Russia to create air behemoth to rescue AiRUnion

By Anton Doroshev and Guy Faulconbridge

MOSCOW, Sept 5 (Reuters) - Russia said on Friday it would create a state-controlled airline holding company as big as leader Aeroflot (AFLT.MM) in order to rescue the cash-strapped AiRUnion airlines alliance.

The new holding will be controlled by Russian Technologies, a state-owned industrial group crafted under former President Vladimir Putin.

AiRUnion last month fell behind on payments for jet fuel, grounding aircraft and stranding thousands of people at airports across the world's biggest country.

"The crisis at AiRUnion is over," Deputy Finance Minister Andrei Nedosekov was quoted as saying by Russian news agencies.

"The state understands that the crisis of one company could lead to the collapse of the whole sector. The state is ready to support the company and has the resources to do this."

Russian Technologies said it would take at least nine months to create the holding, which will include KrasAir, GTK Russia, Kavminvodyavia, Orenburg Airlines, Saratov Airlines, Domodedovo Airlines, Samara Airlines and Vladivostok Airlines.

Russian officials on Thursday patched together a deal whereby AiRUnion's assets will be folded into a new holding, together with Atlant-Soyuz, controlled by the Moscow government, and several regional airlines.

Russia has supplied the air alliance with state-owned fuel to help it fly passengers home and the Transport Ministry has said supplies will continue.

Russian airline officials say aviation fuel suppliers have been hiking prices and refuse to allow long-term pricing contracts.

Aeroflot CEO Valery Okulov told Reuters on Thursday that its profit would almost halve in 2008 because of soaring fuel prices. [nL4279259]

AIRUNION

AiRUnion is run by two Russian brothers -- Boris and Alexander Abramovich -- and the alliance's members are mostly state-controlled. The brothers also have stakes in some of the alliance's members.

Noone answered phones at AiRUnion on Friday. But in a statement on Aug. 20, the firm apologised to passengers, saying revenues did not cover fuel costs.

It was not immediately clear how the alliance's debts -- which Russian Technologies said amount to $800 million -- would be paid off.

Moscow city government said on Friday it would not seek to bankrupt the companies in the alliance.

"We are not yet rich enough to use bankruptcy procedures to get an improvement," Deputy Mayor Yury Roslyak told reporters.

Sources close to the alliance said part of the debts are secured by stakes owned by the Abramovich brothers in the alliance. They could not be reached for comment.

Russian Technologies, chosen by the Kremlin to wrest back state control over troubled assets, grew to become one of Russia's most powerful industrial groups under Putin.

The group is headed by Sergei Chemezov, a close ally of Putin who worked for an obscure Soviet trade body in East Germany when Putin worked as a KGB spy. (Editing by Jason Neely)