RU EN
RU EN
2014
a year of flying high
Annual Report

highlights




Market share of Aeroflot Group by number of passengers excluding foreign carriers
Total number of passengers carried by Aeroflot Group
Aeroflot ranks among the Top 5 European air carriers in terms of passenger turnover and its growth rate, according to the Airline Business
Aeroflot Group's passenger turnover (billion passenger-kilometres)
Average age of Aeroflot airline fleet in operation
Aeroflot was named Best East European Carrier at Skytrax World Airline Awards
Aeroflot Group's revenue in FY 2014
Aircraft in Aeroflot Group fleet at the end of the year
General Partner for the XXII Olympic and XI Paralympic Winter Games in Sochi in the segment of Air Transport Passenger Services
Aeroflot is the world's most punctual air carrier, according to the May and November 2014 data from the US-based statistics agency FlightStats
Regular routes of Aeroflot Group
Passengers carried by Aeroflot airline

Letter from the chairman of the Board of Directors

Dear shareholders,

2014 was a challenging year for the whole of the air transportation sector. Commercial aviation operations were strongly affected by a number of high-profile events that will also in large measure determine the future course of the industry.

Aeroflot and other Russian carriers encountered particularly serious headwinds in the second half of the year. Most significant among these were the slowdown in the Russian economy and weaker consumer demand for flights, alongside the sharp depreciation of the ruble and a decline in the international tourist market. The major external factors were the escalation of the crisis in Ukraine, increased geopolitical tensions and the imposition of economic sanctions against Russia.

It was inevitable that this would have an effect on Aeroflot’s operational and financial results, and also on the Russian aviation sector as a whole. But one result outweighs all the others – Aeroflot remained highly resilient during a testing time and remains of systemic importance to the industry as the undisputed sector leader.

In 2014 Aeroflot not only stood firm in the face of a gathering storm, but also made significant progress in a number of key areas:

  • We recorded the highest passenger volumes in the Russian aviation industry, and set a new record for passenger numbers;
  • We strengthened our position as a global leader in passenger service, including being voted Best Airline in Eastern Europe for the third time at the prestigious Skytrax World Airline Awards;
  • We launched a classic low-cost carrier as part of Aeroflot Group, now operational under the Pobeda brand;
  • We made a significant contribution to the Olympic Winter Games in Sochi and shared the global success of that greatest of sporting events with all of Russia, as befits the national carrier;

External economic factors put pressure on Aeroflot Group’s financial results for the year. Despite this, the Group reported a substantial operating profit, thanks to our continued focus on operational efficiency and cost control.

A particular burden of responsibility fell on the management team, which took over the reins at Aeroflot six years ago with a crisis-management brief, and today is demonstrating those same skills once again.

The optimal growth strategy for Aeroflot is defined in close collaboration between the Board of Directors, its committees and the company’s senior management team. As part of its work to implement Aeroflot’s Development Strategy, the Board of Directors meets monthly for detailed consideration of key issues, prepared with active involvement of the committees and factoring in authoritative research and expert opinion. In 2014 the Board held 16 meetings, nine in-person and seven with absentee voting. More than 140 items were considered and more than 200 resolutions adopted. The Group’s Long-Term Development Programme for 2015-2020 was approved. Other measures to develop best corporate governance practices at JSC  Aeroflot included the approval of a draft “road map” to introduce key provisions of the Corporate Governance Code, which have begun to be implemented.

The status of national carrier is measured not just by the scope of Aeroflot’s activities and its productive capacities. Not only does Aeroflot have the youngest fleet of any of the world’s major carriers, it is also the biggest partner of Russia’s aircraft-building industries and the chief consumer of the innovative Sukhoi Superjet 100. As of the start of 2015 Aeroflot had 16 of these aircraft in its fleet, and intends to acquire a total of 50. In addition, we plan to acquire 50 of the advanced MC-21 (YAK-242)airliners, and are already making preparations to incorporate them into out fleet.

Aeroflot provides affordable air connections to Russian regions including the Far East, Kalingrad region and Crimea. Developing domestic and regional air transportation is a core priority for Aeroflot as the national carrier and for the whole of Aeroflot Group.

The “national carrier” strategy is fully in line with our corporate social responsibility policy. In addition to subsidised flights, Aeroflot runs a number of projects to help children, and sponsors sports teams and activities. The company has a long-standing tradition of deep gratitude to veterans of World War II and makes special provisions for them including an annual programme of free tickets. In 2014 Aeroflot launched preparations for the 70th anniversary of the end of the war and this year is running a number of programmes in recognition of this auspicious date.

In 2014 Aeroflot Group continued to deliver on its Development Strategy and underscored its future potential. We plan to diversify the Group’s activity by segment and further develop our low-cost offering, continue to optimise our route network and develop advantageous international partnerships.

Aeroflot will continue to position itself as a premium global carrier able to compete with other recognised leaders on the global marketplace.

In 2015 and 2016 we fully intend to realise our potential to deliver on our strategy for the benefit of the state, all of our shareholders – and the whole of Russia.

Kirill Androsov

Chairman of the Board of Directors, JSC Aeroflot

Letter from the Chief Executive Officer

Dear shareholders,

The key outcome of 2014 for us was that Aeroflot retained its indisputable position as Russia’s leading carrier and remained on course to deliver dynamic growth in an extremely challenging environment.

Despite the challenges we have faced, we have maintained our record of setting new records for passenger volumes every year and growing faster than the market. In 2014 Aeroflot carrier 23.6 million passengers, which is 13% more than in 2013. In total, the companies of Aeroflot Group carried 34.7 million passengers, an increase of 10.7% on the previous year.

In terms of passenger numbers, Aeroflot Group controls 37.3% of the Russian market. The Group is particularly strong on domestic routes, where growth rates are above the global average. We are therefore continuing to deliver on Aeroflot’s core goal as the national carrier: to make air travel more accessible to all Russians and to increase social mobility.

According to Airline Business, which publishes authoritative rankings of airlines around the world, Aeroflot is one of Europe’s five largest carriers by RPKs and growth rates for the third year running, as well as by ASKs.

For Aeroflot, 2014 was marked by a number of significant events including:

  • Launch of a low-cost carrier as part of Aeroflot Group. Following the enforced shuttering of Dobrolet in late summer after the EU imposed sanctions over flights to Crimea, the project was resurrected in September under the Pobeda brand. The name of the new airline was chosen in honour of the 70th anniversary of the end of the Second World War, which we will be marking this year in appropriate fashion.
  • Active involvement in the XXII Winter Olympic Games and XI Winter Paralympic Games in Sochi. In addition to making a direct financial contribution to the organisation of this global event – one of symbolic importance for Russia – Aeroflot added extra capacity to ensure seamless connections to Sochi from Moscow and Frankfurt. Flights on these two routes carried almost 140 thousand passengers, including athletes, fans and tourists.
  • Successful lobbying to improve the regulatory environment for commercial aviation. A number of legislative amendments were introduced, including the removal of the ban in Russia’s Air Code on Russian airlines employing foreign pilots.

In 2014 Aeroflot was for the second year in a row (and third time overall) named Best Airline in Eastern Europe at the World Airline Awards by Skytrax, a leading consulting company. During the year the Company garnered more than 30 Russian and international awards, and took top spots in leading rankings.

We continued making progress on Aeroflot’s development as a multi-brand group and deeper integration. In 2014 we began work on consolidating the Group into a system with a single commercial administrative centre; operational integration was strengthened; and the process of introducing high standards of performance and technology was intensified. Particularly a unified booking IT-platform is in service and the online check-in system covers flights of the subsidiary companies.

Aeroflot’s fleet – the youngest of any major airline anywhere in the world operating more than 100 aircraft – continued to grow. As of 31 December 2014, Aeroflot had a fleet of 150 aircraft with an average age of 4.1 years.

With the commercial aviation sector particularly sensitive to the effects of the crisis, optimisation of our route network took on particular importance. Aeroflot substantially upgraded its network during the year, and as of 31 December 2014 we operated flights to 134 destinations in 55 countries. In total, Aeroflot Group offers 291 regular destinations in 56 countries.One of our major priorities as a premium carrier is improving passenger service with an emphasis on using the latest technology. According to research by Routehappy, Aeroflot is among the top 10 airlines globally in terms of on-board Wi-Fi Internet access for passengers.

We recorded an excellent flight safety indicator of 99.972% in 2014, putting Aeroflot among the safest airlines globally. Moreover, according to FlightStats, Aeroflot was twice the world’s most punctual airline during 2014, in May and November.

Our success has been all the sweeter for having been achieved in the face of a number of extremely negative factors – the depreciation of the ruble and deterioration in the Russian economy, heightened geopolitical risks, the escalation of the Ukraine crisis and the imposition of Western sanctions. Amid adverse conditions for the sector, Aeroflot was able to report the best financial results achievable and to minimise losses. In 2014 Aeroflot’s revenue under IFRS grew by 9.9% to RUB 319.8 billion. We maintained operational profitability, recording an operating profit of RUB 11.3 billion and EBITDAR of RUB 48.7 billion.

In the present circumstances, alongside continued growth of productivity, priorities that are becoming of particular importance for Aeroflot include developing tried and tested business solutions, innovation across all areas of our activity, and adopting a creative approach.

This will create a sure foundation for Aeroflot to continue making strides towards its main strategic goal – to enter the top ranks of global carriers and to give Russia the strong fleet the country deserves as an aviation powerhouse.

Vitaly Saveliev

Chief Executive Officer, JSC Aeroflot

1
About Aeroflot Group
THE RECIPE
FOR SUCCESS
A mix of aspirations, goals and ideas like islands
in the sea that, taken together, form an archipelago

1.1 Aeroflot today

Aeroflot Group is Russia’s largest carrier and one of Europe’s leading airlines. In 2014 the Group accounted for 37.3% of the Russian market by passenger numbers*. Some 34.7 million people used the Group’s services during the year, including 23.6 million passengers who flew with our flagship airline Aeroflot.

The Group’s parent company is JSC  Aeroflot. Other companies in the Group include Rossiya, Donavia, Orenair, Aurora airlines and the low-cost carrier Pobeda Airlines. This multi-brand strategy means the Group can successfully grow its presence in all key market segments across both domestic and international routes.

Leadership in global air transportation industry is one of the key strategic targets of Aeroflot Group. The Group is successfully implementing a profitable growth strategy built around the following core priorities:

  • high rates of business growth;
  • increasing the Group’s investment attractiveness;
  • building a high-performance hub-and-spoke model;
  • growing a fleet of modern aircraft;
  • balanced route-network development;
  • improving the quality of passenger service.

Aeroflot Group is a global leader in passenger service, which has been recognised by numerous global awards.

A key competitive advantage for the Group is its modern fleet of aircraft. Aeroflot airline’s fleet is the youngest of any major carrier anywhere in the world**, with an average age of 4.1 years (for Aeroflot Group as a whole the figure is 7.0 years). As of the end of 2014, the Group had a fleet of 261 aircraft, 150 of which were operated by Aeroflot airline.

* Excluding foreign carriers.
** Carriers operating more than 100 aircraft.

37.3%
market share
of aeroflot group

34.7
million passengers
carried by aeroflot
group’s airlines

The Group’s route network includes regular flights to 291 destinations in 56 countries, with the network of Aeroflot airline comprising 134 regular destinations in 55 countries. Aeroflot is a member of the SkyTeam global alliance, which boasts a combined route network serving 1,052 destinations in 177 countries.

51.17% of shares of JSC  Aeroflot are held by the Russian Federation through the Federal Agency for State Property Management. The Group was included in the state list of strategic companies by Presidential Order No. 1,009, dated 4 August 2004. Aeroflot’s ordinary shares trade on the Moscow Exchange under the ticker AFLT and are included in its top Level 1 quotation list. Outside Russia, shares of Aeroflot trade over the counter as Global Depositary Receipts (GDRs) on the Frankfurt Stock Exchange. A Level 1 American Depositary Receipt (ADR) programme was launched in January 2014.

Note
In this Annual Report, the terms “JSC  Aeroflot”, “Aeroflot” and “the Company” refer to the parent company of Aeroflot Group: Joint Stock Company “Aeroflot – Russian Airlines”. “Aeroflot Group” or “the Group” refer to Aeroflot and its affiliates.




1.2 Key events

Aeroflot Group’s multi-brand platform development

  • Aeroflot Group launched a low-cost carrier Pobeda, which took its first flight from Moscow to Volgograd on 1 December 2014.
  • As a part of the Group’s ongoing consolidation, JSC Aeroflot has taken over commercial management of all the flights operated by Rossiya airline and most of those operated by Orenair.

Balanced approach to the route network development

  • In 2014, Aeroflot Group continued to develop the route network and improve its efficiency based on demand trends and strategic significance of destinations. It launched flights to 22 new destinations, with nine of those operated domestically.
  • Aeroflot signed a comprehensive memorandum of cooperation with the Air France–KLM Group on the occasion of the 60th anniversary of the flight from Moscow to Paris operated by Air France.

Building an advanced and highly efficient aircraft fleet

  • In 2014, the Group added seventeen Airbus A320, eighteen Boeing 737, two DHC-8, two DHC-6, six Boeing 777-300ER and six Sukhoi Superjet 100, expanding its fleet by a total of 22 aircraft.
  • Aeroflot has become the first Russian airline to introduce Airbus A320 airliners equipped with new aerodynamic wing tips called sharklets.
  • Aeroflot continued to supplement its fleet with the extended full version of Sukhoi Superjet 100. In December 2014, the Company got hold of its 16th SSJ100.

Enhancing the quality of passenger services

  • The Company introduced a new top-tier platinum level and a new corporate identity for its Aeroflot Bonus loyalty programme. For the first time in its modern history, Aeroflot Bonus Platinum enables the Company to offer its clients some options that truly live up to the first class service requirements.
  • Aeroflot Bonus Frequent Flyer Programme enlisted cooperation of the global car rental operator Europcar.
  • To deliver on Aeroflot’s Internet On Board Programme the Company enabled Wi-Fi access aboard 11 wide-body aircraft. At the end of 2014 Internet access was available to passengers on 30 aircraft.

Cutting edge technology and innovation drive

  • Aeroflot launched an upgraded version of its official website at www.aeroflot.ru. Functional navigation by optimising home menu features was materially improved. As a result, the website has become more user friendly and intuitively accessible for passengers.
  • Aeroflot was the first Russian and CIS company to equip its flight attendants with iPad Mini-based CrewTablets with new dedicated mobile technology applications from SITA.
  • Aeroflot signed a R&D cooperation agreement with the Moscow State Technical University of Civil Aviation.

Winter Olympic Games in Sochi

  • Aeroflot became a general partner and official carrier of the XXII Winter Olympic and XI Paralympic Games in Sochi, which brought about the triumphant victory of the Russian team.
  • From 20 January to 18 March 2014, Aeroflot operated 500 return flights from Moscow to Sochi providing transportation for 133,887 people. On top of that, the Company operated 20 return flights from Frankfurt to Sochi carrying a total of 2,915 passengers.

Events after the reporting period

  • Aeroflot and Sukhoi Civil Aircraft Company signed a purchase and sale agreement for 20 Sukhoi Superjet 100s, the Russian aviation industry’s flagship airliner. The agreement is a follow-on to the existing firm contract for the delivery of 30 airliners.
  • Company decided to increase social spending on pilots by 27.3%. The salaries and social benefits offered to Aeroflot pilots are unmatched elsewhere in the global civil aviation industry.
  • Aeroflot signed up to the Anti-Corruption Charter of the Russian Business.
  • Aeroflot recertified the compliance of its quality management system with ISO 9001:2008 (Quality Management Systems) and ISO 14001:2004 (Environmental Management Systems) requirements.
  • Aeroflot introduced online registration for outbound flights from Moscow operated by subsidiary carriers Rossiya and Orenair.
  • Aeroflot introduced single tariffs for own flights to the cities of the Russian Far East, Kaliningrad and Simferopol from 2 April through the end of 2015.
  • An unparalleled Aeroflot campaign occasioned by the 70th anniversary of the victory in World War II allowed war veterans to take free flights to a wide range of destinations, including those in Europe.

