
377.0
(30.7)
4.0
8.4
2,307.3
21.5
19.4
–
25.2
–
300.1
–
–
(277.2)
–
572.8
17.6
19.8
40.6
(38.9)
388.6
93.0
(2.5)
0.9
0.9
(0.3)
1.4
3.1
–
143.2
0.2
–
–
–
–
38.7
(9.5)
387.9
(129.8)
258.1
2,374.8
21.5
9.8
2,406.1
611.9
1,005.3
1,617.2
534.1
97.2
(2.8)
Year ended December 31, 2005
Airline
Catering
Hotels
Other
Eliminations
Total Group
External sales
Inter-segment sales
Total revenue
Operating profit
Interest expense
Interest income
Share of income in associates
Foreign exchange and translation
income, net
Non-operating loss, net
Income before taxation
Taxation
Net income
Segment assets
Associates
Unallocated assets
Consolidated total assets
Segment liabilities
Unallocated liabilities
Consolidated total liabilities
Capital expenditure
Depreciation
Other non cash expenses
2,497.4
–
2,497.4
238.0
13.7
27.8
41.5
(5.5)
14.2
5.1
19.3
5.3
1.0
1.1
2.1
1.4
–
(34.0)
(34.0)
2.9
5.7
–
–
–
–
2,526.3
–
2,526.3
242.1
(25.3)
6.9
5.7
1,636.6
14.1
19.5
–
25.2
–
117.5
–
(195.8)
–
499.2
17.7
4.6
101.2
(91.3)
144.2
75.6
20.8
1.0
1.0
–
0.9
3.4
–
58.0
–
–
–
–
–
(12.8)
62.2
278.8
(89.0)
189.8
1,603.0
14.1
5.1
1,622.2
531.4
523.3
1,054.7
204.1
80.0
20.8
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
160
161
30. RELATED PARTY TRANSACTIONS
The ultimate controlling party of the Company is the government of the Russian Federation
and all companies controlled by the government of the Russian Federation are treated as
related parties of the Group for the purpose of these consolidated financial statements.
The financial statements of the Group include the following balances and transaction
with related parties:
2006
2005
119.8
37.7
78.3
28.0
28.4
–
360.0
141.2
63.9
–
2006
2005
52.4
728.5
0.6
77.7
550.3
0.6
Assets
Cash balances
Accounts receivable
VAT recoverable on leased aircraft
Liabilities
Accounts payable and other liabilities
VAT and custom duties payable on leased aircraft
Sales
Purchases
Dividend income received
Purchases consist primarily of purchases of aircraft fuel as well as airnaviagation and
airport services.
The summary of balances and charges relating to the taxes due to the government of the Russian Federation for the years ended December 31, 2006 and 2005 is presented below:
Account receivable from tax authorities
Account payable to tax authorities
Income and other taxes paid
2006
2005
117.2
8.1
335.7
188.1
51.6
396.9
The amounts outstanding to and from related parties are unsecured and will be settled
in cash. No guarantees have been given or received. No expense has been recognized in
the period for bad or doubtful debts in respect of the amounts owed by related parties.
Compensation of key management personnel
The remuneration of directors and other members of key management (the members
of the Board of Directors and Management Committee as well as key managers of
flight and ground personnel who have significant power and responsibilities on key
control and planning decisions of “Aeroflot”) consisted of short-term benefits including salary and bonuses as well as short-term compensation for serving on the management bodies of Group companies, and amounted to approximately USD 11.6 million and
USD 10.2 million for the years ended December 31, 2006 and 2005, respectively. Such
amounts are stated before personal income tax but exclude unified social tax. According
to Russian legislation, the Group makes contributions to the Russian State pension fund
as part of unified social tax for all its employees including key management personnel.
Government officials, who are directors, do not receive remuneration from the Group.
In 2006 the definition of key management above has been expanded to include certain
other key management outside the Company’s Board of Directors. Corresponding figure for the year ended December 31, 2005 has been adjusted for consistency.
31. COMMITMENTS UNDER OPERATING LEASES
Future minimum lease payments under non-cancelable aircraft and other operating leases are as follows:
After five years
Total minimum payments
2006
2005
134.6
769.0
800.5
1,704.1
114.1
428.5
287.1
829.7
The table above includes 19 Airbus A-320s and 4 A-319s for which the lease agreements were entered into in 2006 but which will commence during 2007–2009.
The amounts above represent base rent. Maintenance fees payable to the lessor based
on actual flight hours and other usage variables are not included in the table.
For details of the fleet subject to operating leases refer to Note 1.
Additionally, the Group leases land from the Moscow Region authorities under longterm operating lease agreements.
32. CAPITAL COMMITMENTS
The Group’s capital commitments related to acquisition of property, plant and
equipment as of December 31, 2006 amounted to approximately USD 1,313 million. These commitments relate to purchases of thirty Sukhoi SuperJet-100 (SSJ)
aircraft, three new A321-200 aircraft expected to be delivered during 2007,
contracts for modernization of interiors of leased Boeing 767-300 aircraft,
as well as contracts related to construction of Sheremetyevo-3 terminal and the new
office building for Company.
AEROFLOT
ANNUAL REPORT 2006
FINANCIAL REPORT
162
163
33. change of classification for assets and liabilities
previously classified as held for sale
rapidly. These changes are characterized by poor drafting, different interpretations
and arbitrary application by the authorities.
On December 30, 2005, the Company entered into a preliminary agreement to sell 70%
of its shares in OJSC Terminal as follows: 25% plus one share to International Airport
Sheremetyevo; 25% plus one share to Vneshtorgbank; and 20% minus two shares to
Vneshekonombank. The government of the Russian Federation is a controlling shareholder in all of the entities that are parties to this agreement. The assets and liabilities
of OJSC Terminal and other capitalized costs relating to the construction of the Sheremetyevo-3 terminal, which were expected to be sold within twelve months, were classified
as a disposal group held for sale and presented separately in the balance sheet for the
year ended December 31, 2005 in the prior year financial statements of the Group.
