Russia tycoon seeks to trade Aeroflot for S7

MOSCOW (Reuters) - Russian billionaire Alexander Lebedev wants to sell a 15 percent stake in Aeroflot to the government and use the cash to expand into its major competitor S7.

The move amounts to a vote of no confidence in the state-controlled airline from its largest minority shareholder, analysts said.

Leonid Dushatin, deputy general director of Lebedev's NRC company, told Reuters that NRC will sell the Aeroflot stake at the average price of its shares over the past six months.

According to Reuters calculations, this implies a price of 72.1 roubles per share, compared with their current market value of 42.5 roubles each in Friday trading.

"Part of the money (raised) will go toward buying the government's stake in Sibir Airlines," Dushatin said, referring to S7, Russia's second largest airline, in which the state holds roughly 25 percent.

NRC will then build on this stake by buying more S7 shares from the private carrier's majority shareholders, Natalia and Vladislav Filyov. Dushatin said NRC has reached a preliminary deal with the couple to buy an unspecified stake.

A Sibir spokesman confirmed the plans and said that an investment bank has already been hired to advise on the transaction.

For the entire series of deals with the state and S7, NRC has permission from the Transport Ministry, Dushatin said.

"Our plan to cooperate with S7's shareholders was reviewed by (Transport Minister Igor) Levitin and received support in principle," Dushatin said, adding that he hoped to get more concrete approval from the state in two to three weeks.

"In the end it looks like no one will have majority control of the company (S7). But it will remain private," Dushatin said.

DISILLUSIONED

Lebedev has often criticised the management of state-controlled Aeroflot, but his suggestions have tended to fall on deaf ears, despite his 30 percent stake in the company.

Analysts said that Lebedev is disillusioned with the struggle to shape the company's government-determined strategy and wants to enter a private and promising company where his vision will play a guiding role.

"He is trading two birds in the bush for a bird in the hand," said Oleg Panteleyev, head of research at Aviaport, a Moscow-based aviation consultancy firm.

It was unclear whether the government will agree to the deal at a time when its coffers are being sapped by the global financial crisis.

Aeroflot has a fleet of 85 planes and has put in orders for another 129 aircraft of various sizes from the world's leading planemakers. It flies to 94 destinations in 49 countries and has a 45 percent market share of international flights out of Russia, according to its Web site.

But its position on the market for domestic flights is weaker, with a share of 17 percent including flights by its subsidiaries.

It has long been seeking to expand in this market through acquisitions of smaller domestic carriers, and had opportunities to do so cheaply in recent months after the global financial crisis left about a dozen of them unable to fly.

The government, however, reacted to the crisis by creating a new state carrier, Russian Airways, to absorb these crippled airlines. These included many of Aeroflot's potential acquisition targets. To read an analysis of the impact on Aeroflot, please double-click on.

S7, known for its lime green planes, has a fleet of 37 and leads Aeroflot on the domestic flights market, a role Aeroflot has coveted..

(Editing by David Cowell)