1.3 AWARDS AND INDUSTRY
RECOGNITION

Ratings

  • According to the Airline Business, Aeroflot ranked among the Top 5 European air carriers in terms of passenger turnover and its growth rate for the third straight year.
  • According to the May 2014 and November 2014 surveys by the US-based FlightStats, Aeroflot is the world’s most punctual air carrier.
  • Aeroflot earned seven out of seven possible stars in the global safety rating made by Airlineratings.com, international industry rating review website.
  • Global Travel Newspaper Korea, South Korea’s leading travel industry resource, named Aeroflot South Korea’s Best International Airline in 2014.
  • The Beijing News, Chinese capital’s leading newspaper, named Aeroflot Best Travel Brand 2014 in China.
  • According to the US travel search engine Routehappy, Aeroflot ranked among the Top 10 international air carriers with Wi-Fi on board.
  • Aeroflot made it to the Top 10 Companies of the Year in the media rating made by Medialogia.
  • Aeroflot made it to the Top 10 Employers for Russian university graduates in the rating made by Future Today, Russia’s largest HR agency for graduates.

Awards

  • Best East European Carrier Prize at Skytrax World Airline Awards.
  • Condé Nast Traveller Reader’s Choice Award as the Best Russian Airline.
  • Travel.ru Star Award as the Best Russian Airline in 2014.
  • National Prize for Marketing Achievements at Kotler Awards.
  • Best Unisex Bag in Europe and Africa and Children’s Goody Bag or Give Away (Under 6 years) at Travelplus Airline Amenity Bag Awards.
  • EF Education First ICE Awards for Outstanding Achievements in the Internationalisation of Business and Society.
  • Best Airline for Business Travellers, according to the Russian Business Travel & MICE Award.
  • Best Russian Airline, according to the National Geographic Traveller Awards 2014.
  • Best.ru Prize as the Best Company in the Transport Industry (Best.ru Prize is a public exposure award set up by the news agency Anews.com).
  • Letter of acknowledgement and Combating Fraud commemorative sign at the AntiFraud Russia 2014. Prevention and Counteraction 5th International Conference.
  • Movement Formula Award (national prize awarded for achievements in transport and transport infrastructure) for the Best Passenger Logistics Solution.
  • Innovation Time Prize for the Best Innovation Project (Transport and Engineering Subcategory).
  • Top Brands for Travel Award by Traveller’s Choice.
  • Growth Fundamentals 2014 (national prize awarded for contribution to the development of small and medium-sized businesses) for the Programme of the Year.
  • Vision Awards’ Platinum Medal (Top Prize) for the Best Annual Report in the Transport and Logistics – Air and Railway Companies category, according to the League of American Communications Professionals (LACP).
  • Best Annual Report of the Company with the Market Capitalisation of RUB 10 to 100 billion, according to 17th Annual Report Awards sponsored by Moscow Exchange and RCB Group.

2
AIR TRANSPORTATION MARKET
AND AEROFLOT GROUP’S
MARKET POSITION
OPPORTUNITIES
FOR GROWTH
Supported by expertise, sector experience
and our modern fleet of aircraft

2.1 International air
transportation market

Despite the challenging environment in some of the world’s regions, international air transportation market continues to grow steadily. By and large, 2014 was a successful year for the world’s aviation industry, with the global passenger turnover increasing by 5.9%, according to the IATA. Scheduled passenger traffic grew by 5.1% up to 3.3 billion passengers. Asia Pacific and Middle East were the foremost contributors to the international market growth.

Industry-wide operating results saw slight improvements with the load factor rising by 0.3 p.p. from 79.6% in 2013 to 79.9% in 2014.

Industry-wide revenue totalled USD 751 billion, up 4.7% y-o-y. Traditionally, passenger flights account for the largest part of the industry’s income, their share standing at 80%. Cargo flights only account for 8.0% of transportation as compared to 11.5% in 2007. The industry’s expenses rose by 3.0% up to USD 713 billion. Fuel costs remain rather high, their share reaching 28.2% of the industry’s overall expenses in 2014. According to the preliminary IATA estimates, net income stood at USD 19.9 billion in 2014, reaching the highest level over the last ten years.

The Middle East continued to deliver the highest growth rates. On the back of the 11.4% increase in capacities, the passenger turnover here rose by 12.9% in 2014. The main driver behind this growth is the continued expansion of the region’s airlines into international markets, including through acquisition of European carriers’ assets.

Asia Pacific ranked second in terms of growth, with passenger turnover rising by 7.0% amid the 7.6% increase in capacities. One of the growth drivers here was an increase in regional domestic passenger traffic with China leading the charge.

The American market exhibits moderate growth rates of 2.7%. The main reason behind the tepid growth is the market maturity: North America accounts for 60% of the global industry’s net income. Favourable economic environment and economic growth here are driving the traffic up.

With capacity growth constrained to 4.6%, passenger turnover in Europe went up by just 5.4%. Low-cost companies and Turkish carriers were major contributors to the air industry growth.

5.9%
increase in global
passenger turnover
according to IATA

751
billion usd —
global air
transportation
industry revenue

2.2 Russian air
transportation market

It was a challenging year for civil aviation in Russia. The industry saw some pre-crisis turbulence with key macroeconomic indicators losing their momentum. Despite the negative trends, however, the Russian market continued to outperform the other regions.

In 2014, total passenger traffic (including foreign carriers) in Russia rose by 7.8% up to 111.8 million passengers. The key growth driver here was the domestic traffic, which increased by 18.0% to 46.3 million people. International passenger traffic went up by 1.8% to 65.5 million people.

In 2014, Russian airlines witnessed their passenger traffic grow by 10.2% to 93.2 million people due to both increased domestic and international passenger traffic (46.9 million passengers, up 3.6%). Russian carriers’ total passenger turnover rose by 7.2% to 241.4 billion passenger-kilometres, whereas the number of available seat kilometres grew by 6.8% to 302.5 billion PKM due to the load factor increasing by 0.3 p.p. to 79.8%.

The significant 2014 growth in domestic traffic resulted from the ongoing structural changes in the Russian market: air transportation is becoming more accessible and passengers tended to give preference to air trips. Another driver was the robust growth of internal tourism in Russia, including during and after the XXII Olympic and XI Paralympic Winter Games in Sochi.

The slowdown in international passenger traffic in 2014 was due to the challenging macroeconomic environment and sharp exchange rate fluctuations specifically. The said factors sparked off a crisis in the travel industry too, driving a number of large tour operators into bankruptcy and affecting the airlines which focused on this particular market segment.

111.8
million passengers —
Russian air
transportation market
(including foreign
carriers)

241.4
billion passenger-
kilometres — passenger
turnover of the Russian
carriers

Russian market passenger traffic dynamics, million passengers (including foreign carriers)*

International routes
Domestic routes
Growth rate (y-o-y)

Source: Federal Air Transport Agency of the Russian Federation.

Russian market passenger traffic dynamics, million passengers (excluding foreign carriers)

International routes
Domestic routes
Growth rate (y-o-y)

Source: Federal Air Transport Agency of the Russian Federation.

* Please note that in this and other charts, tables and text of the Annual report immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding.

Russian market passenger turnover dynamics, billion RPK (excluding foreign carriers)

International routes
Domestic routes
Growth rate (y-o-y)

Source: Federal Air Transport Agency of the Russian Federation.

Russian market passenger turnover capacity dynamics, billion ASK (excluding foreign carriers)

International routes
Domestic routes
Growth rate (y-o-y)

Source: Federal Air Transport Agency of the Russian Federation.


PASSENGER load factor evolution, %
(excluding foreign carriers)

International routes
Domestic routes
Total

Source: Federal Air Transport Agency of the Russian Federation.

Economic sanctions and exchange rate fluctuations caused a plunge in business activity, which was compounded by a slowdown in outbound tourism and resulted in deceleration of international traffic growth throughout the year as well as predetermined decline in the number of passengers carried by foreign airlines. Foreign carriers started to scale down their operations in Russia in 1H 2014 hitting the bottom in Q4, when their passenger traffic decreased by 12.1% y-o-y. In December, the decline hit 16.8%. At a regional level, the greatest drop in international traffic was between Russia and CIS destinations (down 7.1%). This ensued from the decline in the number of passengers travelling to Ukraine.

With the sluggish growth of real household income, the low-cost segment of the air transportation market appears to be gaining momentum. Ensuring transportation without any additional services allows operators to cut costs by up to 40%. This enables airlines to offer competitive fares generating ancillary revenue from fees charged for extra on-board services. To expand the Company’s footprint in this promising segment in 2014, Aeroflot Group set up a new low-cost subsidiary, Pobeda.

The Russian air transportation industry is highly consolidated with five largest players accounting for 64.9% of the total passenger traffic (share of the Russian market including foreign carriers). Aeroflot Group’s leadership in the market remains undisputed. Its market share was 31.1% in 2014 as compared to 30.3% in 2013. Aeroflot Group’s share of passenger traffic excluding foreign carriers amounted to 37.3% in 2014 vs. 37.1% in 2013. The Group’s share of international traffic including foreign carriers went down from 27.0% in 2013 to 26.1% in 2014. The drop was however offset by the share of domestic traffic growing from 35.7% in 2013 to 38.1% in 2014. Aeroflot Group’s closest competitors are Transaero (11.8%), S7 Group (9.0%) and UTair Group (8.4%).

The Group’s market share in terms of passenger turnover was flat standing at 37.3% excluding foreign carriers. It is followed by Transaero with a market share of 19.5% and S7 Group with 8.8%.

2014 Monthly passenger traffic dynamics: Russian vs. foreign carriers

Russian market excluding foreign carriers
Russian market including foreign carriers
Foreign carriers

Source: Transport Clearing House, Federal Air Transport Agency of the Russian Federation
Note: year-on-year percentage change.

2014 Monthly passenger traffic dynamics: Aeroflot Group vs. Russian market

Aeroflot Group
Russian market excluding foreign carriers

Source: Transport Clearing House, Federal Air Transport Agency of the Russian Federation
Note: year-on-year percentage change.

Russian air transportation market
by total passenger traffic
(including foreign carriers)

Evolution of the Russian passenger air transportation market

Foreign carriers
Other Russian carriers
Top 5 airlines

Russian air transportation market by total passenger traffic
(including foreign carriers)

Aeroflot Group
Transaero
S7 Group
Utair Group
Ural Airlines
Foreign carriers
Other Russian carriers

Russian air transportation market by total passenger traffic (excluding foreign carriers)

Aeroflot Group
Transaero
S7 Group
Utair Group
Ural Airlines
Other Russian carriers

Russian air transportation market by total passenger turnover (excluding foreign carriers)

Aeroflot Group
Transaero
S7 Group
Utair Group
Ural Airlines
Other Russian carriers

Aeroflot Group market share evolution (including foreign carriers)

International routes
Domestic routes
All routes

Aeroflot Group market share evolution (excluding foreign carriers)

International routes
Domestic routes
All routes

Air cargo market

According to the IATA, the global air cargo market volume is estimated at 51.3 million tonnes. In 2014, global cargo turnover increased by 4.3%, whereas the industry’s earnings went up by 1.6% to USD 62 billion.

Russian airlines’ share of the global air cargo market was 2.0%. Russian carriers transported around 1 million tonnes of cargo, up 3.5% y-o-y. The cargo turnover of Russian carriers grew by 2.8% y-o-y to 5.1 billion TKM.

Russian carriers’ international cargo traffic rose by 7.5% to 735.9 thousand tonnes, or 70% of their total cargo traffic. Domestic cargo traffic however went down by 5.0% to 300.6 thousand tonnes.

In 2014, Volga-Dnepr Group led the Russian air cargo market. Aeroflot came second with 166.3 thousand tonnes of cargo and mail. Russia’s top 5 airlines (Volga-Dnepr Group, Aeroflot Group, Transaero, S7 Group and UTair Group) account for 83.6% of the total cargo traffic.

51.3
million tonnes —
global air cargo
market volume

5.1
billion TKM —
cargo turnover
of Russian air
carriers

Russian air cargo market volume, Thousand tonnes

International routes
Domestic routes

Russian air cargo market breakdown

Volga-Dnepr Group
Aeroflot Group
Transaero
S7 Group
Utair Group
Other carriers
3
BUSINESS OVERVIEW
CROSSING
BORDERS AND
OVERCOMING
BARRIERS
Building the geography of success:
291 routes to 56 countries

3.1 Group
Structure

Aeroflot Group develops through the implementation of a multi-brand platform, which helps each subsidiary to occupy a specific market niche ruling out intra-group competition. Aeroflot adopted a phased approach to the Group structure optimisation focusing on asset consolidation and roll-out of uniform standards and cutting-edge technological solutions across the entire range of subsidiaries. Subsidiary and Affiliate Management Strategy is an essential part of JSC  Aeroflot’s Development Strategy.

Aeroflot Group’s core assets as at 31 December 2014 were as follows*:

* JSC  Aeroflot also controls interests of 45.0% in CJSC AeroMASH-AS, 8.96% in JSC Sheremetyevo International Airport, 3.85% in CJSC Transport Clearing House and 49.0% in TRANSNAUTIC Aero GmbH (in liquidation).
** JSC Aeroflot holds a stake in JSC Aurora Airlines. JSC Vladivostok Air is controlled by JSC Aurora Airlines. Operational business of JSC Vladivostok Air was transferred to JSC Aurora Airlines.
*** LLC Budgetniy Perevozchik as of 31.12.2014. In the beginning of 2015 entity’s name was changed to LCC Pobeda Airlines.
**** LLC Dobrolet is a non-operational legal entity established in order to develop LCC project in 2013. In 2014 a new legal entity was created to operate LCC business.

3.2 Development
Strategy

Strategy 2025

Aeroflot Group’s strategic goal is to rank among the Top 20 airlines globally and lead the charge in the Russian market by seizing new opportunities and chances to:

  • set up strategic partnerships with global aviation leaders;
  • grow in the new low-cost segment of the Russian market (Pobeda airline);
  • expand the Company’s footprint in the regional markets (Donavia, Aurora and Rossiya airlines).

By 2025, Aeroflot Group is planning to:

  • bring its passenger traffic up to 70 million passengers per year;
  • join the ranks of the world’s largest air carriers by making it to the Top 5 European airlines;
  • become the leader in service quality among the European air carriers.

To achieve the strategic goals under the Long-Term Aeroflot Group Development Programme 2020, key strategic programmes and focus areas that would help foster and develop a sustainable competitive edge were identified. Among those programmes and focus areas are:

  • cost cutting initiatives;
  • development of an operating hub at Sheremetyevo;
  • promotion of strategic partnerships;
  • innovation driven development;
  • productivity improvement;
  • growth in the low-cost segment.

Strategic priorities

The Group’s key priorities are closely linked to the development of a highly efficient network (hub) model for operated flights, further fleet upgrade with state-of-the-art high performance aircraft, development and differentiation of the companies through implementation of the multi-brand platform and completion of subsidiaries integration into the Group structure:

  • single hub model maximises flexibility in the management of the aircraft fleet’s capacity and ensures optimum efficiency in the core business;
  • high quality network secures the Group’s competitive edge even in the event of selective adjustments of capacity;
  • high performance aircraft fleet high performance aircraft fleet, obsolete aircraft phase out and unified fleet ensures flexibility and economic efficiency;
  • multi-brand platform allows the Group to adjust the subsidiaries’ growth and pricing strategies to the new economic environment without affecting the value of the key brand;
  • integration of subsidiaries improves efficiency, rationalises costs and provides opportunities for growth in the most profitable segments;
  • alliance strategy improves and strenghthens the Group’s competitive edge in the key transport markets;
  • cost cutting initiatives enhancing Group’s competitive advantage.

Multi-brand platform

Aeroflot Group’s business strategy is structured around a multi-brand platform enabling each of the Group’s companies to pursue growth in its focus segment. The platform allows Aeroflot Group to effectively enhance its footprint in the key domestic and international market segments.

The Group’s companies differentiate in terms of positioning and focus on different markets. Aeroflot addresses needs of the premium passenger segment by offering best-in-class services, an extended high frequency route network, access to the route network of partners from the SkyTeam Alliance and convenient connecting flights for international transfer passengers.

Aeroflot – Russian Airlines’ competitive positioning:

  • high frequency route network;
  • leadership in the international air carriage market (extensive flight geography);
  • hub model (transfer traffic service);
  • young aircraft fleet;
  • focus on the premium passenger segment (convenient flight schedules, best-in-class services);
  • leadership in innovation (development, application and implementation of cutting-edge technologies);
  • highest flight safety.