The major classes of assets and liabilities comprising the disposal group classified of
December 31, 2005 as held for sale in the prior year financial statements were as follows:
Cash and cash equivalents
8.5
VAT and other taxes recoverable
6.2
Prepayments
0.6
Inventories
0.3
67.6
Assets of a disposal group classified as held for sale
83.2
Trade payables and accruals
(7.4)
(2.0)
Liabilities associated with assets of a disposal group classified as held for sale
(9.4)
Net assets of disposal group
73.8
Subsequent to December 31, 2006 the Group sold a total of 45% minus one share in
OJSC Terminal to Vneshtorgbank and Vneshekonombank (see also note 36 “Subsequent events”). However, the sale of 25% plus one share of OJSC Terminal to International Airport Sheremetyevo is no longer considered to be highly probable in the near
future. As a result, the management of the Group considers that the conditions for classification of assets and liabilities of OJSC Terminal and other capitalized costs relating
to the construction of the Sheremetyevo-3 terminal as disposal group in accordance
with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” are no
longer met. Accordingly, the Group has reclassified the balances classified as held for
sale as of December 31, 2005 back into the appropriate balance sheet lines.
34. CONTINGEncies
Political environment — The government of the Russian Federation continues
to reform the business and commercial infrastructure in its transition to a market
economy. As a result laws and regulations affecting businesses continue to change
Taxation — Russian tax legislation is subject to varying interpretations and constant
changes. Furthermore, the interpretation of the tax legislation by the tax authorities, as applied to the transactions and activity of the Group, may not coincide with
that of management. As a result, the tax authorities could challenge transactions and
the Group could be assessed additional taxes, penalties and interest, which could
be significant. Periods remain open to review by the tax authorities for three years.
The Group’s management believes that it has adequately provided for tax liabilities
in the consolidated financial statements; however the risk remains that the relevant
authorities could take up differing positions with regard to interpretative issues, and
the effect could be significant.
Legal action — Former members of the Group’s management and two Swiss nonbank financial companies that provided treasury and financial services to the Group,
are currently under civil and criminal investigation by the Swiss and Russian authorities for potential misconduct related to funds managed under treasury and financial services agreements, which were entered into by the former management of the
Group. On November 16, 2006 the court in Moscow considered the Company’s claim
against two former employees of the Group and an employee of Financial United
Corporation and awarded the total of approximately USD 8.2 million in damages to
the Group. The Group intends to pursue recovery of all losses to the fullest extent
possible. However, due to remaining uncertainties in collecting already awarded and
any possible additional amounts it has not recognized any assets in its consolidated
financial statements.
35. SUBSEQUENT EVENTS
Electronic ticketing — As part of its agreement with SkyTeam alliance the Company
has committed to introduce e-ticketing on all of its flights. Under the current Russian
legislation, tickets for passenger air carriage can only be issued in documentary form.
The Ministry of transportation of the Russian Federation signed an Order on November
8, 2006 which would allow the usage and regulate electronic ticketing in the civil aviation which will become effective on February 13, 2007. Introduction of e-ticketing capabilities will necessitate certain additional costs to the Group which at present cannot
be comprehensively estimated. However, in the longer-term it would allow the Company
to achieve savings, while also increasing convenience for its customers.
Sale of equity in Terminal — In January 2007 the Company completed the sale of
25% plus one share in OJSC Terminal to Vneshtorgbank for approximately RUR 1,025
million in cash (USD 38.9 million at December 31, 2006 exchange rate). In March 2007
20% less two shares in Terminal were sold to Vneshekonombank for approximately
RUR 774 million (USD 29.4 million at December 31, 2006 exchange rate).
Airbus A330-200 — On April 2, 2007, the Group’s management agreed to enter into
a finance lease agreement for two new Airbus A330-200 aircraft. Deliveries of aircraft
will begin in November and December 2008.
AEROFLOT
ANNUAL REPORT 2006
Appendixes
164
165
Appendixes
Overview of Major Deals and Interested Party Transactions
On April 10, 2006, an a extraordinary general meeting of Aeroflot shareholders approved the
following interested party transactions:
• The purchase and sales agreement for shares of OJSC Terminal between JSC Aeroflot
and OJSC Sheremetyevo International Airport, according to which Aeroflot releases to
Sheremetyevo International Airport the rights for 9,490,001 common registered shares
(par value of one share is 100 rubles), which equals 25%+1 of the total number of shares
outstanding of Terminal, for a price of 1,024,920,108 rubles, based on the market price
of 108 rubles for one share.
• The purchase and sales agreement for shares of OJSC Terminal between JSC Aeroflot
and OJSC Vneshtorgbank, according to which Aeroflot releases to Vneshtorgbank the
rights for 9,490,001 common registered shares (par value of one share is 100 rubles),
which equals 25%+1 of the total number of shares outstanding of Terminal, for a price of
1,024,920,108 rubles, based on the market price of 108 rubles for one share.
• The purchase and sales agreement for the shares of OJSC Terminal between JSC Aeroflot
and OJSC Vnesheconombank according to which Aeroflot releases to Vnesheconombank
the rights for 7,591,998 common registered shares (par value of one share is 100 rubles),
which equals 20%-2 of the total number of shares outstanding of Terminal, for a price of
774,383,796 rubles, based on the market price of 102 rubles for one share.
On May 16, 2006, the extraordinary general meeting of Aeroflot shareholders approved deals
with interested parties for the delivery of RRJ planes between 2008 and 2011.* The particularly
important terms of the deals are as follows:
• Modification of the RRJ95B planes: the delivery agreement includes the right to convert individual planes into RRJ75Bs;
• Number of planes to be delivered is 30;
• Date of delivery of the planes is from November 2008 to April 2011;
• Price (pecuniary valuation) of the delivered planes is no more than USD 630,000,000 as of
February 10, 2006;
• Catalogue price of the planes is USD 26,200,000. The final price is determined on the date of
delivery based on the discounts determined by the delivery contract.
• Sukhoi Civil Aircraft guarantees the following financial terms of the deal:
а) 20 planes are guaranteed to be leased for 12 years;
b) 10 planes are financed based on the terms of the purchase agreement.
