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Company News

27 September 2012

The Board of Directors of JSC “AEROFLOT”

September 27, 2012 Moscow

JSC “Aeroflot” Board of Directors ordinary meeting was held today chaired by Kirill Androsov.

The Board of Directors considered results of execution of consolidated budget figures of Aeroflot Group according to International Financial Reporting Standards (IFRS) for the first 6 months of 2012. Provided data persuasively confirms position of the Group as an absolute leader of Russian civil aviation. Group’s operating indicators increased at substantially higher growth rates than those of European competitors. In the abovementioned period passenger traffic of Aeroflot Group reached 12.1 mln passengers – therefore Group’s share in Russian civil aviation by passenger traffic grew to 37.8%. Revenue of the Group according to IFRS increased by 54% compared to the corresponding period of 2011 and totaled 3,614 mln US dollars. The main effect was achieved due to the consolidation of airline assets purchased from State Corporation Russian Technologies and significant increase in the volume of operations. Operating profit of JSC “Aeroflot” amounted to 193 mln US dollars (exceeding the plan by 250 mln US dollars), operating profit of Aeroflot Group totaled 98 mln US dollars (exceeding plan by 179 mln US dollars). Cost-cutting procedures are carried out in integrated companies, measures to reach break-even point at operating level are implemented. Aeroflot Group consistently demonstrates one of the highest EBITDA margins. EBITDA margin of JSC “Aeroflot” and Aeroflot Group amounted to 11% and 7% respectively, which exceeds margins planned in a budget.

During the discussion on procurement activities of JSC “Aeroflot” for the second quarter and 6 months of 2012, the fact that during the first six months of 2012 quantity of electronic trading operations totaled 4,151 trades (98.66% of all trades) has been outlined. During this period the share of electronic purchases amounted to 15.22% of all purchases, which complies with Federal Agency for State Property Management requirements. Procurement activities are carried out at JSC “Aeroflot” with the help of competitive methods including electronic trading floors. The company is ready to post information on procurement activities at the official website www.zakupki.gov.ru and is going to place the information starting from October 1, 2012.

The Board of Directors considered the question regarding lowering costs for purchase of goods/services in 2011 and the first 6 months of 2012. Measures taken at JSC “Aeroflot” in order to lower interest rates on lease agreements, prices and specific consumption of jet fuel, overheads and administrative costs at the expense of higher efficiency allowed to lower cost of sales originating from internal factors by 20.1% in 2011 compared to 2010. However the achieved effect was reduced under the influence of external factors. Higher fuel prices did not allow achieving target reduction in total cost of sales of 10% compared to 2010 level. Underperformance of the target value in 2011 amounted to 2.8%

During the discussion on service development at JSC “Aeroflot” the fact that the Company takes leading places in acclaimed world ratings has been mentioned. Higher adherence to standards and higher emotional perception of service by the passengers demonstrate constant improvement in product quality of the leading Russian carrier. In 2012 service quality is maintained at a high level: internal inspections on adherence to standards for passenger services and quality of the product are conducted, the scope of provided services is constantly expanded and updated. However in spite of high rankings in 2012 ratings, researches show that a range of service elements needs to be improved. Enhancements will be supported in particular by the introduction of new “Comfort” class of service on long-haul aircraft Boeing 777, which are due to be delivered starting from January, 2013. With regard to passenger requests and expert conclusions a range of projects is being prepared for implementation including Internet connection on board of all long-haul aircraft, seamless access of passengers to business lounges of foreign airports, on board menu enhancement, including catering services from non-base airports. Multilingual group for transit passenger service at “Sheremetyevo” airport would be created, launch of a new version of in-flight magazine with more English content is being prepared. The decision to make provisions in 2013 budget of JSC “Aeroflot” for realization of suggested projects has been made.

The Board of Directors considered the question regarding participation of JSC “Aeroflot” in global SkyTeam alliance. New data based on the new SkyTeam criteria system for evaluation of airline commercial effectiveness has been offered for the Board’s consideration. Information on talks over extension of cooperation with the key alliance members and SkyTeam headquarters has been considered. Network effect from Aeroflot membership in the alliance for the first 6 months of 2012 totaled 63 marketing flights, 994 weekly frequencies for marketing flights, more than 29 thousand connections. During negotiations a number of propositions which could boost JSC “Aeroflot” performance as a member of the alliance were offered to the partners. Results of negotiations regarding bilateral and multilateral cooperation with key partners in SkyTeam would be considered by the Board of Directors during the first quarter of 2013.

As a result of the discussion on Company’s branches and representative offices a decision to open representative offices of JSC “Aeroflot” in Novokuznetsk, Saratov, Magnitogorsk, Toronto (Canada), Lion (France), Mumbai (India), Samarkand (Uzbekistan) has been made. Also a decision to close down representative offices in Luanda (Angola) and Damascus (Syria) has been made.

The Board of Directors decided to extend the framework agreement with Sabre Inc. regarding IT services for five years. The term of the deal, which includes new provisions securing substantial advantages for Aeroflot is from January 1, 2013 by December 31, 2017.

Aeroflot is Russia’s leading air carrier, member of the global SkyTeam alliance. Its consolidated route network covers 983 destinations in 178 countries. In 2011 Aeroflot carried over 14 million passengers. In 2011 SkyTrax put Aeroflot into the top 3 of the ‘most dynamically developing airlines of the world’ and honored Aeroflot with a prestigious international SkyTrax World Airline Award as ‘the best airline in Eastern Europe’. In 2010 Air Transport World magazine put Aeroflot at the top 25 world airlines for ‘operational profit’ and ‘net profit’ results. Aeroflot was the first Russian carrier to enter the IOSA Registry, and has been consistently re-attested. Aeroflot has successfully passed the ISAGO (IATA Safety Audit for Ground Operations) procedure. The company’s Quality Management System is certified for compliance with ISO 9001:2008. Aeroflot – General Partner of Sochi 2014 Olympics and Paralympics. Aeroflot operates one of Europe’s youngest air fleets that consists of 125 aircraft. Aeroflot is based at Moscow Sheremetyevo International Airport. Find more at www.aeroflot.ru.