Subsidiary airlines Aurora, Donavia and Rossiya, operate regional and cross-regional flights. They focus on geographical areas with higher price sensitivity by primarily offering their passengers flights from the base region with adjustable flight frequency and a potential to serve the transfer traffic depending on the demand growth. Orenair was focusing on the tourist and charter segments. The drop in demand in these segments required tactical adjustment to the company’s business-model. Pobeda airline targets the low-cost segment.

Operating a number of companies with diverse business models and implementing uniform product standards allows the Group to offer customers a wide spectrum of service classes ranging from premium to tourist with each subsidiary retaining the focus on a dedicated market segment.

Low-cost flights

To attract the price sensitive passenger segment, Aeroflot set up a new low-cost carrier (LCC). The launch of this new LCC was a part of the Group’s strategy to grow in the new budget-friendly segment. LCCs often generate new passenger traffic and stimulate overall traffic growth rather than taking passengers from other carriers (about 50–80% of the passengers taking the first LCC-operated flight on the route are there for the first time).

Budget flights develop on the traditional low-cost business model based on the global best practices. Ticket prices are lower than those offered by “legacy” carriers. Low unit costs are possible due to

  • the high utilisation rate and improved fuel efficiency of the new aircraft fleet;
  • economies of scale on fuel supply contracts;
  • a higher density of seating with reduced aisle spaces and non-reclining seats;
  • use of the Company’s website as the key sales channel;
  • extra charges for comfortable seating, checked in baggage, priority boarding and in-flight meals.

During the initial phase the airline will operate flights to the most popular destinations in the European part of Russia. In two to three years, LCC’s route network is expected to include international destinations.

SHORT-HAUL FLIGHTS MEDIUM-HAUL FLIGHTS LONG-HAUL FLIGHTS
Regional flights (flight time of 1.0–1.5 hours) Short-haul flights (flight time of 1.5-2.0 hours) EU, CIS, Russia North and Central Americas, Asia, Russia
Business tourism

Business model: direct flights

Regional aircraft / narrow-body aircraft

Business model: high flight frequency, direct flights

Regional aircraft / narrow-body aircraft

Business model: utilisation of hubs, increased flight frequency

Narrow-body aircraft, classes C and Y

Business model: utilisation of hubs, high flight frequency, code sharing agreements

Wide-body aircraft, classes C, M and Y

Regional transportation

Business model: demand-driven flight frequency, direct flights

Regional aircraft

Business model: utilisation of hubs, demand-driven flight frequency

Narrow-body aircraft, classes C and Y

Tourism

Business model: direct flights, demand-driven flight frequency (package tours and flights only), highly seasonal

Narrow-body aircraft, class Y

Business model: direct flights, demand-driven flight frequency (package tours and flights only), highly seasonal

Wide-body aircraft, classes C and Y

Low-cost flights

Business model: high frequency of direct flights for the key routes, high load factor, low cost base

Narrow body-aircraft with high seating capacity, class Y only

Lean offering with an option to purchase extras

* Due to the turbulence in the tourist services market, Orenburg airline’s business model underwent tactical transformation in 2015.

service quality strategy

To achieve the strategic goal of becoming the leading provider of best-in-class services among the European carriers, the Company prioritises customer relationship management, marketing optimisation and improvements in service quality through the establishment of a client database that would aggregate data on customer preferences, relationship history, process development and optimisation and analysis of the outcome.

Company’s main goal is increase customer satisfaction primarily by means of a tailored approach, and identification of potential opportunities and threats.

Analysis of the customer relationship database provides a higher degree of accuracy in client segmentation based on the customer value and estimated customer needs in terms of product and service offering.

Technology and innovation strategy

To ensure the implementation and in-house utilisation of the state-of-the-art technologies, the Group is running the Innovative Development Programme, which incorporates Aeroflot Group’s key innovation directions and initiatives coupled with mid- and long-term innovation KPIs up to 2020. Drawing on the R&D and innovation policies announced by the Russian Government the Programme seeks to provide a wide range of initiatives aiming to design, develop and implement new technology and cutting-edge product and service offering that would meet the global standards.

The R&D plan is an essential part of the Company’s innovative drive. It is being implemented primarily through cooperation with academic and research institutions and Russia-based small and medium-sized businesses.

Marketing strategy

The update of JSC  Aeroflot’s Marketing Strategy 2015–2020 relied on a comprehensive research exercise, involving:

  • trend analysis drilled down the distinctive features and drivers of services consumption showcasing the impact of demographic, economic, social and other underlying processes on the rise of business opportunities;
  • competitor analysis provided a detailed study of competitor offerings evidencing that Aeroflot’s in-flight product offering not only matches the offering of the world’s leading airlines, but also far outstrips it by certain criteria;
  • market segmentation identified priority segments, defined communication tools and techniques, and revealed new opportunities to engage the customer in a dialogue.

The results enabled Aeroflot to come up with a set of marketing initiatives contributing to the achievement of the Company’s strategic objectives and Aeroflot’s market positioning as the national air carrier in Russia and a competitive player globally.

Strategy and development programmes

Aeroflot Group’s strategy is set forth in a number of documents with various planning horizons, all of which were approved by the Company’s Board of Directors. The documents are as follows:

  1. Strategy 2025 – Key Focus Areas of JSC Aeroflot’s Development Strategy (Minutes No. 1 of 13 July 2011);
    Strategy 2015–2020 – Progress in Implementation of Aeroflot Group’s Strategy (JSC Aeroflot Board Minutes No. 18 of 15 May 2014);
    Strategy 2015–2017 – Aeroflot Group’s Long-Term Development Programme (Minutes No. 5 of 25 September 2014).
  2. Aeroflot Group’s Long-Term Development Programme 2015–2020 (Minutes No. 8 of 2 December 2014; approved as a sub-item of Progress in Implementation of Aeroflot Group’s Strategy 2025 (Long-Term Development Programme)).

The Group is implementing the strategy through a number of programmes designed to ensure long-term growth and efficient development. Among the key programmes upholding Aeroflot’s growth and development strategy are:

  • Innovative Development Programme;
  • Investment Programme;
  • Management Incentive Programme;
  • Cost Cutting Programme;
  • Corporate Governance Improvement Programme.

Innovative Development Programme 2020 was adopted by JSC  Aeroflot’s Board of Directors (24 June 2011, Minutes No.16) and a Task Force on Private-Public Partnership in Innovation under the Government Commission for High Technologies and Innovation (28 June 2011). The Programme defines the key focus areas of the Company’s innovative development. For further information on the Programme, see “Information technologies and innovation” section of the Annual Report.

Investment Programme 2015 was adopted by JSC ­Aeroflot’s Board of Directors on 2 December 2014 (Minutes No. 8). It serves to address the air carrier’s strategic objectives and ensure the development of its business units. Investments in property, plant and equipment and financial investments in software for 2015 are designed to:

  • ensure maintenance and repair operations (procure tools and equipment to ensure maintenance for all types of aircraft, and invest in hangar facility development);
  • ensure ground handling at the airport (procure equipment and custom machinery for aircraft ground handling);
  • develop a training platform (purchase and install new full flight simulator FFS B737 NG, connect simulators in operation to additional visual airport databases, etc.);
  • ensure the high quality of passenger services (procure uniforms for flight attendants, provide advertising facilities, develop websites, set up business lounges at non-base airports, etc.);
  • upgrade aircraft (continue the project to integrate electronic devices for pre-flight and in-flight management of air navigation information on Airbus A320 Family and A330 (Electronic Flight bag – EFB), install ozone filters on A320 Family);
  • construct new facilities (deliver on the projects for a new hangar for aircraft servicing);
  • develop IT systems (maintain the existing and develop new information systems, procure communication, telephone and computer equipment);
  • deliver on R&D goals (invest in R&D projects to ensure innovative development for the Company);
  • provide software solutions (develop the SAP system, maintain and develop the Company’s website, commercial, production, office and other systems);
  • provide other types of investment in property, plant and equipment (deliver on fire safety initiatives, procure workwear, ensure seamless operation for a number of business units).

The new version of Management Incentive Programme was adopted by JSC Aeroflot’s Board of Directors on 2 December 2014 (Minutes No. 8). The Programme covers the employees whose remuneration is KPI-based. The remuneration is paid at the end of the year for meeting the net income target and depends on the amount JSC Aeroflot’s General Meeting of Shareholders allocates as a percentage of the total net income for this particular purpose. The Programme sets the maximum remuneration pool, which is subsequently distributed among the employees based on their individual contribution to the year-end financial results.

Cost Cutting Programme was implemented in 2014 to improve the Group’s competitiveness and operating efficiency. It provides for a number of initiatives designed to reduce Aeroflot’s operating costs. The first stage involves both low-cost initiatives intended to deliver quick wins and more complex solutions requiring significant financial resources and more time. The second stage focuses on supplementary solutions providing a material economic impact. In the midterm, the Company is planning to roll out operating expenses cutting initiatives in the Group’s airline subsidiaries.

Corporate Governance Improvement Programme is linked to the implementation of Corporate Governance Code as approved by the Board of Directors of the Bank of Russia on 21 March 2014. For further information, see “Corporate Governance” section of the Annual Report.

3.3 Operating
results

Aeroflot Group

In 2014, Aeroflot Group demonstrated an upward trend in its key operating results against a backdrop of steadily growing domestic market. The Group carried a total of 34.7 million passengers, which is 10.7% more than in 2013. Passenger turnover grew by 5.6% reaching 90.1 billion passenger-kilometres (PKM), with the available seat-kilometres (ASK) increasing by 6.2% to 115.8 billion, thus leading to a slight decrease in the passenger load factor by 0.4 percentage points (p.p.) to 77.8%.

The total number of passengers carried by Aeroflot Group on scheduled and charter domestic routes in 2014 increased by 26.0% to 17.6 million. Passenger turnover rose by 19.9% to 35.0 billion PKM with the available seat-kilometres growing by 16.2% to 43.6 billion, driving the passenger load factor up by 2.5 p.p. to 80.2%. As a result, the share of domestic flight passengers increased from 44.6% to 50.8% of the total number of passengers carried by the Group in 2014.

Strong domestic growth was driven by the ongoing structural changes in the Russian market, with air transportation becoming more accessible and passengers tending to give preference to air trips. Another driver was the robust growth of internal tourism in Russia, including during and after the XXII Olympic and XI Paralympic Winter Games in Sochi. The Group was consistently increasing the flight frequency and capacity on its most popular routes.

34.7
million passengers
carried by aeroflot
GROUP’S AIRLINES

26.0%
increase
IN AEROFLOT GROUP’S
passenger traffic
on domestic routes

Aeroflot Group’s operating performance by region (regular and charter flights)

Region Passengers carried (million PAX) Passenger turnover (billion PKM) Available seat-kilometres (billion ASK) Passenger load factor (%)
2014 2013 Change, % 2014 2013 Change, % 2014 2013 Change, % 2014 2013 Change, p.p.
Russia 17.6 14.0 26.0% 34.9 29.1 19.9% 43.4 37.4 16.2% 80.4% 77.9% 2.5
Europe 7.6 7.2 6.6% 17.2 16.0 6.9% 23.3 21.6 8.0% 73.7% 74.4% (0.8)
CIS 2.6 2.8 (7.7%) 4.9 5.2 (7.4%) 6.3 6.8 (7.8%) 77.0% 76.7% 0.4
Asia 2.3 2.2 6.3% 15.1 13.7 10.2% 20.2 17.6 14.3% 75.0% 77.8% (2.8)
Middle East and Africa 1.7 1.7 0.6% 4.7 4.4 5.2% 6.1 5.5 10.2% 77.0% 80.6% (3.7)
America 0.8 0.8 0.6% 6.9 6.9 (0.5%) 8.7 8.7 (0.2%) 79.3% 79.5% (0.2)
Total regular flights 32.7 28.6 14.1% 83.5 75.4 10.7% 107.9 97.6 10.6% 77.4% 77.3% 0.1
Charter flights 2.1 2.8 (25.3%) 6.5 9.8 (3.6%) 8.0 11.5 (30.8%) 82.1% 85.6% (3.5)
Total passenger flights 34.7 31.4 10.7% 90.1 85.3 5.6% 115.8 109.1 6.2% 77.8% 78.2% (0.4)

Aeroflot Group’s passenger traffic
(million PAX)

Domestic routes
International routes

Source: Federal Air Transport Agency of the Russian Federation.

Aeroflot Group’s passenger turnover (billion PKM) and passenger load factor (%)

Domestic routes
International routes
Passenger load factor

Source: Federal Air Transport Agency of the Russian Federation.

In 2014, the total number of passengers carried by Aeroflot Group on scheduled and charter international routes decreased by 1.7% to 17.1 million. Passenger turnover went down by 1.8% to 55.1 billion PKM, with the available seat-kilometres growing by 1.0% to 72.2 billion, which decreased the passenger load factor by 2.1 p.p. to 76.3%. As a result, the share of international flight passengers declined from 55.4% to 49.2% of the total number of passengers carried by the Group in 2014.

These trends were driven by macroeconomic changes along with the national currency devaluation and their impact on the consumer behaviour and passengers’ preferences, specifically in the tourist segment.

The greatest decline was seen on international charter flights, while operating results for regular flights remained stable.

Passenger traffic in Europe, the Group’s second largest market, grew by 6.6% to 7.6 million passengers against a backdrop of less intense competition from international air carriers due to their optimised programmes and frequency of flights to Russian destinations.

The decrease in the CIS passenger traffic by 7.7% to 2.6 million passengers was primarily due to a number of flights to eastern Ukraine being cancelled as a result of geopolitical tension in the region. However, the operating results benefited from new destinations to CIS, including newly launched flights to Karagandy (Kazakhstan), Tbilisi (Georgia) and Chisinau (Moldova).

Aeroflot Group continued to focus on Asian destinations, where its passenger traffic grew by 6.3% to 2.3 million people. The passenger turnover growth lagged behind the capacity growth of 14.3%, which resulted in passenger load factor going down by 2.8 p.p. The outrunning growth in capacity was due to the replacement of Boeing 767, able to seat 218 to 309 passengers, with Boeing 777 equipped with 402 passenger seats, on a number of flights to Asian destinations. However, the Group managed to gradually improve the passenger load factor throughout 2014.

In 2014, Aeroflot Group carried 1.7 million passengers to various destinations in the Middle East, up 0.6% y-o-y. The outrunning growth in capacity in this region was again due to the deployment of new types of aircraft on flights to Turkey and greater seat capacity on flights to Israel.

North American destinations saw an increase in Aeroflot Group’s passenger traffic by 0.6% to 0.8 million passengers while its passenger turnover and available seat-kilometres went down slightly due to the Group’s optimised operations in the region and cancellation of a number of commercially inefficient flights to Toronto, Cancun and Punta Cana.

Aeroflot Airline

In 2014, Aeroflot airline – the Group’s key business unit – carried 23.6 million passengers, up 13.0% y-o-y.

Its passenger turnover grew by 11.4% to 67.1 billion PKM, while the available seat-kilometres increased by 12.3% to 85.8 billion, leading to a slight fall in the passenger load factor by 0.6 p.p. to 78.2%.

The total number of passengers carried by Aeroflot airline on scheduled and charter domestic routes increased by 29.4% to 11.1 million. Passenger turnover rose by 24.6% to 24.4 billion PKM, while the available seat-kilometres grew by 23.1% to 29.6 billion, which increased the passenger load factor by 1.0 p.p. to 82.5%. The share of domestic flight passengers rose from 41.2% to 47.2% of the total number of passengers carried by Aeroflot in 2014.

On scheduled and charter international routes, the number of passengers increased by 1.4% to 12.5 million. Passenger turnover grew by 5.1% reaching 42.7 billion PKM, with the available seat-kilometres increasing by 7.3% to 56.2 billion, leading to a slight decrease in the passenger load factor by 1.6 p.p. to 75.9%. The share of international flight passengers decreased from 58.8% to 52.8% of the total number of passengers carried by the Company in 2014.

The above factors account for changes in Aeroflot airline’s operating results, while also affecting the Group’s overall regional performance.


Aeroflot airline’s passenger traffic
(million PAX)

Domestic routes
International routes

Source: Federal Air Transport Agency of the Russian Federation.