• Size of advanced payments equals USD 524,480 for every plane.
• The supplier guarantees the salvage value of the obtained planes in accordance with the
agreement of the salvage value from December 7, 2005.
Further information on the AGM and EGM decisions can be found in the “Shareholder and Investors” section of the Aeroflot website — www.aeroflot.ru.
* RRJ is currently SSJ.
Glossary of terms and abbreviations
AEA – Association of European Airlines.
Aeroflot Bonus – frequent flyer program.
Aircraft departures – the number of landings or flight stages flown.
Aircraft hours flown – the total number of revenue hours flown “block-to-block”. “Block-toblock“ time is defined as the total number of hours (and minutes) measured from the time the
aircraft moves from the loading point until it stops at the unloading point.
Aircraft kilometers flown – the sum of distances flown by all revenue flights.
Available seat kilometers (ASKs) – the total number of seats available for the transportation
of revenue passengers multiplied by the number of kilometers which those seats are flown.
Available ton kilometers (ATKs) – the total number of metric tons available for the transportation of passengers and cargo multiplied by the number of kilometers which this capacity
is flown.
Average stage distance – aircraft kilometers flown divided by the number of revenue landings.
ATC – Aviation Technical Center.
BSP – Billing and Settlement Plan (clearing center for payments between agents and airlines).
Cargo tons carried – all cargo (freight and mail) counted on a point-to-point basis (in metric
tons) covered by air waybills for which remuneration is received.
Cargo ton kilometers (CTKs) - one ton of revenue cargo transported one kilometer. CTK’s are
computed by multiplying metric tons of cargo by the kilometers they are flown.
ECAC – European Civil Aviation Conference.
FSTS – Russian Federal Service for Transport Supervision.
Group – JSC Aeroflot and its subsidiaries.
IATA – International Air Transport Association.
IOSA – IATA Operational Safety Audit.
ISO – International Organization for Standardization (organization based in Geneva, Switzerland, bringing together national standardization institutes of 157 countries to set common international standards in all spheres of industry).
LIBOR – London Interbank Offered Rate (the rate at which banks borrow money from each other
on the London interbank market).
Market capitalization - total market value of the company’s shares.
Marketing flights – flights where Aeroflot acts as marketing partner.
MICEX – Moscow Interbank Currency Exchange.
Passengers carried – a passenger for whose transportation air carrier receives commercial
remuneration.
Passenger load factor – revenue passenger kilometers expressed as a percentage of available seat kilometers.
p.p. – percentage points.
Revenue passenger kilometers (RPKs) – one fare-paying passenger transported one kilometer. RPK’s are computed by multiplying the number of passengers by the kilometers they are
flown.
Revenue ton kilometers (RTKs) – one ton of revenue traffic (passengers, baggage, and cargo)
transported one kilometer. Revenue ton kilometers are computed by multiplying metric tons of
revenue traffic by the kilometers which this traffic is flown.
RF – Russian Federation.
RTS - Russian Trading System.
TCAP – Training Center for Aviation Personnel.
RUR – Russian roubles.
Utilization – average hours flown (“block-to-block” basis) per aircraft per day.
VAT – value added tax.
Weight load factor - Revenue ton kilometers expressed as a percentage of available ton kilometers.
AEROFLOT
ANNUAL REPORT 2006
Appendixes
166
167
Operational statistics
Aeroflot
Aircraft kilometers flown
International routes
Domestic routes
Total
Aircraft departures
Domestic routes
Total
Aircraft hours flown
Domestic routes
Total
Passengers carried
Domestic routes
Total
Freight and mail tons carried
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Weight load factor
Domestic routes
Total
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
144,801.1
6,780.3
151,581.4
135,568.9
12,014.7
147,583.6
147,823.0
25,758.1
173,581.1
137,185.6
32,887.0
170,072.6
133,287.6
37,074.7
170,362.2
135,608.8
42,230.4
177,839.2
121,925.0
39,752.0
161,677.0
124,421.9
40,537.7
164,959.6
138,982.4
41,343.6
180,326.0
147,689.8
45,378.9
193,068.7
156,187.0
55,684
211,871.0
47,670
2,274
49,944
45,649
3,608
49,257
49,265
10,160
59,425
45,474
14,703
60,177
44,275
17,878
62,153
45,777
21,541
