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Aeroflot Grounds Low-Cost Unit Due to EU Sanctions

August 03, 2014

Aeroflot Grounds Low-Cost Unit Due to European Union Sanctions

An OOO Dobrolet Boeing 737-800NG in Moscow, Russia. Photographer: Dobrolet Airline/Press service of Dobrolet

OAO Aeroflot, Russia’s state-run flag carrier, suspended flights of its low-cost unit due to European Union sanctions imposed in response to the Ukraine crisis.

European companies annulled leasing, servicing and insurance contracts with the unit, OOO Dobrolet, Aeroflot said yesterday in an e-mailed statement. Its destinations had included Simferopol, the regional capital of the Crimean region, which was annexed by Russia in March.

Dobrolet’s grounding is among the most visible results so far of sanctions the EU extended at the end of last month to punish Russian President Vladimir Putin for his support of anti-government separatists in Ukraine. European leaders and U.S. President Barack Obama have urged Putin to use his influence on rebels in eastern Ukraine after the downing of Malaysian Air Flight MH17.

Due to “unprecedented pressure on Dobrolet from European counterparties, the carrier is obliged to stop flights and selling tickets,” Aeroflot said.

Aeroflot Chief Executive Officer Vitaly Savelyev said in October that the discount division would cost $100 million over two years. He said Dobrolet -- which means “good flier” in Russian -- could carry 1 million passengers this year and as many as 10 million in five years.

Following a U.S. decision to target some of Russia’s state-backed banks and other companies, the EU also barred Russia’s biggest lenders, including OAO Sberbank, from selling bonds or shares within the bloc.

Billionaire Gennady Timchenko, a friend of Putin, said in an interview with the Itar-Tass news service that Gulfstream Aerospace Corp. had stopped servicing his private plane because of U.S. restrictions.

MH17 Crash

About two-thirds of the 298 people who died on flight MH17, which was flying from Amsterdam to Kuala Lumpur, were Dutch. The U.S. and Ukraine say the Boeing Co. (BA:US) 777 was probably brought down by a missile fired by pro-Russian insurgents during fighting that has claimed more than 1,000 lives. Both Russia and the rebels blame Ukrainian forces.

No human remains were found at a second site searched by international investigators yesterday, Pieter-Jaap Aalbersberg, the head of the recovery mission, told reporters in Kiev. Personal belongings were recovered from the area near the village of Rozsypne and the search will be continued in the coming days, he said.

While Russia has repeatedly denied any involvement in the conflict, the U.S. and its EU allies blame Putin for failing to rein in the insurgency and stop the war.

Military Buildup

Russia is increasing its presence in regions neighboring Ukraine, Andriy Lysenko, a ministry spokesman, said yesterday in televised remarks.

“The Russians are continuing to build up men and arms near the Ukrainian border,” he said. “There is proactive aerial surveillance with violations of Ukrainian air space.”

A helicopter squadron has been deployed in the Kursk region, while 34 armored vehicles with peacekeeping insignia arrived in the Bryansk region, Lysenko said. Russia sent 10 tanks into Ukraine though uncontrolled frontier areas, he said. A duty press officer at the Russian Defense Ministry declined to comment.

Group of Seven countries will vote against approving new World Bank projects in Russia as punishment over Ukraine, according to three government officials with knowledge of the agreement. The action, which puts at least $1.5 billion of possible projects at risk, was decided by deputy finance ministers from the G-7 during a conference call last week, according to two of the officials, who spoke on the condition of anonymity because the call wasn’t public.

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Kateryna Choursina in Kiev at kchoursina@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net; James M. Gomez at jagomez@bloomberg.net V. Ramakrishnan, Laurence Arnold


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