Aeroflot airline’s passenger turnover (billion PKM) and passenger load factor (%)

Domestic routes
International routes
Passenger load factor

Source: Federal Air Transport Agency of the Russian Federation.

Aeroflot airline’s operating performance by region (regular and charter flights)

Region Passengers carried (million PAX) Revenue passenger-kilometres (billion PKM) Available seat-kilometres (billion ASK) Passenger load factor (%)
2014 2013 Change, % 2014 2013 Change, % 2014 2013 Change, % 2014 2013 Change, p.p.
Russia 11.1 8.6 29.5% 24.4 19.6 24.7% 29.6 24.0 23.2% 82.6% 81.6% 1.0
CIS 1.7 1.9 (9.5%) 2.9 3.0 (1.6%) 3.7 3.7 (1.0%) 78.5% 79.0% (0.5)
Europe 6.5 6.1 7.2% 14.5 13.4 8.0% 19.5 18.1 7.7% 74.2% 73.9% 0.3
Asia 2.1 1.9 10.5% 14.8 13.3 11.6% 19.7 16.8 17.1% 75.1% 78.8% (3.7)
Middle East and Africa 1.3 1.3 1.0% 3.6 3.4 6.5% 4.6 4.2 8.9% 78.6% 80.3% (1.7)
America 0.8 0.8 0.6% 6.9 6.9 (0.5%) 8.7 8.7 (0.2%) 79.3% 79.5% (0.2)
Total regular flights 23.6 20.6 14.6% 67.1 59.5 12.8% 85.8 75.6 13.4% 78.2% 78.7% (0.5)
Total passenger flights 23.6 20.9 13.0% 67.1 60.2 11.4% 85.8 76.5 12.3% 78.2% 78.8% (0.6)

Operating results in cargo and mail segment

In 2014, the total cargo traffic of Aeroflot Group decreased primarily due to the fact that since 2013 Aeroflot airline has suspended its cargo fleet operations switching almost entirely to passenger fleet belly cargo operations. Cargo and mail volumes transported by Aeroflot Group went down by 18.7% to 166.3 thousand tonnes mainly because of a decline in the international cargo traffic (by 30.8% to 84.3 thousand tonnes). Domestic cargo traffic, however, went down insignificantly by only 0.9% to 82.0 thousand tonnes. In the reporting period, cargo/mail tonne-kilometres increased by 1.9% to 8.8 billion TKM while the revenue load factor went down by 0.9 p.p. to 63.8%.

In 2014, Aeroflot airline’s flights carried 145.3 thousand tonnes of cargo and mail, down 17.7% y-o-y. Domestic cargo and mail traffic rose by 9.0% reaching 63.8 thousand tonnes. The decline in total cargo volumes transported by the Company in 2014 was due to the sharp fall in the international cargo traffic which dropped by 30.9% to 81.5 thousand tonnes. Revenue tonne-kilometres increased by 6.0% to 6.7 billion while the revenue load factor fell by 1.3 p.p. to 63.1%.

Aeroflot Group’s cargo and mail operations (thousand tonnes)

Domestic routes
International routes

Aeroflot Group’s revenue tonne-kilometres (billion TKM) and load factor (%)

Domestic routes
International routes
Revenue load factor

Aeroflot airline’s cargo and mail operations (thousand tonnes)

Domestic routes
International routes

Aeroflot airline’s revenue tonne-kilometres (billion TKM) and load factor (%)

Domestic routes
International routes
Revenue load factor

3.4 Subsidiaries and
Affiliates Operations

Aeroflot Group AIRLINEs’ performance indicators

In 2014, Aeroflot Group’s airlines continued to strengthen their positions in relevant segments of the air transportation market.

As part of the airline companies’ integration in 2014, the Group went on restructuring its fleet and optimising its subsidiaries’ route network. Both passengers and the Group benefit from flight operations under Aeroflot’s single SU code. A single IT-platform enables easy on-line ticket booking while bringing down air carriers’ expenses and providing wider opportunities for interline and code-sharing agreements with third parties.

2013
2014
Change

* Including Vladivostok Air’s operating results.
** Including Dobrolet airline’s operating results.

Rossiya airline

Passengers carried (million PAX)

Passenger turnover (billion PKM)

Passenger load factor (%)

Available seat-kilometres (billion ASK)

Rossiya is one of the largest Russian air carriers and the market leader in the North-West of the country. Based in St. Petersburg, the company makes most of its flights from the Pulkovo Airport.

Operating results

In 2014, Rossiya carried a total of 5.2 million passengers, up 13.1% y-o-y. The passenger turnover increased by 10.5% to 10.1 billion PKM. The outstripping growth of the available seat kilometres by 11.5% to 13.4 billion led to a slight decrease in the passenger load factor (by 0.7 p.p. to 75.6%.).

Aircraft fleet

As at 31 December 2014, Rossiya airline’s fleet numbered 36 comfortable modern aircraft, including sixteen Airbus A319, eleven Airbus A320, three Boeing 767 and six An-148. In 2014, it was expanded to add another two Airbus A320.

Route network

In 2014, Rossiya airline operated scheduled flights to 75 destinations, including 24 domestic and 51 international routes (21 of them to the CIS countries). Its flight schedule is set up so as to accommodate maximum flight connections at the Pulkovo Airport.

In summer 2014, all flights of Rossiya airline were taken under Aeroflot airline’s commercial management, unlocking substantial benefits for the company. A single IT-platform enables easy on-line ticket booking while bringing down air carrier’ expenses and providing wider opportunities for interline and code-sharing agreements with third parties.

Other information

The operations optimisation programme run by Rossiya airline over the recent years gained industry attention and acclaim. In 2014, the company received a number of industry awards and was rated among the most punctual Russian airlines as well as the safest air carrier according to Airlineratings.com.

In March 2014, Rossiya airline joined Aeroflot Bonus Frequent Flyer Programme. Passengers were offered to convert the scores accumulated under Rossiya airline’s own programme into Aeroflot Bonus miles.

Aircraft fleet of Rossiya airline

Aircraft type 2014 2013 Change
An-148 6 6
Airbus A319 16 16
Airbus A320 11 9 2
Boeing 767 3 3
Total 36 34 2

ORENAIR AIRLINE

Passengers carried (million PAX)

Passenger turnover (billion PKM)

Passenger load factor (%)

Available seat-kilometres (billion ASK)

Orenair is based at the Orenburg Airport as well as Domodedovo and Vnukovo airports located in Moscow. In 2014, it operated both charter flights to most popular tourist destinations abroad and scheduled flights. The carrier’s business model is currently under review due to the decline in the tourist market. Since the beginning of 2015, Orenair has re-focused to scheduled passenger flights, mainly to destinations within Russia.

Operating results

In 2014, Orenair carried a total of 3.0 million passengers, down 3.4% y-o-y. Its passenger turnover decreased by 22.9% to 8.5 billion PKM, while the passenger load factor amounted to 78.6%. The company’s performance was influenced by the decline in the tourist flight market followed by a decrease in the charter flight segment.

Aircraft fleet

As at 31 December 2014, Orenair’s fleet consisted of 27 aircraft, including 24 Boeing 737 and three Boeing 777. In 2014, it was expanded to include three Boeing 737 aircraft.

Route network

In 2014, a number of Orenair’s flights were operated under Aeroflot’s commercial management, including flights from/to the Vnukovo Airport to Yekaterinburg, Kazan, Krasnodar, Krasnoyarsk, Mineralnye Vody, Novosibirsk, Omsk, Orenburg, Perm, Rostov-on-Don, Samara, Simferopol and Chelyabinsk. During the year, the company operated international charter flights between major Russian cities and popular tourist destinations. The key destinations in terms of the number of passengers carried were resorts in Turkey and Egypt. Since the beginning of 2015, most of Orenair’s flights have been taken under commercial management of Aeroflot airline.

Aircraft fleet of ORENAIR AIRLINE

Aircraft type 2014 2013 Change
Boeing 737 24 21 3
Boeing 777 3 3
Total 27 24 3

Donavia airline

Passengers carried (million PAX)

Passenger turnover (billion PKM)

Passenger load factor (%)

Available seat-kilometres (billion ASK)

Donavia is a major air carrier in southern Russia based at airports of Rostov-on-Don, Krasnodar, Sochi and Mineralnye Vody. The company operates scheduled and charter flights to various destinations in Russia, CIS and other countries.

Operating results

In 2014, Donavia carried a total of 1.7 million passengers, up 28.3% y-o-y. Its passenger turnover increased by 22.3% to 2.4 billion PKM while the passenger load factor rose by 7.6 p.p. to 73.9%.

Aircraft fleet

As at 31 December 2014, Donavia’ fleet comprised 10 Airbus A319. In 2014, it was expanded to include two new Airbus A319 (two-class configuration) which replaced Boeings 737-400 that were phased out.

Route network

In 2014, Donavia operated scheduled flights to 30 destinations, including 18 domestic and 12 international routes (8 of them to the CIS countries).

Aircraft fleet of Donavia airline

Aircraft type 2014 2013 Change
Airbus A319 10 8 2
Boeing 737-400 2 (2)
Total 10 10

Aurora airline

Passengers carried (million PAX)

Passenger turnover (billion PKM)

Passenger load factor (%)

Available seat-kilometres (billion ASK)

Aurora is Aeroflot Group’s regional air carrier focused on securing transport accessibility and accommodating the demand for flights in the Russian Far East and Siberia. It is based at airports of Vladivostok, Yuzhno-Sakhalinsk and Khabarovsk. Aurora aims at contributing to the economic development of the Russian Far East, increasing mobility of the population as well as enhancing cooperation synergies among Aeroflot Group’s airlines.

Aurora airline was established in 2013 as a result of amalgamation of SAT Airlines and Vladivostok Air, members of Aeroflot Group since 2011. A 51% stake in the company is held by JSC Aeroflot; the remaining 49% interest was transferred to the Sakhalin Region in January 2014.

Operating results*

In 2014, Aurora airline carried a total of 1.1 million passengers, down 24.8% y-o-y. Its passenger turnover decreased by 39.0% to 1.8 billion PKM. The decline was due to restructuring and optimisation of the air carrier’s fleet and route network, which increased the passenger load factor by 6.1 p.p. to 75.0%.

* Including operating results of JSC Aurora Airlines (SAT Airlines before September 2013) and JSC Vladivostok Air.

Aircraft fleet

As at 31 December 2014, Aurora’ fleet comprised 25 aircraft, including seven Bombardier DHC 8-200/300, two Bombardier DHC 6-400, five Boeing 737, six Airbus A319, one Airbus A320, as well as three Mi-8 helicopters and one An-24 airliner.

Route network

In 2014, Aurora airline continued to invest much effort into optimising its route network. During the year, the company operated scheduled flights to 24 destinations, including 11 domestic and 13 international routes.

Other information

In April 2014, Aurora was named Airline of the Year – Domestic Passenger Carrier at the Wings of Russia Awards (winner in groups III–IV for airlines with the domestic passenger turnover ranging from 0.05 to 1 billion passenger-kilometres).

In February 2014, Aurora airline joined Aeroflot Bonus Frequent Flyer Programme.

Aircraft fleet of Aurora airline

Aircraft type 2014 2013 Change
Mi-8** (helicopter) 3 3
An-24*** 1 1
DHC 6-400 2 2
DHC 8-200 3 2 1
DHC 8-300 4 3 1
Airbus A319 6 3 3
Airbus A320 1 6 (5)
Boeing 737 5 4 1
Tu-204 6 (6)
Total 25 28 (3)

** As at 31 December 2014, one aircraft is out of operation, with two others leased out.
*** The aircraft is leased out.

Pobeda airline

Pobeda was established within Aeroflot Group in September 2014. The company draws on the traditional low-cost business model based on the global industry best practices. It is based at the Vnukovo Airport in Moscow.

In 2013, Aeroflot’s Board of Directors made a decision to found a new low-cost carrier in order to strengthen the Company’s leadership in the fledgling low-cost carrier segment. The air carrier is aimed at increasing mobility of the population and inter-accessibility among the Russian regions.

Dobrolet air carrier was registered in October 2013 and received an air operator’s certificate issued by the Federal Air Transport Agency (Rosaviatsia) in May 2014. The carrier launched its flights on the Moscow – Simferopol route in June 2014. The route was chosen due to the strong demand for this resort destination in summer and the lack of train connection in the region. Over less than two months of its operations, Dobrolet carried 67.8 thousand passengers. The air carrier ensured a high passenger load factor of 92.3% from the very first flights. It had to suspend its flights on 4 August 2014 due to the economic sanctions enacted by the European Union. Despite the suspension of flights, the project’s first results proved its high potential. Thanks to Aeroflot Group’s timely and efficient follow-up effort, the project was relaunched only four months after the suspension of Dobrolet’s flights. On 1 December 2014, Pobeda airline (LLC Byudzhetny Perevozchik)* operated its first flight from Moscow to Volgograd.

* The legal entity’s name as at 31 December 2014 was LLC Byudzhetny Perevozchik. It was renamed LLC Pobeda Airlines early in 2015.

Operating results

The total number of passengers carried by the low-cost carrier (including passengers carried by Pobeda and Dobrolet) amounted to 107.4 thousand. The passenger turnover reached 134.0 million PKM, while the load factor was 78.0%.

Aircraft fleet

As at 31 December 2014, the carrier’s fleet numbered eight new narrow-body one-class Boeing Next-Generation 737-800 aircraft.

Route network

As at 31 December 2014, the air carrier’s own route network covered 11 destinations, including flights to major industrial cities of the Ural region and Siberia (Yekaterinburg, Perm, Chelyabinsk, Tyumen, Surgut) and Southern Russia (Vladikavkaz, Sochi, Mineralnye Vody) as well as cities of European Russia (Volgograd, Belgorod, Samara).

Operating results

Indicator 2014
Passengers carried (thousand PAX) 107.4
Passenger turnover (million PKM) 134.0
Available seat-kilometres (million ASK) 171.8
Passenger load factor (%) 78.0%

Aircraft fleet of Pobeda airline

Aircraft type 2014 2013 Change
Boeing 737 8 8
Total 8 8

* The legal entity’s name as at 31 December 2014 was LLC Byudzhetny Perevozchik. It was renamed LLC Pobeda Airlines early in 2015.

Non-core asset

Aeroflot airline’s non-core assets include property and property rights (such as shares, participation interests, immovable property) which do not relate to air transportation services, but can be closely related to Aeroflot’s end product development.

JSC Aeroflot Board of Directors adopted the Company’s Programme for non-core assets disposal on 26 July 2012 (Minutes No. 1). Pursuant to the resolutions made by the Board of Directors on 31 January 2013 (Minutes No. 9), 21 June 2013 (Minutes No. 16) and 18 September 2014 (Minutes No. 4), the Programme for non-core assets disposal was expanded to include items of Aeroflot airline’s immovable property. The Programme includes non-core assets register, eligibility criteria, information on encumbrances, book and market value, approach to selecting assets for disposal as well as methods, procedures and timelines for assets disposal.

Service (non-core) assets with a significant impact on Aeroflot airline’s core business are treated based on:

  • comparing benefits derived from participation (discounts, reduction in prices and tariffs, improvement of Aeroflot airline’s product quality) against the costs incurred;
  • monitoring efficiency of corporate control.

Assets are disposed of if the benefits derived from participation prove inefficient and the corporate control insufficient.

As for service assets with a low impact on Aeroflot airline’s core business, the cost of participation and its relevance is evaluated based on non-production criteria (pursuit of non-commercial objectives, industry profile, goodwill, etc.) These assets are disposed of if the benefits derived from participation prove insignificant.

The Company analyses its real estate assets to identify their best and most efficient use for the purpose of its business and commercial operations.

JSC  Aeroflot exited from the charter capital of LLC Aeroflot-Riga and LLC AM-Terminal as part of the Programme in 2014. In addition, the Company’s office property asset was sold in Kiev (Ukraine). For more details on non-core assets disposed of by JSC  Aeroflot in 2014, please see Appendix 8.6 to this Annual Report.

In 2014, a number of projects were implemented to develop the Group’s subsidiaries and affiliates CJSC Aeromar, CJSC Sherotel and JSC AeroMASH-AB. A branch of Sherotel and the first business lounge of Aeroflot Group were opened at the Vnukovo Airport, new branches of Aeromar and AeroMASH-AB were established in Simferopol, and CJSC Aeromar’s sales were launched on board Aeroflot airline’s aircraft.