67,318
41,952
20,985
62,937
42,282
21,617
63,899
46,261
21,771
68,032
49,786
23,461
73,247
52,516
28,766
81,282
184,176
8,547
192,723
174,140
15,260
189,400
188,100
33,619
221,719
174,059
43,730
217,789
169,421
49,983
219,404
172,596
57,639
230,235
154,360
54,643
209,003
156,670
54,845
211,515
175,973
56,102
232,075
187,266
61,085
248,351
197,559
74,347
271,906
3,738.8
73.8
3,812.6
3,693.4
210.7
3,904.1
3,738.0
712.7
4,450.7
3,440.2
1,169.1
4,609.3
3,704.6
1,396.3
5,100.9
4,205.1
1,625.5
5,830.6
3,885.4
1,603.9
5,489.3
4,129.8
1,713.8
5,843.5
4,647.6
1,942.5
6,590.1
4,649.7
2,016.8
6,666.5
4,939.5
2,350.5
7,290.4
80.8
9.3
90.1
84.9
7.3
92.2
78.1
6.5
84.6
80.0
9.5
89.5
95.4
12.0
107.4
86.8
14.8
101.6
93.4
16.2
109.6
95.7
18.5
114.2
124.9
20.6
145.5
121.8
23.6
145.4
118.8
26.5
145.3
23,419.4
616.8
24,036.2
22,584.3
1,427.8
24,012.1
25,119.3
3,321.7
28,441.0
23,366.1
4,273.1
27,639.2
21,917.7
4,632.9
26,550.6
23,522.6
5,273.5
28,796.1
20,551
5,251.5
25,802.5
20,848.0
5,393.1
26,241.1
23,728.1
6,253.5
29,981.6
23,255.7
6,721.7
29,977.4
24,257.6
7,688.2
31,945.8
14,352.1
281.1
14,633.2
13,717.8
893.1
14,610.9
14,260.9
2,188.2
16,449.1
13,240.8
3,164.6
16,405.4
14,068.1
3,366.1
17,434.2
15,110.4
3,833.0
18,943.4
13,826.3
3,818.9
17,645.2
14,163.7
4,038.9
18,202.6
16,171.5
4,476.7
20,648.2
15,897.7
4,797.1
20,694.8
16,753.7
5,652.8
22,406.5
61.3
45.6
60.9
60.7
62.6
60.8
56.8
65.9
57.8
56.7
74.1
59.4
64.2
72.7
65.7
64.2
72.7
65.8
67.3
72.7
68.4
67.9
74.9
69.4
68.2
71.6
68.9
68.4
71.4
69.0
69.1
73.5
70.1
491.5
48.1
539.6
503.1
42.2
545.3
473.3
39.7
513.0
530.8
53.7
584.5
606.0
65.7
671.7
462.1
91.8
554.0
491.3
71.8
563.0
530.3
84.1
614.4
757.1
95.6
852.7
761.3
107.3
868.6
745.9
122.2
868.1
1,783.2
73.4
1,856.6
1,737.7
122.6
1,860.3
1,756.8
236.6
1,993.4
1,722.5
338.5
2061
1,872.2
368.6
2,240.8
1,822.2
436.7
2,258.9
1,735.6
415.6
2,151.1
1,805.0
447.7
2,252.7
2,212.5
498,5
2,711.0
2,192.1
539.0
2,731.1
2,253.8
630.9
2,884.7
3,676.8
175.9
3,852.7
3,460.1
260.3
3,720.4
3,717.3
485.4
4,202.7
3,479.0
581.1
4,060.1
3,493.8
619.6
4,113.4
3,534.5
690.7
4,225.2
3,130.1
684.1
3,814.2
3,258.8
692.3
3,951.1
3,869.4
792,9
4,662.3
3,849.4
859.9
4,709.3
3,988.4
1,012.4
5,000.8
48.5
41.7
48.2
50.2
47.1
50.0
47.3
48.7
47.4
49.5
58.3
50.8
53.6
59.5
54.5
51.6
63.2
53.5
55.4
60.8
56.4
55.4
64.7
57.0
57.2
62.9
58.1
56.9
62.7
58.0
56.5
62.3
57.7
thousands
thousands
thousands
millions
millions
%
millions
millions
millions
%
AEROFLOT
ANNUAL REPORT 2006
Appendixes
168
169
Aeroflot-Don
Aeroflot-Nord
2000*
Domestic routes
Total
Aircraft departures
Domestic routes
Total
Domestic routes
Total
Passengers carried
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Weight load factor
Domestic routes
Total
2001
2002
2003
2004
2005
2006
thousands
1,630.2 2,485.1 2,623.0 3,011.1 4,192.3 3,581.0
3,493.9
4,509.8 7,718.5 6,503.2 7,648.1 8,279.6 7,851.7
7,799.0
6,140.0 10,203.6 9,126.5 10,659.2 12,471.9 11,432.7 11,292.9
855
3,008
3,863
1,276
5,079
6,355
1,373
5,235
6,608
1,833
6,012
7,845
2,622
6,018
8,640
2,268
5,675
7,943
2,199
5,834
8,033
2,160
6,097
8,257
3,239
10,523
13,762
3,336
9,208
12,544
3,939
10,661
14,600
5,568
11,179
16,747
4,640
10,513
15,153
4,606
10,576
15,182
63.2
199.8
263.0
86.5
313.5
400.0
103.1
324.3
427.4
129.9
376.9
506.8
173.4
414.7
588.1
180.1
419.5
599.6
170.2
418.0
588.2
0.4
1.4
1.8
0.3
1.9
2.2
0.6
1.8
2.4
0.6
2.0
2.6
0.6
2.1
2.7
0.5
2.1
2.6
0.5
1.8
2.3
189.4
582.1
771.5
276.9
812.3
1,089.2
352.7
674.3
1,027.0
382.1
901.9
1,284.0
513.3
1,090.1
1,603.4
492.1
1,098.2
1,590.3
410.9
957.6
1,368.5
122.9
374.6
497.5
171.1
527.4
698.5
201.1
447.2
648.3
216.6
527.4
744.0
286.9
595.7
882.6
305.7
606.5
912.2
287.5
587.0
874.5
64.9
64.4
64.5
61.7
65.0
64.1
57.0
66.3
63.1
56.6
58.5
57.9
55.8
54.6
55.0
62.1
55.2
57.4
70.0
61.3
63.9
0.8
3.9
4.7
0.6
4.7
5.3
1.2
3.4
4.6
1.3
3.8
5.1
1.3
3.7
5.0
1.0
3.9
4.9
0.8
3.4
4.2
11.9
37.6
49.5
16.0
52.1
68.1
19.3
43.7
63.0
20.8
51.2
72.0
27.0
57.3
84.3
28.5
58.5
87.0
26.7
56.2
82.9
17.7
53.7
71.4
27.4
83.1
110.5
34.3
70.5
104.8
37.8
90.5
128.3
52.4
104.3
156.7
50.0
105.8
155.8
43.1
94.6
137.7
67.2
70.0
69.3
58.3
62.8
61.7
56.2
61.8
60.0
54.7
56.6
56.0
52.0
55.0
54.0
57.0
55.3
55.8
61.9
59.4
60.2
thousands
thousands
millions
millions
%
millions
millions
millions
%
* as of the date when the company joined the Group (April 13, 2000)
Domestic routes
Total
Aircraft departures
Domestic routes
Total
Domestic routes
Total
Passengers carried
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Domestic routes