3.5 Route
Network

Aeroflot Group’s route network development strategy

Aeroflot Group implements a policy of balanced route network development based on a multi-brand model ensuring maximum coverage of the air transportation market and the Group’s foothold in various price and regional market segments.

The route network management strategy relies on increasing frequency of flights to most popular destinations and improving flight connections by adopting a wave-system structure in flight schedules, which contributes to passengers’ comfort and enhances the Company’s value proposition. Flights to new destinations are launched based on the analysis of demand, competition and potential efficiency of new routes.

Aeroflot Group

As at 31 December 2014, Aeroflot Group’s route network covered 291 scheduled flight routes to 56 countries. The number of routes remained almost unchanged in 2014, merely down 0.7% y-o-y.

The total number of routes decreased by 26.6% due to the decline in the charter flight segment and the Group’s revised charter segment strategy.

Changes in the number of routes within Russia resulted from the increase in the number of routes serviced by scheduled flights in Russia by 6.9% to 109 routes due to a steady increase in domestic demand. The number of international routes decreased by 4.7% to 182 due to the optimisation of the route network and cancellation of inefficient routes.

During 2014, air carriers of Aeroflot Group launched scheduled flights to the following 22 new destinations, including nine domestic ones:

  • from Krasnodar to Khujand and Simferopol;
  • from Rostov-on-Don to Simferopol;
  • from St Petersburg to Minsk and Surgut;
  • from Khabarovsk to Magadan;
  • from Yuzhno-Sakhalinsk to Harbin and Seoul;
  • from Anapa to Novosibirsk and Ufa;
  • from Barnaul to Anapa and Hannover;
  • from Yekaterinburg and Novosibirsk to Hannover;
  • from Sochi to Kazan, Munich and Frankfurt;
  • from Chelyabinsk to Munich;
  • from Moscow to Karagandy, Chisinau, Novy Urengoy and Tbilisi.

Number of Aeroflot Group routes

Route 2014 2013 Change
Scheduled Charter Total Scheduled Charter Total Scheduled Charter Total
Total 291 351 572 293 576 773 (0.7%) (39.1%) (26.0%)
International 182 292 436 191 471 606 (4.7%) (38.0%) (28.1%)
Domestic 109 59 136 102 105 167 6.9% (43.8%) (18.6%)
Long-haul 36 50 78 35 89 115 2.9% (43.8%) (32.2%)
Medium-haul* 255 301 494 258 487 658 (1.2%) (38.2%) (24.9%)

* In this section of the Annual Report medium-haul routes and flights include short-haul and regional air transportation services.

Route network of Aeroflot Group

At the same time, due to a drop in demand for international flights caused by external factors, the Group ceased operations on a number of economically inefficient routes. During the reporting period, flights were cancelled to 24 destinations, including 19 international ones. The following routes were cancelled:

  • from Sochi to Dushanbe and Novosibirsk;
  • from Kaliningrad to Samarkand;
  • from St Petersburg to Alicante, Hurghada, Karlovy Vary, Naples, Nukus, Odessa, Pafos, Thessaloniki, Sharm el-Sheikh;
  • from Vladivostok to Blagoveshchensk, Magadan and Krasnoyarsk;
  • from Khabarovsk to Tashkent and Tokyo;
  • from Yuzhno-Sakhalinsk to Petropavlovsk-Kamchatsky;
  • from Moscow to Goa, Hurghada, Sharm el-Sheikh, Salzburg and Eilat.

In addition, flights to the following seven destinations were either suspended or cancelled in 2014:

  • from Moscow to Krakow, Toronto, Cancun, Punta Cana, Donetsk, Kharkov and Dnepropetrovsk.

In 2014, the total number of regular flights grew by 11.3% y-o-y due to the increase in carrying capacity on the most popular routes and the changes in Aeroflot Group’s route network mentioned above. The key driver behind the growth was the increased number of flights across Russia which rose by 19.3%. The growth also benefited from a greater number of flights to Europe and the Middle East adding 5.6% and 13.9% respectively. The number of international flights to America decreased slightly (down 1.7%) due to the cancellation of some North and Latin American flights. The number of flights to the CIS countries remained practically unchanged compared to 2013 (up 0.4%) due to a greater number of flights to Belarus and Kazakhstan offset by a reduced number of flights to Ukraine. The decline in the number of flights to Asia (down 9.8%) was due to the restructuring of the route network of Aurora Airlines based in the Russian Far East.

Throughout the year, the Group continued increasing the frequency of flights in accordance with its route network management strategy. As a result, the average frequency of scheduled flights went up from 9.6 to 11.1 flights per route per week. The increase was due to a higher frequency of both domestic flights (up 14.0%) and international flights (up 12.8%). Medium-haul flights saw the highest rise in flight frequency (up 16.2%) while the frequency of long-haul flights grew less actively (up 11.2%).

Change in the number of Aeroflot Group scheduled routes

Change in the number of Aeroflot Group scheduled flights by region

Average frequency of Aeroflot Group flights

2013
2014

Aeroflot airline

As at 31 December 2014, Aeroflot airline’s network covered 134 scheduled flight routes to 55 countries. The number of scheduled routes grew in 2014 by 2.3% y-o-y.

The total number of routes, including charter ones, was 143, down by 8.3% y-o-y as the Company more than halved the number of charter flights. Throughout the year, the number of international routes in the scheduled flight segment decreased by 2.2% to 90 while the number of domestic routes grew by 12.8% to 44.

During the reporting period, Aeroflot airline continued developing its route network launching scheduled flights to four new destinations from Moscow, including flights to one Russian destination (Novy Urengoy) and three destinations in the CIS countries (Karagandy, Chisinau and Tbilisi). The flight from Frankfurt to Sochi was launched before the Olympic Winter Games. Flights were closed to 12 destinations, including flights from Moscow to Ukraine (Donetsk, Kharkov and Dnepropetrovsk) the Middle East (Hurghada, Sharm el-Sheikh and Eilat), Europe (Salzburg and Krakow) and North and Latin America (Toronto, Cancun and Punta Cana).

In 2014, the total number of regular flights grew by 11.4% y-o-y due to the increase in capacity on the most popular routes and the changes in Aeroflot airline’s route network mentioned above. The key contributor to the growth was the increased number of domestic flights (up 24.8%). The growth also benefited from the increased number of flights to Europe and the Middle East adding 4.1% and 10.1% respectively. The increase in flights to Asia (up 2.8%) was due to a higher frequency of flights to the most popular Asian destinations. The number of international flights to America decreased slightly (down 1.7%) due to the cancellation of some North and Central American flights. The CIS segment saw a decrease in the number of flights by 10.2% resulting from the cancellation of flights to eastern Ukraine throughout the reporting period, while also benefiting from new flights launched to Kazakhstan and the Republic of Belarus.

In 2014, Aeroflot airline continued increasing the frequency of scheduled flights. As a result, the average flight frequency went up by 9.1% from 13.2 to 14.4 flights per route per week. The increase was due to a higher frequency of both domestic flights (up 5.5%) and international flights (up 8.2%). The frequency of medium-haul flights grew faster than that of long-haul flights (up 10.0% and 3.5% respectively).

Number of Aeroflot airline routes

Route 2014 2013 Change
Scheduled Charter Total Scheduled Charter Total Scheduled Charter Total
Total 134 16 143 131 47 156 2.3% (66.0%) (8.3%)
International 90 7 95 92 32 112 (2.2%) (78.1%) (15.2%)
Domestic 44 9 48 39 15 44 12.8% (40.0%) (9.1%)
Long-haul 30 1 31 31 2 32 3.2% (50.0%) (3.1%)
Medium-haul 104 15 111 100 45 124 4.0% (66.7%) (10.5%)

The most significant increase in the frequency of flights per week was achieved on routes from Moscow to Simferopol, Bucharest and Antalya (over 70%) as well as from Moscow to Orenburg, Gelendzhik, Dresden, Irkutsk and Guangzhou (over 50%).

While increasing the flight frequency, Aeroflot airline also worked on optimising its passenger flight schedule through departure and arrival sequencing. As a result, the flight connection ratio went up by 6.3 to 13.5 in 2014 as compared to 12.7 in 2013.

Change in the number of Aeroflot airline scheduled routes

Change in the number of Aeroflot airline scheduled flights by region

Average frequency of Aeroflot airline flights

2013
2014

Connecting passenger traffic

Thanks to the developed route network of Aeroflot Group, passengers can use transfer services in addition to direct flights between destinations. In terms of the business, the connecting passenger traffic parts into three groups: domestic connecting passenger traffic, traffic between Russia and other countries and international traffic. Aeroflot airline serves the bulk of the Group’s connecting passenger traffic.

Connecting passengers accounted for 39.2% of Aeroflot airline’s total passenger traffic in 2014 as compared to 35.5% in 2013. This was mainly driven by the growth in the domestic connecting passenger traffic, reaching 10.7% of the total domestic passengers carried in 2014. The shares of connecting passenger traffic between Russia and other countries and international connecting passenger traffic grew insignificantly, achieving 16.7% and and 11.8% of total airline’s traffic.

The well-developed route network, high frequency of international flights, a hub based at the Sheremetyevo airport in Moscow and membership in the SkyTeam Alliance all sharpen Aeroflot airline’s advantage in the competition for international connecting passengers.

Aeroflot airline key transit routes

Share of connecting passengers in Aeroflot airline total passenger traffic

Domestic
Russia – Other Countries
International

Group’s Subsidiary Airlines Route Network Optimisation

In 2014, the Group continued optimising subsidiaries’ route networks. Thus, the frequency of flights was increased for long-term promising markets of direct and transfer passengers and a schedule was set up to provide for maximum flight connectivity.

In line with the hub model strategy, in 2014, a number of airports became base airports for the Groups’ subsidiaries in the following regions:

  • Northwestern Federal District for Rossiya Airlines;
  • Southern Federal District for Donavia;
  • Far Eastern Federal District for Aurora.

Rossiya airline

In 2014, Rossiya airline operated scheduled flights to 75 destinations, including 24 domestic and 51 international routes (21 of them to the CIS countries).

The primary objective of Rossiya airline route network optimization in 2014 was creation of the Northwestern transport hub. The airline continued to increase the frequency of its flights and provided additional carrying capacities for high-potential markets of direct and transfer passengers including routes to Arkhangelsk, Murmansk, Kaliningrad and Simferopol. It also increased flight frequency from St. Petersburg to the Vnukovo and Domodedovo airports. Rossiya Airlines’ flights became even more convenient once a new schedule was introduced in Pulkovo to provide for maximum flight connectivity. Organic growth of the network relied on the new routes from St. Petersburg to Minsk and Surgut. To cut operations in the charter flight segment, the company cancelled the “discrete” schedule of flights to tourist destinations based on travel agencies’ requests and decided to cancel charter and block charter flights.

Donavia airline

In 2014, Donavia operated scheduled flights to 30 destinations, including 18 domestic and 12 international routes (8 of them to the CIS countries).

In the reporting period, Donavia launched a large campaign to tap into the market of Krasnodar. During the year, the company launched daily flights from Krasnodar and Rostov-on-Don to Simferopol and from Krasnodar to Yekaterinburg, increased the frequency of its flights connecting Kransnodar and Sochi up to two flights per day and flights from Krasnodar, Rostov-on-Don and Sochi to Yerevan became daily. Direct flights from Krasnodar to Yekaterinburg – the capital of the Ural Federal District, as well as more frequent service from Sochi to Yekaterinburg enabled the company to meet a growing demand for flights from the Ural region to resorts in the Krasnodar Territory. Flights from Rostov-on-Don and Mineralnye Vody to the Sheremetyevo airport were gradually replaced with flights operated by Aeroflot airline.

Aurora airline

During the year, Aurora airline operated scheduled flights to 24 destinations, including 11 domestic and 13 international routes. In addition to scheduled flights connecting Russian cities in Siberia and the Far East, Aurora’s aircraft operate scheduled flights of social importance along regional air routes to Okha, Shakhtersk, Yuzhno-Kurilsk and Iturup in the Sakhalin Region.

Aurora’s route network was restructured to optimise the company’s routes and redistribute a number of flights between Aurora Airlines and Aeroflot. Notably, long-haul flights from Moscow to the Russian Far East were made by Aeroflot’s own aircraft. Operating programme to most popular destinations in South Korea (Seoul and Busan) was extended. Due to a low demand, flights from Vladivostok to Tokyo and from Khabarovsk to Tokyo were cancelled, while the frequency of flights from Vladivostok to Beijing was reduced to one flight per week. Since 2014, flights between Vladivostok and Harbin have been operated only in the high summer season. Once Aurora Airlines was incorporated, flights from Khabarovsk to Tashkent were cancelled due to the fleet restructuring. In December 2014, Aurora Airlines launched regional flights from Vladivostok to remote sparsely populated urban localities in the Primorye Territory: Kavalerovo, Plastun, Terney, Amgu, Svetlaya, Samarga and Yedinka.

Orenair airline

In 2014, Orenair airline operated both charter flights to most popular destinations abroad and scheduled flights. The Orenair’s route network was transformed most radically due to a decline in the international tourist market. Since January 2015, most Orenair’s flights have been transferred under commercial management of JSC Aeroflot.

Pobeda airline

As at 31 December 2014, Pobeda airline’s own route network covered 11 destinations, including flights to major industrial cities of the Ural region and Siberia (Yekaterinburg, Perm, Chelyabinsk, Tyumen, Surgut) and Southern Russia (Vladikavkaz, Sochi, Mineralnye Vody) as well as cities of European Russia (Volgograd, Belgorod, Samara). In January 2015 ticket sales launched for flights between Moscow and Makhachkala. The flights are operated from the Vnukovo airport located in Moscow.

Fare policy

The Group pursues a policy of price differentiation as its airlines offer their services to different customer categories. This approach enhances the competitive edge of the Group’s value proposition. The Group bases its pricing policy on economic viability, the market environment and applicable regulatory requirements.

The Group’s airlines launch special campaigns to offer their passengers discounts in low seasons to boost demand. The companies also provide air transportation services subsidised by state-run programmes.

Throughout the reporting period, the challenging economic environment, a lower air travel demand and tougher competition in the key markets held down prices. In the second half of the year, the sharp rouble depreciation forced the Group to review EUR-denominated prices for international flights downwards to support the demand as prices in rouble terms soared. RUB-denominated prices for domestic flights did not increase. Sticking to a consistent price policy amid the violent foreign exchange fluctuation helped the Group to maintain its customer loyalty and a stable passenger load factor.

Licences, designations, authorisations and permits for increasing flight frequency

In 2014, the Federal Air Transport Agency (Rosaviatsia) issued the following permits to Aeroflot Group’s airlines managed by JSC  Aeroflot:

to Aeroflot airline

  • two new permits for scheduled international passenger flights from Moscow to Tbilisi and Tel Aviv;
  • twelve additional permits to increase the frequency of scheduled international passenger flights from Moscow to Antalya, Vilnius, Dusseldorf, Yerevan, Miami, Male, Beijing, Phuket, Riga, Istanbul, Tallinn, and Tbilisi;
  • one new permit for charter international passenger flights from Moscow to Barcelona.

to Rossiya airline

  • ten additional permits to increase the frequency of scheduled international passenger flights from St Peterburg to Antalya, Kiev, Milan, Namangan, Tel Aviv, Hurghada, Sharm el-Sheikh and Urgench;
  • four new permits for international charter flights from St Peterburg to Barcelona, Malaga, Palma de Mallorca and Tel Aviv.

to Donavia airline

  • one new permit for scheduled international passenger flights from Krasnodar to Khojend;
  • three additional permits to increase the frequency of scheduled international passenger flights from Krasnodar to Yerevan, from Rostov-on-Don to Tashkent and from Sochi to Tashkent;
  • three new permits for international passenger charter flights from Rostov-on-Don to Budapest, Plovdiv and Sofia.

to Aurora airline

  • a permit to increase the frequency of scheduled international passenger flights from Khabarovsk to Seoul;

Pursuant to CEO’s order to launch scheduled flights by JSC Aeroflot, the flights were launched on six new routes in 2014: from Moscow to Karaganda, Chisinau, Novy Urengoy, Rostov-on-Don, Tbilisi and Tel Aviv (these flights used to be chartered). Scheduled flights were also operated between Sochi and Frankfurt am Main before and during Sochi 2014 Winter Olympic Games.