Total
Weight load factor
Domestic routes
Total
2004*
2005
2006
255.1
1,790.4
2,045.5
2,039.0
14,719.6
16,758.6
1,774.5
18,084.6
19,859.1
188
1,727.0
1,915
1,384
13,891
15,275
1,522
17,331
18,853
596
3,489
4,085
3,852
26,864
30,716
3,315
32,826
36,141
9.4
87.3
96.7
76,3
729.6
805.9
65.5
809.8
875.2
0.1
0.6
0.7
128
3,425
3,553
85.4
4,128.6
4,214.0
16.3
132.2
148.5
169
1,168.7
1,337.7
152.2
1,426.1
1,578.3
11.1
87.5
98.6
116
791.2
907.2
111.1
932.7
1,043.8
67.9
66.2
66.4
68.6
67.7
67.8
73.0
65.4
66.1
0.1
0.5
0.6
0.2
3.4
3.6
0.1
4.3
4.4
1.5
12.8
14.3
16.1
115.0
131.1
14.1
141.4
155.5
1.1
8.4
9.5
10.6
74.6
85.2
10.1
88.2
98.3
73.3
65.6
66.4
65.8
64.8
65.0
70.9
62.4
63.2
thousands
thousands
thousands
millions
millions
%
millions
millions
millions
%
* as of the date when the Company joined the Group ( October 8, 2004)
AEROFLOT
ANNUAL REPORT 2006
Appendixes
170
171
Aeroflot Group representative offices
Aeroflot
Country/City
Country/City
Code
Telephone
Fax
Address
Code
Telephone
Fax
ANGOLA
LUANDA
(2442)
22430682
22430599
Rua Coroner Aires de Ornelas No.1-A/В-r/c,
Luanda, Angola
(37410)
532131, 223580
538107, 22435
12, Amiryan Street, Yerevan, 375002
(612)
92622233
92621821
National Mutual Building, 24th Level, 44
Market Street, NSW, 2000 Sydney
(431)
5121501, 5121502
5121501,
5121578
10, Parkring, 1010 Wien, Austria
(99412)
4981167, 4981168
4981166
AZ1000, 23, Hajibeyov Street, Baku, 370000
(37517)
2066976, 2272887,
2066895
2066979
Of. 1, 25, J. Kupala Street, Minsk, 220030
(322)
5136066, 5053838
5122961
58, Rue des Colonies, 1000 Brussells
(3592)
9434489, 9434572
9461703
23, Oborishte Street, 1504 Sofia
(1416)
6421653, 6421654
6421658
1, Queen Street East, Suite 1908, P.O. Box 61,
Toronto, Ontario, M5C2C5
BEIJING
(8610)
65002412
65941869
N2 Chao Yang Men Bei Da Jie, Beijing 100027,
PR China
HONG KONG
(852)
25372611
25372614
Suite 2918, 29 Floor, Shui on centre, 6-8
Harbour Road, Wanchai, Hong Kong
SHANGHAI
(8621)
62798033
62798035
Suite 203A, Shanghai Centre, 1376,
Nanjingxilu, Shanghai,China, 200040
(3851)
4872055/076
4872051
13, Varšavska, 10000 Zagreb
(537)
2043200, 2043759
2045593
5ta ave., Esq.76, Edif. Barcelona, Oficina 208,
Miramar Playa, La Habana Cuba
(35722)
669071, 677072
678484
32, B&C, Homer Avenue, P.O. Box 22039,
1097 Nicosia
(4202)
27020100
24812683
5, Truhlárská, 11000 Praha 1
(45)
33126338
33112127
1.1 Vester Farimagsgade, Room 1255 DK1606, Copenhagen
(202)
3900429,
3937409
3900407
18, El Boustan Street, El Boustan Commercial
Centre
RUSSIA
MOSCOW
(495)
2450542
2300727
2300816
9039271
6219293
6285613
5783124
5789435
1862074
9536673
2464974
2371067
2300816
6215131
6219293
6284154
—
7538023
1862092
9536673
4, Frunzenskaya Embankment
Section 6, 7, Korovy Val Street
Section 7, 7, Korovy Val Street
21, Petrovka Street
Room 2, 3, Kuznetsky Most Street
Room 3, 3, Kuznetsky Most Street
Sheremetyevo-1
Sheremetyevo-2
19, Yeniseyskaya Street
37, Pyatnitskaya Street
ARMENIA
YEREVAN
AUSTRALIA
SYDNEY
AUSTRIA
VIENNA
ANAPA
(86133)
32255
31566
170, Krymskaya Street, 353440
AZERBAIJAN
ARKHANGELSK
(8182)
651455
288082
88, Naberezhnaya Severnoy Dviny
BAKU
BELARUS
ASTRAKHAN
(8512)
445555, 394999
445555
3, Gubernator A. Guzhvin Prospect
BARNAUL
(3852)
380245, 369902
369902
8А, Dmitrov Street, 656049
CHELYABINSK
(351)
2370496, 2370917
2370231
90, Svobody Street
EKATERINBURG
(343)
3565570, 3565571
3565570,
3565574
41, Belinsky Street, 620219
IRKUTSK
(3952)
255780
211331
Of. 107, 27, S. Razin Street, 664000
KALININGRAD
(4012)
916455, 631516
956454
4, Pobedy Square, 236000
KEMEROVO
(3842)
368018
349451
1, Kolomytseva Street, 650099
KHABAROVSK
(4212)
783435, 327592
783456
50, Pushkin Street, 680000
KRASNODAR
(861)
2100010, 2100004
2100091,
2100092
43, Krasnaya Street, 350000
KRASNOYARSK
(3912)
206436
206437
37, Mira Rrospect, 660049
MAGADAN
(41322)
92241
92230
Of. Aeroflot, Airport, 685918
MINERALNYE VODY
(87922)
68744, 69920
68170
75, Marx Prospect, 357202
MURMANSK
(8152)
421451, 428019
428019
7, Volodarskogo Street, 183038
MINSK
BELGIUM
BRUSSELS
BULGARIA
SOFIA
CANADA
TORONTO
CHINA
NIZHNEVARTOVSK
(3466)
613396, 245555
245555
11, Omskaya Street, 628606
CROATIA
NIZHNIY NOVGOROD
(8312)
344040
344188
6, Gorky Square, 603950
ZAGREB
NORILSK
(3919)
460769, 461206
460769
Of. 167, 17, Lenin Prospect, 663300
CUBA
NOVOSIBIRSK
(383)
2230589, 2179693
2179698
28, Krasny Prospect, 630091
HAVANA
OMSK
(3812)
251322, 251798
247955
14, Ordzhonikidze Street, 644099
PERM
(342)
2203004, 2349593
2349535
21, Popov Street, 614600
PETROPAVLOVSK-K.
(4152)
411830, 411786
411722
7A, Zvezdnaya Street, Elizovo, 684010
SAMARA
(846)
2760277
2760280
141, Leninskaya Street, 443041
CZECH REPUBLIC
SOCHI
(8622)
644511, 645675
645675
61А, Rose Street, 354000
PRAGUE
ST.-PETERSBURG
(812)
4385572, 4385583
5724310
1/43, Rubenstein Street, 191025
DENMARK
TYUMEN
(3452)
499871, 499872
395165
84/1, Malygina Street, 625026
COPENHAGEN
VLADIVOSTOK
(4232)
226647
209041
143, Svetlanovskaya Street, 690053
VOLGOGRAD
(8442)
385479
385480
15, Lenin Prospect, 400131
UFA
(3472)
516343
516343
5/3, Lenin Street, 450000
788555, 788655
788655
Of. Aeroflot, Airport, 693014
YUZHNO-SAKHALINSK (4242)
Address
CYPRUS
NICOSIA
EGYPT
CAIRO
AEROFLOT
ANNUAL REPORT 2006
Appendixes
172
Country/City
173
Code
Telephone
Fax
Address
FINLAND
HELSINKI
(3589)
663203
661021
00100 Manner-Heimintie, 5 Helsinki, Finland
93214544
Aéroport Côte d’Azur, Terminal 1, 06281 Nice
Cedex
(334)
93214482
PARIS
(331)
42254381, 42253192 42560480
33, Avenue des Champs Elysées, 75008
BERLIN
(4930)
22698130
22698136
51, Unter den Linden, 10117 Berlin
DUSSELDORF
(49211)
8644300, 8644312
320928
26, Berliner Allee, 40212 Düsseldorf
FRANKFURT/ M
(4969)
27300612,
27300615
27300629
41, Wilhelm-Leuschner Strasse, 60329
Frankfurt am Main
HANNOVER
(49511)
7217816
9772064
Flughafen Hannover-Langenhagen Terminal
C Zimmer 311, Postfach 420251, 30662
Hannover
GERMANY
HAMBURG
(4940)
3742885
3742888
60, Admiralitätstrasse, 20459 Hamburg
HAHN
(496543)
5882313, 5882314
5882325
27 Emmeransstrasse, Mainz, Germany 55166
MUNICH
(4989)
288261
2805366
2, Isartorplatz, 80331 Munich
(99532)
943896,
943897
943927
6 -А, Pekina Avenue, Block #1, 0160, Tbilisi,
Georgia
3220986,
3221022
3236375
(30210)
14, Xenofontos Street, Syntagma — GR 105
57, Athens, Greece
(361)
3185892, 3185955
3171734
4, Vaci Ut., Hungary 1051 Budapest
DELHI
(9111)
23312843,
23313785
23723245,
23316414
15-17, Tolstoy House, Tolstoy Marg, 110001
New Delhi
MUMBAI
(9122)
22025780,
22821682
2871942
Room 18-B, 1-st Floor, Nariman Bhavan, Block
111, Nariman Point, Mumbai 400021
(9821)
88910888
88808672
23, Ostad Nejatollahi Street, Tehran
HUNGARY
ALMATY
BISHKEK
PYONGYANG
915597
915416
42, Begalina Street, 50010 Almaty
(996312)
667300, 667400
667800
64/1, Bul. Erkindik, Bishkek, Kirgizia, 720040
(8502)
3817309
3817296
11-Dong Munsu-3 Dong Taedonggang District
(822)
5693271, 5693272,
5693273
5693276
5510327
RM 404, City Air Terminal Building, 159-6,
Samsung-Dong, Kangnam-ku, Seoul
(371)
7780770, 7780772
7780771
9, ul.Scolas, Riga, Latvia LV-1010
(9611)
739596
739597
Verdun Str., Selim Saab Bld. 2-Floor
(370)
52124189, 52127550 52124189
8/2, Pylimo Street, 2001 Vilnius
(603)
2141600
21416946
Lot 2.33, 2nd floor, Bangunan Angkasa Raya,
Jalan Ampang, 50450 Kuala Lumpur
(976-11)
319286
—
15, Seul Street, Ulaan Baatar, 210644
(3120)
6245715, 6270561
6259161
26-3, Weteringschans, 1017 SG, Amsterdam
(47)
23356210
22332880
6, Øvre Slottsgt, 0157 Oslo
(507)
2250497,
2250587
2250622
Unicentro Bella Vista, Avenue Justo
Arosemena y Calle 42, P.O. Box 2642,
Balboa Ancon, Panama
(4822)
6281710, 6211611
6282557
29, Alleje Jerozolimskie, 00-508 Warszawa
(4021)
3150314, 2128684
3125152
Sector 1, 29, Strada Biserica Amzei, Bucuresti
(9662)
6041027
6440823
Shaker Center, Hail Street P.O. box 40700,
Jeddah 21511
(4212)
43426896
43337581
Aeroport M.P.Shtefanika, Bratislava, 82311,
Slovak Republic
3286071, 3286064
3286083
21, Brace Jugovica, 11000 Belgrade
REPUBLIC OF KOREA
SEOUL
LATVIA
RIGA
LEBANON
BEIRUT
LITHUANIA
VILNIUS
KUALA LUMPUR
ULAAN BAATAR
NETHERLANDS
NORWAY
OSLO
IRAN
PANAMA
PANAMA
POLAND
IRELAND
WARSAW
ROMANIA
(3531)
8446166
8446349