Regular permits for Aeroflot, Donavia and Rossiya airline expiring in 2014 were reissued for another five years.

Aeroflot, Donavia and Rossiya airline cancelled a number of unused permits in order to increase the permit usage rate.

With the support of the Russian Ministry of Foreign Affairs, JSC Aeroflot was designated as a regular carrier on the following 7 routes:

  • from Vladivostok to Seoul, Busan and Tokyo;
  • from Moscow to Chisinau, Tbilisi and Tel Aviv; and
  • from Khabarovsk to Tokyo.

With the support of the Russian Ministry of Foreign Affairs, Donavia was designated as a regular carrier on the route from Krasnodar to Khojend.

Cooperation under codeshare agreements

In 2014, Aeroflot Group continued developing cooperation with its partners under codeshare agreements.

A total of 870 thousand of Aeroflot airline’s passengers were carried by its partners under codeshare agreements in 2014.

During the last year, the number of marketing flights operated by Aeroflot airline increased from 256 to 278. Codeshare agreements help Aeroflot airline to broaden its flight coverage by adding both new flights to partners’ base airports and direct flights from Moscow.

Codeshare agreements with Icelandair and Bangkok Airways came into force in 2014. As at the beginning of 2015, Aeroflot airline had codeshare agreements with 29 international and Russian airlines, including:

  • 18 agreements with Air France, KLM, Alitalia, Finnair, Delta Air Lines, Czech Airlines, TAROM, Estonian Air, LOT Polish Airlines, Bulgaria Air, Korean Air, Air Serbia, MIAT, Air Baltic, Air Europa, Kenya Airways, China Eastern and China Southern Airlines. Under the above agreements, Aeroflot airline is both an operating and marketing partner;
  • three agreements with Cubana, Iran Air and Middle East Airlines, under which Aeroflot airline is only an operating partner;
  • four agreements with Adria Airways, Air Malta, Bangkok Airways and Royal Air Maroc, under which Aeroflot airline is only a marketing partner;
  • four agreements with Donavia, Rossiya, Aurora and Orenair based on a commuter transport model with the Group’s airlines.

In the reporting period, Alitalia, Air France, Czech Airlines, KLM, Air Baltic and Air Serbia were among the major international partners of Aeroflot airline in terms of volumes under codeshare agreements, while Nordavia and Aeroflot Group’s companies were Aeroflot’s key Russian codeshare partners.

In 2014, Rossiya airline went on to use the commuter transport model of codeshare cooperation managed by JSC Aeroflotso as to further develop Aeroflot Group’s business. The new transport model contributed to the subsidiary’s further integration into Aeroflot Group’s single route network.

Under codeshare agreements, Aeroflot Group’s subsidiaries use the commuter transport model to manage their flight load. The model shows a uniform SU code of Aeroflot airline for all joint flights in booking systems (unlike under the usual codeshare procedure, which identified flights by the dual code and flight numbers of both partners). This form of cooperation enables JSC Aeroflotto implement a comprehensive centralised management model for Group’s strategic topics, including sales, revenue management and fleet planning. A total of 7 million passengers flew by Aeroflot Group’s commuter flights in 2014.

The key priorities of Aeroflot airline’s cooperation with its partners under codeshare agreements remain as follows:

  • increasing its presence in promising markets;
  • gaining a foothold in the markets with certain restrictions;
  • further improvement of the existing route network, also by increasing the marketing flight network;
  • more efficient use of the fleet.

In 2015, Aeroflot airline is planning to enter into codeshare agreements with Garuda Airlines and Saudi Arabian Airlines, its partners under the SkyTeam Alliance.

Cooperation under interline agreements

As at the beginning of 2015, Aeroflot airline has interline agreements with 170 airlines, including 9 Russian carriers and 9 companies from the CIS. In 2014, two interline agreements were signed while three of such agreements were terminated due to mergers, acquisitions, bankruptcy and other reasons.

Under interline agreements, the Company carried over 500 thousand passengers on its own flights and flights of partners during the reporting period.

Membership in the SkyTeam Alliance

Aeroflot airline continues to actively develop cooperation with other members of the SkyTeam global alliance. In 2014, the number of passengers carried by the Company within the framework of the SkyTeam Alliance totalled 442 thousand passengers under codeshare and interline agreements.

As at the beginning of 2015, the global alliance included the following 20 members: Aeroflot – Russian Airlines, Aerolineas Argentinas, Aeromexico, Air Europa, Air France, KLM, Alitalia, China Airlines, China Eastern and China Southern Airlines, Czech Airlines, Delta Air Lines, Kenya Airways, Korean Air, Middle East Airlines, Saudi Arabian Airlines, TAROM, Vietnam Airlines, Xiamen Airlines and Garuda Indonesia. The latter joined the alliance in March 2014.

Membership in the SkyTeam Alliance enables Aeroflot airline to expand its route network while offering unique services to its clients. A survey shows that SkyTeam accounted for 20.1% of the global air transportation market in 2014, ranking the world’s second largest global alliance.

SkyTeam performance in 2014 provided the alliance with a competitive advantage over Star and OneWorld global alliances. SkyTeam offers its clients best-in-class service at all times.

In the scope of SkyTransfer programme, SkyTeam Care & Assistance Policy and Customer Rebooking Policy were adopted in January 2014.

The first stage of PNR Servicing project for airlines using the Amadeus platform was completed in June 2014. Aeroflot airline also signed a letter of intent with Sabre Holding Corporation. The project is to be completed at the end of 2015.

In 2014 new opportunities were discovered as part of the one-time check-in initiative. This initiative enabled one-time check-in 48 hours before departure for all SkyTeam airlines, including Aeroflot airline.

To improve connecting passenger service and mitigate the risk of missing the flight, air carriers are required to report on their operations carried out in the hub of the SkyTeam Alliance. According to the above reports, the connecting traffic grows by 600 thousand passengers per month. The project will be implemented in the Sheremetyevo airport in 2015.

Once the first stage of SkyPriority programme has been completed in 930 airports used by the SkyTeam Alliance, its members went on to implement the second stage of the programme aimed at offering additional privileges to most profitable passengers. ­Aeroflot airline is gradually implementing Fast Track service (passport control and security checks).

The Company is actively involved in the SkyTeam Alliance’s initiatives, which proves the efficiency of its membership.

Aeroflot airline is cooperating with other alliance airlines in the cargo business through SkyTeam Cargo, a unique alliance of 12 freight carriers.

fares for employees

Since 2006, Aeroflot airline has been a member of the ZED/MIBA FORUM – a non-profit organisation providing guidelines for offering discounts to airlines’ staff travelling for personal and business purposes. The membership of ZED/MIBA FORUM includes over 230 airlines. In 2014, the biggest Australian carrier Qantas and an Indian air carrier Jet Airways became partners of Aeroflot airline, offering discounted fares to their clients. Today, Aeroflot airline cooperates with 70 companies, including SkyTeam Alliance partners, under agreements for providing discounted fares to their employees. Throughout 2014, nearly 13 thousand employees of JSC Aeroflotbenefited from discounted fares for flights of Aeroflot’s partners and about 37 thousand people employed by Company’s partners became passengers of Aeroflot airline.

3.6 Aircraft
Fleet

Key principles of fleet development

Aeroflot Group operates a balanced aircraft fleet and keeps on upgrading it in line with its multi-brand business development strategy.

Over the last few years the Group has invested much effort in standardisation and upgrade of the fleet to improve its operating efficiency. In 2011–2014, the types of aircraft in operation reduced from 18 to 11, and we keep on working to bring the aircraft range down to 9 types in the mid-term.

4.1
years — average age of
Aeroflot airline’s fleet
2011 2014
Short-haul SSJ100 SSJ100
An-148 An-148
Yak-42 An-24
Yak-12 DHC-8-200/300
An-24 DHC-6-400
An-26
DHC-8-200/300
Tu-134
middle-haul Airbus A319/320/321 Airbus A319/320/321
Boeing 737 (Classic) Boeing 737 (Classic)
Boeing 737 (NG) Boeing 737 (NG)
Tu-154
long-haul Airbus A330 Airbus A330
Boeing 767 Boeing 767
Boeing 777 Boeing 777
Il-96
Tu-204
MD-11F
Total 18 types 11 types

Group’s effort to satisfy the growing demand by developing, standardising and optimising the aircraft fleet in 2011–2014 decreased the average fleet age of the Aeroflot Group and Aeroflot airline. In this period, the average age of passenger aircraft in operation dropped from 10.4 to 7.0 years for ­ Aeroflot Group and from 5.3 to 4.1 years for Aeroflot airline (as at the year-end). The greatest achievement was made in 2014 when the average fleet age of Aeroflot airline decreased from 5.2 to 4.1 years to become the lowest among the companies operating over 100 aircraft.

Aeroflot Group approaches the aircraft fleet management by using one aircraft type or family in the relevant market sector (segmented either by product or traffic). This approach maximises efficiency of the fleet standardisation. For instance, Rossiya, Donavia and Aurora airlines use Airbus A320 aircraft for their regular flights offering passengers a uniform standardised product. However, Aurora’s aircraft fleet differs from the others as the company develops local flights and operates turboprop aircraft for this purpose. Orenair and Pobeda operate Boeing 737-800 aircraft for their charter and low-cost flights, and flights to tourist destinations. The premium market segment is an exception as Aeroflot decided to use both Boeing and Airbus aircraft for the medium-haul flights. As for the long-haul flights, operating efficiency is the key to choosing between Boeing or Airbus aircraft – depending on a particular market segment, we use either Airbus A330 (c250–300 seats) or Boeing 777-300ER (c400 seats). The diversified fleet of Aeroflot Group allows more favourable terms of aircraft acquisition and operation.

Aeroflot Group fleet in operation

Aircraft fleet
Average age

Aeroflot airline fleet in operation

Aircraft fleet
Average age

Aircraft fleet of Aeroflot Group

As at 31 December 2014, Aeroflot Group had 261 aircraft, including 10 short-haul turboprops (An-24, Bombardier DHC 8-200/300 and Bombardier DHC 6-400), 22 short-haul jets (SSJ100, An-148), 183 medium-haul jets (Boeing 737 and Airbus A320), 43 long-haul jets (Boeing 767, Boeing 777, Airbus A330 and Il-96), and three helicopters (Mi-8).

Following expiry of the lease period in 2014, Aeroflot Group phased out five Boeing 767-300ER aircraft, six Airbus A320 aircraft and five Boeing 737 aircraft. Therefore, the Group does not operate Boeing 737-400 aircraft any more. Six Tu-204, three Airbus A320 and three MD-11 aircraft were returned to the leasing company prior to expiry of the lease period. Commercial operation of Il-96 aircraft was ceased, with one aircraft subsequently sold. Five aircraft were re-distributed within the Group.

Expansion of operations by Aeroflot Group resulted in 5.0% increase in flight hours totalling 815.4 thousand hours in 2014 due to expancion of operating programme.

261
aircraft
in the group’s
fleet

22
net increase
in aeroflot group
fleet

Aeroflot group fleed by type of aircraft

Aeroflot airline fleed by type of aircraft

Aircraft fleet of Aeroflot Group

Type of aircraft Aircraft fleet as at 31 December 2013 Change 2014 Aircraft fleet as at 31 December 2014 Owned Operating lease Financial lease
Phased in Phased out
Short-haul 25 10 35 4 25 6
Mi-8*(helicopter) 3 3 3
An-24** 1 1 1
DHC 6-400 2 2 2
DHC 8-200 2 1 3 3
DHC 8-300 3 1 4 4
An-148 6 6 6
SSJ-100 10 6 16 16
Medium-haul 162 40 19 183 146 37
Airbus A319 39 5 5 39 26 13
Airbus A320 67 17 9 75 74 1
Airbus A321 26 26 5 21
Boeing 737-200 2 2 2
Boeing 737-400 4 4
Boeing 737-500 2 1 3 3
Boeing 737-800 22 17 1 38 38
Long-haul 52 6 15 43 5 20 18
Boeing 767 8 5 3 3
Airbus A330-200 5 5 5
Airbus A330-300 17 17 9 8
Tu-204-300 6 6
Boeing 777-200ER 3 3 3
Boeing 777-300ER 4 6 10 10
Il-96 6 1 5 5
MD-11F 3 3
Total 239 56 34 261 9 191 61

* As at 31 December 2014, one aircraft is out of operation, with two others leased out.
** The aircraft is leased out.

Aircraft fleet of Aeroflot airline

As at 31 December 2014, Aeroflot airline had 155 aircraft, including 16 short-haul aircraft (SSJ100), 102 medium-haul aircraft (96 Airbus A320 family and six Boeing 737 jets), and 37 long-haul aircraft (22 Airbus A330, 10 Boeing 777 and five Il-96 jets).

In 2014, five Boeing 767-300ER and four Airbus A320 aircraft were phased out following the lease expiry; three Airbus A319 jets were transferred to subsidiaries while three MD-11 were returned to the leasing company prior to the expiry of the lease period, and one Il-96 was sold. Long-haul Boeing 767-300ER and Il-96 aircraft were put out of operation entirely.

Expansion of operations by Aeroflot airline yielded a 9.0% increase in flight hours totalling 554.7 thousand in 2014.

Aircraft fleet of Aeroflot airline

Type of aircraft As at 31 December 2014 As at 31 December 2013 Change
Short-haul 16 10 6
SSJ100 16 10 6
Medium-haul 102 93 9
Airbus A319 7 12 (5)
Airbus A320 63 52 11
Airbus A321 26 26
Boeing 737 6 3 3
Long-haul 37 40 (3)
Airbus A330 22 22
Boeing 767 5 (5)
Boeing 777 10 4 6
Il-96 5 6 (1)
MD-11 3 (3)
Total 155 143 12

Fuel efficiency

The low age of aircraft fleet offers passengers a more attractive value proposition through more comfortable cabins, pleasant interiors and availability of modern in-flight entertainment systems.

From the economic point of view, fuel efficiency is a key advantage of the low-age fleet since fuel costs account for a major part of operating expenses in any airline. As for Aeroflot Group, fuel costs made 28.3% of its operating expenses in 2014. In addition, the low-age fleet in operation optimises maintenance expenses and reduces negative impact on the environment, thus contributing to the overall positive economic effect.

Apart from more efficient engines, new airliners boast other properties reducing fuel consumption. In 2014, Aeroflot was the first Russian airline to put in operation the most advanced Airbus A320 jets with sharklets, which improve aerodynamic properties of the aircraft and, subsequently, its fuel efficiency.

Specific fuel consumption across Aeroflot Group decreased by 5 grammes (1.4%) y-o-y to 308 grammes per tonne-kilometre (TKM) in 2014. Specific fuel consumption of Aeroflot airline decreased in the same year by 5 grammes (1.7%) to 302 grammes per TKM.

Aeroflot Group specific fuel consumption (g/TKM)

Aeroflot airline specific fuel consumption (g/TKM)

3.7 Maintenance
and Repair

Aeroflot Group has an efficient aircraft maintenance and repair system servicing the fleet of Aeroflot airline, its subsidiaries and third-party customers.

The organisational structure of JSC Aeroflot includes the following divisions related to aircraft maintenance and repair:

  • Aircraft Maintenance Department maintaining aircraft of Aeroflot and other airlines;
  • Airworthiness Department responsible for airworthiness of aircraft operated by Aeroflot, technical condition of the fleet throughout the entire aircraft life cycle, development and implementation of JSC Aeroflot’s strategy and policy covering aircraft operation, including fleet renewal, modernisation and upgrade;
  • Quality Assurance Department developing a quality management system for the aircraft maintenance and airworthiness.
900
a-checks performed
by aeroflot engineers

14,600
mandatory checks
and modifications
performed

Labour intensity per flight hour of JSC Aeroflot aircraft*, man hour

* Excluding Il-96, Boeing 767 and MD-11 put out of operation.

Aircraft of the subsidiaries are serviced under maintenance contracts with Aeroflot and operated under sublease agreements. We concentrate our effort on centralising the aircraft maintenance function for Aeroflot and its subsidiaries.

Aeroflot’s maintenance policy provides for strict compliance with requirements of the states of registry, aircraft lease agreements, and maintenance programmes.

Aircraft maintenance and repairs are performed either in-house (by Aeroflot Group) or outsourced to third-party vendors. For instance, line maintenance of Airbus A330 and A320, Boeing 777 and Sukhoi Superjet airliners is performed by the in-house division located at the Sheremetyevo base airport. The same division performs periodic maintenance of Airbus A320 jets.

Line maintenance of Boeing 737-800NG is performed by the engineers of Volga-Dnepr Technics Moscow. In 2015, we plan to begin maintaining these aircraft in-house.

Since hangar facilities are not sufficient for the periodic maintenance of Airbus A330, Boeing 777 and Boeing 737-800NG, these aircraft are maintained by STARCO, Boeing Shanghai and S7 Engineering respectively.

The maintenance division of JSC Aeroflotplans to perform the first C check on SSJ100 in 2015.

Aeroflot Group continues its cooperation with Lufthansa Technik AG. In 2014, JSC Aeroflotand Lufthansa Technik AG signed a long-term aircraft maintenance and repair agreement on more favourable terms. It took effect in January 2015 to supersede the previous agreement.

In 2014, FL Technics and S7 Engineering won a tender for the maintenance of narrow-body aircraft frames. Partnerships with leading market players enable Aeroflot Group to keep the fleet in good condition and optimise maintenance costs.

In 2014, engineers of JSC Aeroflotperformed, apart from daily checks, over 6,600 weekly checks, about 900 A checks and over 180 heavy checks (B, C and D checks).

The number of take-offs serviced by Aeroflot engineers at the Sheremetyevo base airport increased by 10% y-o-y to exceed 91,000.

In 2014, over 14,600 mandatory checks and modifications were performed on aircraft, with Airbus A320 jets accounting for 80% of them.

The Company keeps on reducing idle time and labour intensity. Following 2014, labour intensity per flight hour decreased by approximately 10% to 2.36 man hours

In 2014, Aeroflot engineers organised over 50 aircraft acceptance and return checks, including subsidiaries. All MD-11 aircraft phased out in 2013 and the last Boeing 767 were returned to the leasing company.

The most notable developments made by Aeroflot Group in the aircraft maintenance and repair field in 2014 were as follows:

  • new equipment received, including equipment for the line maintenance of Boeing 737, A-checks of Boeing 777 and 4C checks of Airbus A330;
  • aircraft and engines upgraded, including installation of an on-board Wi-Fi/GSM system on ten Airbus A330 aircraft;
  • new maintenance operations introduced, including in-house testing, maintenance and repair of the flight data recorders and solid state cockpit voice recorders (SSCVR) by Honeywell and L3-com, in-house processing of flight data from Boeing 737-800 recorders, and thermographic inspection of the Group’s and third-party aircraft;
  • a monitoring programme introduced for TRENT-700 engines (Airbus A330) and SAM146 engines (SSJ100). Boeing 737 and Boeing 777 engines have been monitored since March 2014;
  • in-house maintenance of EFB devices, smoke detectors and other components manufactured by Honeywell, Airbus, Teledyne Controls and Zodiac Aerospace for Airbus A320 and A330 airliners started;
  • certificates obtained for the maintenance of new components manufactured by Honeywell, Airbus, Teledyne Controls, Zodiac Aerospace and Thales avionics;
  • training projects launched to maintain the Airbus A320 and A330 oxygen dispensing equipment and obtain maintenance certificates for the oxygen dispensing equipment manufactured by Zodiac Aerospace.

3.8 Safety
and Security

Flight safety

Flight safety and aviation security have always been a top priority for Aeroflot. The Company has an integrated management system for flight safety and aviation security to ensure compliance with IOSA, ISAGO, ISO 9001:2008, ISO 14001:2004 and the Federal Aviation Rules of the Russian Federation.

Aeroflot continued its comprehensive safety effort into 2014. The safety level of Aeroflot flights in 2014 reached 99.972% to hit the highest range (99,900% — 100%) on the safety assessment scale.

In 2014, as part of the Safety Assessment of Foreign Aircraft (SAFA) Programme, the European Civil Aviation Conference (ECAC) carried out its regular inspection of Aeroflot aircraft. Following the inspection, flight safety in the company was recognised to be in full compliance with all the applicable regulations.

Throughout the year, Aeroflot as an active member of the IATA Fuel Quality Pool (IFQP) took part in regular fuel inspections. In addition, Aeroflot participated in ground handler audits as a member of the ISAGO Audit Pool.

To assess and improve flight safety, Aeroflot carried out internal audits of its corporate operating divisions and organised the IATA TALS-01 – SMS for Airlines training for the staff. Employees are encouraged to inform the management of any safety issues on the condition of confidentiality. Throughout the year, much effort was made to minimise the risks of unlawful interference, disruptive passenger behaviour and environmental hazards, including bird strikes. To reduce the number of incidents in the reporting period, we developed a new methodology of assessing the risk of ground handling operations.

Aviation and transportation security

In 2014, Aeroflot continued implementation of an action plan to maintain a high level of aviation and transportation security, passenger and staff safety in close cooperation with airport security services, airlines and law enforcement authorities.

In the reporting period, the Company passed all regular aviation security inspections, including:

  • certification audit for the compliance of Aeroflot airline integrated management system with ISO 9001:2008 (Quality Management Systems) and ISO 14001:2004 (Environmental Management Systems); no deviations and non-compliances were found following the audit;
  • scheduled inspection of Aeroflot airline core facilities at the Sheremetyevo international airport by the Department of Airport Operations at Rosaviatsia;
  • security inspection of US-bound flights by the US Transportation Security Administration (TSA) at the Sheremetyevo airport; all US-bound flights were declared compliant with the aviation security requirements.

In 2014, the Company continued its multi-year management effort at the Aviation Security Committee with the Russian Association of Air Transport Operators, and took part in improving the Russian transportation security legislation.

As a member of the SkyTeam Alliance, the Company has long been engaged in the flight safety, aviation security and quality assurance initiatives of the alliance. In 2014, the SkyTeam Aviation Security Committee focused on the development of flight safety management, data sharing and KSPI analysis systems.

During the 2014 XXII Winter Olympic and XI Paralympic Games in Sochi, Aeroflot airline was directly involved in implementation and monitoring of the aviation security action plan at the Sochi international airport. The security initiative also covered many other airports in the Aeroflot route network.

In an effort to maintain a high level of aviation security, the Company operates a canine team and develops innovative solutions for the dangerous substance detection, with many of them already applied and functioning. The work is ongoing to patent a group of inventions covering a polygraph system for objective olfactometry and accuracy verification methodology in detecting explosives and other target substances with sniffer dogs.

99.972%
safety level
of aeroflot AIRLINE
flights

3.9 Sales*

Sales at the Group airlines are effected through their websites and sales offices, agents and, as regards the flights under commercial management, through Aeroflot’s website. Pobeda Airlines sell tickets independently – either through their website or on-line booking systems.

In 2014, the Group continued optimising the structure and efficiency of ticket sales.

Aeroflot Group sells tickets through a variety of domestic and international channels, including the official Aeroflot website. In 2014, agents accounted for the largest share in sales (69.9%) while Internet sales (including call centre) and sales offices accounted for 22.7% and 7.4% respectively.

* In this section Group’s sales include revenue of Aeroflot airline and subsidiaries under 100% commerical managment.

27.0%
share of sales
outside russia

22.7%
share of
Internet sales

Breakdown of Aeroflot Group revenue

Internet sales + call centre
Sales abroad
Sales in Russia

Breakdown of Aeroflot Group revenue in 2014

Sales through agents
Sales through offices
Internet sales + call centre

Domestic sales

Sales in Russia are effected through authorised agents (under direct agency agreements), third-party booking systems (Transport Clearing House (TCH) and BSP Russia), sales offices, and Aeroflot website.

In the reporting period, sales were influenced by an on-going integration of subsidiaries into Aeroflot Group. All flights of Rossiya airline and a part of Orenair flights were shifted to full commercial management of Aeroflot to further integrate the sales channels.

The highest sales in Russia are generated in Moscow (64.0% of total sales), St Petersburg, Khabarovsk, Vladivostok, Petropavlovsk-Kamchatsky and Yuzhno-Sakhalinsk. Sales channels were redistributed as follows: the share of BSP/TCH increased from 37.8% to 40.1% while sales through agents and sales offices decreased from 31.1% to 22.4% and from 8.7% to 7.7% respectively; Internet sales (including call centre) sales grew from 22.4% to 29.8%.

The Company worked on developing each of the sales channels during the year. In 2014, Aeroflot changed its incentive programme for agents in Russia to reduce the agency fee expenses as compared to 2013. The Company supported promotion campaigns, and organised familiarisation and invitation tours for sales agents and other events.

To stimulate sales and improve agent loyalty, Aeroflot also promoted its products by leading joint marketing campaigns with Biletix and Anywayanyday booking sites.

Breakdown of Aeroflot Group revenue from domestic sales

Agents and branches in Russian
Own sales offices and agents in Moscow

Breakdown of Aeroflot Group revenue from domestic sales (excluding Moscow)

Vladivostok
St. Petersburg
Khabarovsk
Petropavlovsk-Kamchatsky
Yuzhno-Sakhalinsk
Other

Domestic sales of Aeroflot Group by channel

BSP/TCC
Agents
Internet sales + call centre
Own sales offices

International sales

International sales are effected through the network of independent IATA agents within BSP and ARC settlement systems, authorised agents (under direct agency agreements), Aeroflot website, and sales offices.

International sales of Aeroflot are consolidated to a considerable extent – the Top-20 countries account for 82% of total sales. In 2014, the key sales regions were Western Europe (40%), Southeast Asia (23%), CIS and Baltic states (16%). The highest sales growth in 2014 was demonstrated by South Korea (+52.0%), Israel (+51.7%) and China (+21.3%).

In the reporting period, Aeroflot continued its expansion into the Southeast Asian markets by joining BSP Singapore and BSP Philippines through IBCS and authorising new agents to sell passenger flights in China and Vietnam. Regional sales growth was supported by the development of both direct and connecting flights.

Most sales are effected through BSP/ARC channels – their share grew from 74% to 79% in 2014 while online sales declined from 10% to 5%. Sales through own offices and authorized agents remained at the previous year’s level.

Throughout the year, Aeroflot concentrated its effort on strengthening relations with the international agency network by optimising agency terms, offering special rates to sales agents and leading joint marketing campaigns.

Breakdown of Aeroflot Group revenue from international sales in 2014

Western Europe
Eastern Europe
CIS and Baltic
America
South-East Asia
Africa and Middle East

International sales of Aeroflot Group by channel

Own sales offices
Internet
Agents
BSP/ARS

3.10 Brand Development
and Service Quality
Improvement

The Company strives to strengthen its leadership by promoting the brand of Aeroflot as an air carrier offering the highest safety and comfort on board, new aircraft and a broad route network. Recognised as the Best Airline in Eastern Europe by Skytrax, Aeroflot is a top-rated global industry leader by quality of services.

According to Brand Finance, the value of Aeroflot brand increased by 9% in 2014 to reach USD 1.6 billion or, with Group subsidiaries included, USD 1.7 billion. The Aeroflot brand has consistently retained its position in the Top-20 most expensive brands in the aviation industry.

Throughout the year, the Company led a series of marketing and image-building campaigns both in Russia and overseas to improve corporate image and brand awareness, increase sales and customer loyalty. The New Year Travel light show in St Petersburg, Vladivostok, Orenburg, Simferopol and Rostov-on-Don was one of the most notable image projects in 2014.

Top Flight Performance, another image-building campaign, covered our priority markets in Europe (UK, Germany and France), with key Asian markets (China, South Korea and Japan) targeted by Top Flight Comfort. These campaigns emphasised our key competitive strengths and announced strategic partnership with Manchester United, introducing the Company to millions of football fans around the globe and improving brand awareness and confidence in the Company among a wider audience. Aeroflot has been an official sponsor and carrier of Manchester United since 8 July 2013. As part of this partnership, the Company organised other campaigns during the year, including Aeroflot Asia Cup 2014, a football championship in Russia, China, South Korea and Japan.

Tactical press advertising in Europe, USA, India and the Baltics was focused on promoting the route network, connecting flights, and certain products and services.

1.6
billion USD –
airflot brand
value

1.7
billion usd –
value of Group’s
airlines brands

Marketing research

In 2014, Aeroflot carried out extensive marketing research on key domestic and international markets. The results obtained laid a foundation for a new marketing strategy of Aeroflot airline. The accumulated consumer data allowed for a more precise customer segmentation and deepened our understanding of the price segments as communication targets to improve our position of the global air carrier.

In December 2014, we launched Siebel CRM system that will help us maintain relations with existing and prospective customers, collect marketing data, highlight customer segments requiring attention, interact with customers through preferred channels, and analyse effectiveness of our marketing effort.

Our Net Promoter Score (NPS) assessed jointly with Bain & Company grew in 2014 by 9 p.p. y-o-y to reach 67%.

According to the mystery passenger audit carried out in association with Romir Monitoring Standard in 2014, our compliance with Aeroflot’s customer service standards exceeded the previous year level and reached 92%.

In addition, Aeroflot takes part in IATA Airsat, a customer satisfaction survey involving major air carriers in Europe, Middle East and Asia, and SkyTeam Customer Experience Research covering all member airlines.

In 2014 Aeroflot airline developed a new marketing strategy for 2015–2020 incorporating the detailed customer segmentation, customer needs and specifics of each segment.

NPS index dynamics

In-flight and airport passenger services

Aeroflot strives to outperform global quality standards of in-flight and airport passenger services. We keep on improving in-flight catering and entertainment systems and offering new services to make the flight as comfortable as possible. The priority is given to high technology – for instance, 30 wide-body ­Aeroflot aircraft offer their passengers in-flight Wi-Fi. Starting from 2014, Aeroflot cabin crews use iPad Mini-based CrewTablets. The project is supported by SITA, a telecom service provider, and improves quality of in-flight services.

In-flight meals

Aeroflot regularly improves its in-flight meals, which are developed in association with reputable world-class professionals, in a strive to respond to ever-changing preferences and tastes of its passengers. The Company has always been in the top ranks of air carriers offering best in-flight meals. In 2014, we continued our effort to improve in-flight catering by enhancing the economy class menu, offering business class passengers hot breakfast on 6+ hours’ flights, and replacing wine in cartons with wine in glass bottles in economy class.

In-flight comfort

Aeroflot passengers are offered extra in-flight comfort products, including amenity kits and bedding on 8+ hours’ flights in the economy class, and pillows on less than three-hour flights in the business class. Aeroflot amenity kits won the Travelplus Airline Amenity Bag Awards in two categories at once.

In-flight entertainment

We continued upgrading in-flight entertainment systems by installing the Voyager interactive flight map on Boeing 737 and duty-free digital catalogues on Boeing 777, and activating Panasonic eX1 and eXW entertainment systems on Boeing 737 aircraft. Outdated DG players are planned to be replaced with modern lightweight tablets in 2015.

Further improvement of passenger service quality remains a top priority for Aeroflot.

Quality of service across the Group

Throughout the year, all subsidiaries of the Group worked hard to bring passenger services in compliance with Aeroflot quality standards. The work included a service quality audit at Donavia, Rossiya Airlines and Aurora Airlines, branding of in-flight and airport passenger services, and development of web-based services.

Service quality improvements implemented by subsidiaries in 2014

Airline In-flight services Airport services Web services
Donavia
  • Pillows offered to business class passengers on flights to/from Moscow
  • Porridges for breakfast offered to business class passengers; menu cards on Rostov to Moscow flights
  • Snacks (crackers and wafers) replaced with cakes in the economy class
  • New catering technology for business class passengers
  • Training course for the cabin crew and ground staff on Passenger Care and Disruptive Passengers
  • Special-purpose car to transport passenger with reduced mobility in the Rostov-on-Don airport
  • Transfer services for unaccompanied minors travelling by Aeroflot
  • Self-service check-in kiosks in Rostov-on-Don and Mineralnye Vody airports
  • SNS account to expand passenger coverage
Rossiya
  • Space+ service introduced
  • More blankets in Boeing 767 economy class
  • New Aeroflot business lounge opened in St Petersburg
  • Changes in luggage allowances and cabin luggage policies (introduction of the piece concept)
Aurora
  • Stepwise branding of check-in and boarding areas, ticket counters and flight boards
Orenair
  • New blankets in the economy and business classes; amenity kits in the business class
  • German-speaking passenger service at the information and booking centre
  • Rent-a-car service on the company website

SkyPriority

Starting from 2013, Aeroflot as a member of SkyTeam Alliance has been leading a SkyPriority initiative offering accelerated completion of departure formalities to frequent flyers who are prioritised during the check-in, luggage drop-off, passport control and boarding.