Link Building, Level 2, Airport, Dublin
MILAN
(3902)
66986985,
66986987,
66987538
66984632
19, Via Vittor Pisani, 20124 Milano
ROME
(3906)
420385
42904923
76, Via Bissolati, 00187 Roma
SLOVAKIA
VENICE
(39041)
2698484,
2698488
2698447
Aeroport Marco Polo, Tessera, Venezia
Luigi Broglio street 8, 30030
BRATISLAVA
ITALY
BUCHAREST
SAUDI ARABIA
JIDDA
SERBIA AND MONTENEGRO
JAPAN
TOKYO
(3272)
DEM. PEOPLE’S REPUBLIC OF KOREA
AMSTERDAM
INDIA
DUBLIN
Address
MONGOLIA
GREECE
TEHRAN
Fax
MALAYSIA
GEORGIA
BUDAPEST
Telephone
KYRGYZSTAN
NICE
ATHENS
Code
KAZAKHSTAN
FRANCE
TBILISI
Country/City
(813)
55328781
55328821/22
Toranomon Kotohira Tower 16F, 1-2-8
Toranomon, Minato-ku, Tokyo, Japan 105-0001
BELGRADE
(38111)
AEROFLOT
ANNUAL REPORT 2006
Appendixes
174
Country/City
175
Code
Telephone
Fax
Address
SPAIN
Country/City
BARCELONA
(3493)
4305880, 4308741
4199551
41, Calle Mallorca, 08029 Barcelona
MADRID
(3491)
4313706,
4314107
4318098
Of. 3A, 52, Paseo de la Castellana, 28046,
Madrid
SWEDEN
STOCKHOLM
(468)
50565300,
50565320
217185
31, Sveavägen, 2 tr, Box 3075, 10361
Stockholm
SWITZERLAND
GENEVA
(4122)
9092767
7388312
16, Place Cornavin, 1201 Genève
ZURICH
(4143)
3446200
3446216
41, Talacker, 8001 Zürich
(96311)
2317956
2317952
29, May Street, Damascus
(662)
2510617,
2510618
2553138
Mezzanine Floor, Regent House, 183, Rajdamri
Road, 10330 Bangkok
SYRIA
DAMASCUS
THAILAND
BANGKOK
Code
Telephone
Fax
Address
RUSSIA
GROZNY
(928)
1875816
MOSCOW
(495)
4367753, 4367691,
2314723
MURMANSK
(8152)
428019, 281241
—
7, Volodarskogo Street, 183038
NERUNGRI
(41147)
32444
—
6, Lenin Street, Nerungri, Republic of Sakha,
678960
—
Of. 6, Air Terminal Building
ROSTOV-ON-DON
(863)
2001829
ST.-PETERSBURG
(812)
4385583, 5724310
SOCHI
(8622)
411164
—
4367691,
2314723
4385583
—
Of. 238, Airways Terminal, Vnukovo Airport,
Room 2.167, Sheremetyevo-1 (Arrivals)
1/43, Rubenstein Street, Of. 3094, Pulkovo-1,
Air Terminal
Of. 223, Sochi Airport
TURKEY
TURKEY
ANTALYA
(90242)
3303106
3303477
Bayindir Airport, Blok A/N 241, 07030 Antalya
ISTANBUL
(90212)
2966725, 2966726
2966737
Cumhuriyet Caddesi 141 D.1 Elmadag, Istanbul
(9714)
2222245
2227771
P.O. Box 1020, Al Maktoum Street, Dubai
DNEPROPETROVSK
(38056)
7784938
7784937
72-A, Karl Marx Prospect, Dnepropetrovsk
KIEV
(38044)
2454359
2454881
112-A, Saksagansky Street, 252032 Kiev
SIMFEROPOL
(380652)
511516
511517
2a, Pavlenko Street, 95006 Simferopol
U.A. EMIRATES
DUBAI
Aeroflot-Don
ISTANBUL
(90212)
6389106, 6389107
6389112
291/293, Ordu Gaddesi Laleli Is Merkezi, Istanbul
(38056)
7784938
7784937
72-A, Karl Marx Prospect
1521836
—
UKRAINE
DNEPROPETROVSK
UZBEKISTAN
TASHKENT
(99871)
83a, Nukusskaya Street, Mirabadsky District,
Tashkent, 700015
UKRAINE
Country/City
Code
Telephone
Fax
Address
RUSSIA
UNITED KINGDOM
LONDON
Aeroflot-Nord
(4420)
73552233
73552323
70, Piccadilly, London, W1J 8HP, UK
USA
ARKHANGELSK
(8182)
631323, 218857
—
Air Terminal Building, Arkhangelsk Airport
MOSCOW
(495)
2313215, 5787712,
5789096
—
Ticket window 14, Sheremetyevo-1
LOS ANGELES
(1310)
2815305, 2815306,
2815307
2815308
9100 Wilshire Blvd. Suite 616, Beverly Hills,
CA 90212
ST.-PETERSBURG
(812)
—
NEW YORK
(1212)
9442300
9445200,
3918577
1384, Broadway, 22 Floor, 10018, New York,
New York
7035375, 1238776,
3807636
Of. 3088, Pulkovo-1 Terminal 151, Moskovsky
Prospekt
MURMANSK
(8152)
449644
—
21, Polyarnye Zori Street
SEATTLE
(1206)
4641005
4640452
1411, 4th Avenue, Suite 420, 98101 Seattle,
Washington
BELGOROD
(0722)
341300
—
166, Bogdana Khmelnitskogo Street
KIROVSK
(81531)
541111, 50005
—
13, Yubileinaya Street
1634, Eye Street, N.W., Suite 200, 20006
Washington, D.C.
NARYAN-MAR
(81853)
43838, 49280
—
25, Smidovitch Street
MONCHEGORSK
(81536)
76161
—
25B, Komsomolskaya Street
MEZEN
(81848)
91945, 43199
—
Mezen Air Terminal
SOCHI
(8622)
442989
—
Sochi Air Terminal
(81047)
95143587
—
Tromso Air Terminal
WASHINGTON
(1202),
(1888)
3474304
3474305
UZBEKISTAN
TASHKENT
(99871)
1523018
1448472
1-A Kodyri Street, 700128, Tashkent
(8404)
7718742, 7718718
7718522
Daeha Business Center, 360 Kim Ma, str, Ba
Dinh distr., Hanoi
VIETNAM
HANOI
NORWAY
TROMSO
AEROFLOT
ANNUAL REPORT 2006
Appendixes
176
177
Route network of the Aeroflot Group
including marketing flights*
NORTh AMERICA
Amderma 2
Tromso
Apatity
Solovki
Petrozavodsk
Norilsk
Amderma
Murmansk
Novy Urengoy
Mezen
Pechora
Leshukonskoe
kotlas
Arkhangel’sk
St.Petersburg
Moscow
Ekaterinburg
Ufa
Omsk
Samara
Chelyabinsk
krasnoyarsk
kemerovo
Barnaul
Neryungri
Petropavlovskk.
Ulaan Baatar
Astrakhan
khabarovsk
Beijing
Tehran
Beirut
havana
Vladivostok
Bishkek
Tashkent
Seoul
Dalaman
Los Angeles
YuzhnoSakhalinsk
krasnodar
Mineralnye Vody
Sochi
Tbilisi
Gyumri
Baku
Yerevan
Anapa
Bodrum
Washington
Irkutsk
Volgograd
RostovonDon
Toronto
New York
Novosibirsk
Perm
kaliningrad
Magadan
Nizhnevartovsk
Tyumen
Nizhniy Novgorod
Tokyo
EUROPE
Oslo
Damascus
Tel Aviv
Shanghai
Cairo
Stockholm
Moscow
Delhi
Sherm el Sheikh
Copenhagen
Dubai
hurgada
hanoi
Jidda
Amsterdam
hong kong
Bangkok
hannover
Dusseldorf
Prague
kiev
karlovy Vary
Frankfurt/m
Vienna
Paris
Munich
Budapest
Varna
Zurich
Zagreb
Belgrade
Geneva
Bucharest
Milan Venice
Nice
Madrid
* • Moscow – Naryan-Mar • Moscow – Amman • Moscow – Arkhangelsk – Naryan-Mar • Moscow – Arkhangelsk • Moscow – Belgorod
• Moscow – Vilnius • Moscow – Murmansk • Moscow – Palanga • Moscow – Rostov • Moscow – Tallinn • Prague – Dublin • Prague – Cork
• Prague – Montreal • Rostov – St. Petersburg • Rostov – Tashkent • Rostov – Frankfurt • Samara – Prague • St. Petersburg – Hamburg
Minsk
Warsaw
Barcelona
Luanda
Riga
hamburg
Berlin
London
Brussels
Mumbai
Aeroflot
Aeroflot – Don
Aeroflot – Nord
helsinki
Forli
Rome
Dnepropetrovsk
Simferopol
Sofia
Istanbul
Athens
Antalya
Larnaca
• St. Petersburg – Hannover • St. Petersburg – Munich • Moscow – Bratislava • Moscow – Novokuznetsk • Moscow – Ankara
• Moscow – Kazan • Moscow – Ljubljana • Moscow – Magnitogorsk • Moscow – Malta • Prague – Manchester • Prague – Edinburgh
• Rostov – Baku • Rostov – Dibai • Rostov – Dusseldorf • St. Petersburg – Berlin • St. Petersburg – Dusseldorf
AEROFLOT
ANNUAL REPORT 2006
178
General Information
Full name — Open Joint Stock Company “Aeroflot — Russian Airlines”
Short name — JSC “Aeroflot”
Evidence of state registration — issued on 22.08.2003, No. 1027700092661.
Aeroflot was included in the Register of Strategic Companies and Strategic Joint-Stock Companies, as established by
the Order of the President of the Russian Federation from 04.08.2004, No. 1009.
Tax payer identification number — 7712040126
Legal address — Building 9, 37 Leningradsky prospect, Moscow, Russia
Postal address: Building 9, 37 Leningradsky prospect, 125167, Moscow
Website — www.aeroflot.ru
Contact information:
Shareholders and Investors:
Tel/fax: (495) 258-0686, 258-0684/fax, 258-0650/fax
E-mail: [email protected], [email protected]
Press Service:
Tel.: (495) 752-9071
E-mail: [email protected]
Aeroflot Bonus program:
Tel.: (495) 223-5555
www.aeroflotbonus.ru
Information and reservation center (round-the-clock):
Tel.: (495) 223-5555 (for Moscow)
Tel.: (812) 718-5555 (for St. Petersburg)
Tel.: 8-800-333-5555 (for cities of the RF, free of charge, including for mobile phones)
Online reservations: www.aeroflot.ru, [email protected]
Open line:
Tel.: (495) 223-5555
Auditors:
CJSC HLB Vneshaudit
Legal address: 25-27/2, Bolshaya Yakimanka street, Moscow, Russia
Postal address: Office 701, Entrance 3, 12 Krasnopresnenskaya Naberezhnaya, 123610, Moscow
Tel.: (495) 258-1991. Fax: (495) 967-0497
License No. 000548, issued 25.06.2002 by the Minister of Finance of the Russian Federation, valid until 25.06.2007
CJSC Deloitte and Touche CIS
Legal address: 4/7, Vozdvizhenka street, Entrance 2, Moscow, Russia
Postal Address: 4/7, Vozdvizhenka street, Entrance 2 (Mokhovaya Business Center), 125009, Moscow
Tel.: (495) 787-0600 Fax: (495) 787-0601
License No. 002417, issued 06.11.2002 by the Minister of Finance of the Russian Federation, valid until 06.11.2007
Notice of future development
This annual report apart from real data contains opinions, assumptions and forecasts of the company’s management based on currently available
information. Due to changes in external factors, such as fluctuating demand for air transportation, price changes, implementation of new technologies,
changes in legal environment, fluctuations in exchange rates, to name but a few, the company’s actual performance in the future could differ from forecasts
represented in this report.
© 2007. Design, pre-press — JSC DEX-Press
© 2007. Text — JSC Aeroflot — Russian Airlines
Share register:
CJSC National Registry Company
Address: 6, Veresaeva street, 121357, Moscow
Tel: (495) 440-31-04

Annual Report 2006

Transcription

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