In 2014, the SkyPriority initiative was introduced in all alliance airports of Aeroflot route network. SkyTeam requirements were included in the passenger service standards of Aeroflot and its subsidiaries. In 2015, we plan to roll out SkyPriority and Fast-Track Security services in alliance hubs for business class passengers and golden members of the Frequent Flyer Programme.

Aeroflot Bonus

Aeroflot Bonus is the largest frequent flyer programme in Russia, CIS and Western Europe. Its 15th anniversary in 2014 was celebrated by organising the Light Award event and Flight in Pursuit of Dream on-line contest. The number of programme members increased by 13.7% y-o-y to exceed 4.5 million people.

Aeroflot Bonus offers an opportunity to earn free miles when flying with Aeroflot Group and SkyTeam Alliance, paying with co-branded cards and using partner services around the globe. Free miles can be used to book a premium flight, upgrade your travel class, book a room, rent a car or buy other goods and services offered by programme partners. Free miles can also be donated to charity as part of the Miles of Mercy project. In addition, programme members are given access to on-line services via their personal account, offering extra travel planning opportunities.

To enjoy more options, programme members can upgrade their Standard Membership to Silver or Golden Membership. In 2014, a new Platinum Membership was introduced to give more priorities to programme members, including personal assistance, concierge service and invitations to social events.

In 2014, the Aeroflot Bonus Frequent Flyer Programme was re-branded, including the design of cards, communication materials, programme pages and personal accounts on the corporate website. The programme coverage was extended to include flights of Aurora and Rossiya Airlines. A promo campaign was organised to stimulate direct sales through Aeroflot website – flights booked on the website received 15% extra free miles. In the reporting period, a project was launched to introduce a CRM system and a new loyalty programme to improve efficiency of Aeroflot Bonus.

The number of programme partners continues growing. For instance, InterContinental Hotels Group, The Rezidor Hotel Group, Rixos Hotels, Grecotel, Lotte Hotels and Resorts, Radisson Blu, Park Inn by Radisson, and Europcar joined the Frequent Flyer Programme in 2014. Now Aeroflot Bonus members can earn miles for staying in more than 9,000 hotels all over the world.

Plans for 2015 are to complete the roll-out of the CRM system and new loyalty programme, expand the partnership network and develop on-line services for Aeroflot Bonus members.

Aeroflot Bonus members, thousand

3.11 Information Technology
and Innovations

As an industry leader, Aeroflot Group implements a comprehensive information technology and innovation programme to sharpen its competitive edge on the global air transportation market.

Cutting edge technologies and R&D activities help us maintain high safety levels, comply with time schedules, improve passenger services and streamline business processes at Aeroflot and all subsidiaries of the Group.

Aeroflot focuses on the introduction of innovative IT solutions in all areas of its operation. Top priority is given to advanced technologies in the plans to develop airline services in 2015. We pay special attention to a wider use of on-line tools, including development of the corporate website and software applications and installation of in-flight Wi-Fi systems.

30
aircraft offer
in-flight wifi and
internet access

Breakdown of R&D costs by researcher, %

Universities
Research organizations
Small and medium-sized enterprises

Breakdown of R&D costs by nature, %

Operations
Management
In-flight service
Commercial
Safety and security
Environment and energy saving

Information technology

Single Payment Gateway

The share of tickets sold through the Single Payment Gateway on the Company website, mobile applications and payment agents continued to grow in 2014.

E-Commerce Platform

In 2014, Aeroflot launched an E-Commerce Platform project to develop and introduce a management system for the tour package distribution, with a number of hotel booking initiatives undertaken.

The platform will facilitate sales of tickets and services through the call centre, agents and sales offices, and:

  • offer a new on-line product package and on-line booking and selling processes to retail, corporate and group clients and on-line agents;
  • connect other service providers to enhance product packages in each customer category;
  • support the on-line redemption project and improve the offering for Aeroflot Bonus members.

Remote interaction channels (official website, mobile applications and call centre)

In 2014, Aeroflot worked on improving quality of passenger services and increasing sales through the website, call centre and mobile applications.

In May 2014, Aeroflot launched an updated version of its website www.aeroflot.ru. Its design and navigation were revised to become plain and laconic, making the search easy and booking more convenient for passengers. In addition, the Company upgraded the SabreSonic Web on-line booking platform to the latest version.

Personal accounts of Aeroflot Bonus members were re-designed to accumulate all necessary information and services at a single point and enable users to view bookings and provide data to receive bonus miles after the flight. The plans for 2015 are to continue development of the Aeroflot Bonus Frequent Flyer Programme by automating connection to new services, issuing new cards and improving quality of passenger services.

In 2014, Aeroflot launched its own hotel booking service on the corporate website to make travel planning easier for the customers. Website visitors can book accommodation in over 500,000 hotels worldwide.

With a new application for iPads and its updated version for iPhones launched in the reporting period, Aeroflot Bonus members were provided with extra functionality. The application now supports TouchID fingerprint validation technology for secure access to the Aeroflot Bonus account.

Booking, Flight Information and Contacts sections of the iPad version were revamped, with input parameters and search results displayed on the same screen and filters added to minimise switching between screens. Special Offers and Mileage Calculator sections were redesigned and received their own search interface. Pages containing information about luggage allowance, animal transportation, travel classes, etc. are now accessible without Internet connection.

In 2015 the mobile website and Aeroflot applications users will be offered additional flight booking options enabling passengers to book flights with multiple destinations. These options will be available on the mobile website and in mobile applications for iOS (iPhone and iPad), Android and Windows Phone.

In 2015, we plan to introduce a payment option through the call centre (IVR) with cards supporting 3DSecure/SecureCode technology, making call centre services more convenient on those markets where the 3D procedure is obligatory.

Tablets for the cabin crew

Aeroflot is the first Russian and CIS airline that commenced to equip its cabin crew with iPad Mini™-based CrewTablets. The tablets have pre-installed professional software developed by SITA, improving quality of in-flight passenger services.

With the CrewTablet, the flight attendant can identify the passenger, his/her needs and other related information in a few seconds. In addition, these devices allow switching over to the digital workflow without hard copies of reports and manuals.

Hub management

In the reporting period, Aeroflot launched Netline/HUB, a hub management solution by Lufthansa Systems, to monitor and manage transfer passengers in the base airport.

Internet on Board

As part of the Internet on Board project, six Boeing 777 and five Airbus A330 were equipped with in-flight Wi-Fi systems in the reporting period. As at the year-end, a total of 30 airliners offered Wi-Fi connectivity to Aeroflot passengers.

Innovation and research

In 2014, Aeroflot Group continued implementing its Innovative Development Programme providing for a number of R&D projects to be carried out by Aeroflot and Group subsidiaries.

All innovation projects are financed with corporate funds. In 2014, Aeroflot airline spent 0.3% of its revenue on research and development (according to the Russian accounting standards). R&D projects are carried out in association with universities, research organisations, and small and medium businesses.

In 2014, Aeroflot was an active participant of innovative events, including the Open Innovations forum, VUZPROMEXPO-2014: National Science as a Basis of Industrialisation, and Innovative Practice: Science plus Business congress organised by Lomonosov Moscow State University.

Innovative projects

In 2014, the Company launched a pilot version of the automated document management system to become one of its most significant achievements in the innovative field. The system is an automated supplier verification solution that expedites audits of Aeroflot’s existing and potential partners, eliminates functional overlap, reinforces control over supplier activities to sharpen the competitive edge of the Company.

In 2014, Aeroflot obtained a license from Rosaviatsia to use FPT B777-200ER/300ER procedure trainer designed for the crew to be trained in Boeing 777 systems and operating procedures. The training enables pilots to master all flight modes and improve piloting skills.

Research and development

Aeroflot Group’s Innovative Development Programme provides for a number of research and development initiatives implemented either in house or in association with third parties. Among these initiatives was a loop system for automatic connection to standby power supply developed and tested in 2014. The utility model of this system improved power supply reliability at minimal cost.

Other initiatives in 2014 were targeted at improving quality and efficiency of staff training and included a study of desktop virtual reality in training and testing air traffic controllers to manage aircraft take-off, taxiing and landing, and a study of desktop virtual reality in training and testing airport ground vehicle drivers.

To improve environmental safety of pre-flight aircraft maintenance in 2014, a new approach was developed to the disposal of spent anti-icing fluids and separate collection of solid waste. The new approach will save resources and reduce negative impact on the environment.

Canine team development

The Company continued its research initiatives in improving aviation security with involvement of sniffer dogs. In the reporting period, Aeroflot launched a project to develop a pilot hardware and software package that measures and analyses physiological parameters of a sniffer dog to improve detection results, and patented its new method of detecting explosives and other target substances.

In 2014, Aeroflot airline and the Russian Federal Customs Service (FCS) signed a canine team cooperation agreement providing for the development of training programmes and joint training sessions at the FCS training centre for customs officers and members of Aeroflot canine team on olfactory detection and other detection techniques.

3.12 Procurement

Procurement activities at Aeroflot airline comply with Federal Law No. 223-FZ On Procurement of Goods and Services by Certain Legal Entities of 18 July 2011, Aeroflot Procurement Policy and other procurement-related regulations adopted by the Russian Government.

Procurement transparency, no discrimination and unreasonable restrictions, and ability to procure from a wide pool of quality bidders are top priorities for Aeroflot airline in its strive to enhance procurement efficiency and reduce costs.

The procurement process in the Company is organised in line with the best practices, including on-line bidding. In 2014, 96.1% of all tenders were organised on-line. In monetary terms, 44.15% of all supplies was procured via on-line bidding process (+3.66% y-o-y), complying with the requirements of the Federal Agency for State Property Management (Instruction No. GN-13/1206 of 21 January 2011).

Each tender received an average of 3.92 bids (+11.6% y-o-y). This testifies to transparency and competitive nature of the tenders organised by the Company, and growing interest of potential suppliers towards them.

Fuel procurement

Transparent competitive procedures and formula-based pricing optimise fuel costs, which has always been a major expense item for the Company. Fuel pricing formulas are devised in the bidding process. The share of fuel procured at formula-based prices in 2014 reached 80% in Russian and 96% in foreign airports. Russian airports where fuel supplies are monopolised and fuel is sold at the price approved by the Flight Schedule and Tariff Centre are the only exception.

Pursuant to the order of the Deputy Prime Minister and Item 3 of the Meeting Minutes No. IS-P9-25pr of 21 November 2011, Aeroflot airline focuses on direct cooperation with vertically integrated oil producers, such as Rosneft, Gazprom and Lukoil, and their subsidiaries specialising in aircraft fuel sales (RN-Aero, Gazpromneft-Aero, Gazpromneft-Aero Sheremetyevo, Lukoil-Aero, etc.) to avoid an unjustified rise in fuel prices or an artificial supply shortage.

In addition, pursuant to Government Resolution No. 350 On Procurement of Oil and Related Products at Commodity Exchanges of 5 June 2007, Aeroflot airline procures at least 15% of annual fuel supplies at St Petersburg International Mercantile Exchange.

Procurement from small and medium ENTERPRISES

Procurement processes at Aeroflot airline provide for a broad involvement of small and medium businesses (SME). Over 20% of all supplies in 2014 was procured from SME. The Company is committed to support SME by facilitating their access to corporate tenders in accordance with Government Resolution No. 1352 On Specifics of SME Participation in the Procurement of Goods and Services by Certain Legal Entities of 11 December 2014. Aeroflot airline is currently developing an SME cooperation programme and a list of goods and services to be procured from small and medium businesses.

Advisory board AND independent audit of procurement efficiency

In its pursuit of procurement transparency, the Company established an advisory board in charge of independent audit of procurement efficiency. The Advisory Board includes representatives of public organisations, academia and procurement experts who make proposals on procurement efficiency, transparency, fair competition, advanced technologies and broader SME access. Proceedings of the Advisory Board are published on Aeroflot airline website.

4
CORPORATE
SOCIAL
RESPONSIBILITY
WE
ANSWER TO
EVERYONE
We embark on our journey together, understanding our
role in society while actively seeking to participate in
important social and charity projects

4.1 HR POLICY

Aeroflot Group actively contributes to society by increasing people’s mobility and accessibility of Russia’s regions. Aeroflot airline and its subsidiaries work to benefit a wide range of stakeholders, primarily its passengers and employees.

The Company keeps in touch with the general public. In 2014, it established its own Public Council – an advisory body embracing prominent public figures to assist the airline in defining its key policies with a strong social focus. The council is made up of artists, educators, doctors, athletes, media personalities, business people and representatives of public entities and professional associations. During the year the council convened to discuss flight pricing and industry-wide aircraft staff shortages.

Aeroflot airline complies with HR, health, safety and environmental protection legislation, striving to meet top global standards of corporate social responsibility. In September 2014, Aeroflot airline ranked second in social responsibility in the rating by the Agency for Political and Economic Communications.

18,981
JSC Aeroflot HEADCOUNT

32,439
Aeroflot group headcount

JSC Aeroflot employee headcount by business activity

Employees by business activity As at 31 December 2014 As at 31 December 2013 Change
Aircraft personnel 2,003 1,935 3.5%
Flight attendants 5,669 5,229 8.4%
Technical maintenance and repairs 2,239 2,166 3.4%
Selling tickets and services. advertising 1,500 1,418 5.8%
Airport services 4,275 4,019 6.4%
Other personnel 3,295 3,124 5.5%
Total 18,981 17,891 6.1%

HR policy

Aeroflot airline’s HR policy is designed to expand the Company’s local and global market footprint, win passengers’ and clients’ trust and provide career and personal growth opportunities for all employees. The Company is constantly working on attracting and retaining highly-qualified personnel, on their training, improving performance and creating staff reserve based on the Company’s strategic priorities. Special attention is paid to improving employee loyalty and creating favourable working environment. Aeroflot airline is currently the industry’s leading employer aiming to continue that way and to be setting the HR standards in the air travel field for years to come.

In 2014, Aeroflot airline’s headcount was up 6.1% to 18,981 employees due to flight volume growth and aircraft fleet expansion. The top gainers were flight attendants and airport service employees, adding 8.4% and 6.4%, respectively. The average age of the airline’s employees continued to decrease in 2014 and reached 38.6 years (compared to 38.8 years in 2013). Employee turnover rate went down from 8.5% to 7.7%.

Aeroflot airline is active in addressing the industry’s understaffing issue. After the ban on employment of foreigners for Russian air crew positions was lifted, the Company started recruiting best-in-class international pilots. Aeroflot airline is also attracting promising Russian professionals.

Aeroflot airline’s HR Department works in close cooperation with its subsidiaries’ HR divisions on a variety of tasks, including coordination of staff lists and organisational structures and alignment of local organisational structures with that of Aeroflot airline’s HR function.

As at 31 December 2014, the total headcount of Aeroflot Group was 32,439 employees, a 6,5% increase y-o-y.

JSC Aeroflot personnel breakdown by category

JSC Aeroflot personnel breakdown by age

Employee training

Training and professional development of its staff is one of Aeroflot airline’s strategic priorities where it applies unique technologies and makes large capital investments.

In 2012–2014, Aeroflot airline arranged for training of almost 78 thousand employees both in-house and externally. In 2014 alone, over 26 thousand employees completed their training courses.

Department for Aviation Personnel Training

In 2014, the Department for Aviation Personnel Training outperformed its targets, with about eight thousand attendees completing their training programmes (55% increase y-o-y). The Department arranges re-training for new aircraft, flight simulator training, passenger and cargo flight management training and a course on SABRE booking. It also organises training programmes for aircraft, engineering and ground-support personnel. In 2014, 169 pilots were re-trained for various types of aircraft.

Aeroflot airline’s capabilities for training air and cabin crew members are the best in Russia and the CIS and some of the more advanced in Europe overall. Aeroflot airline organises training not just for its own employees, but for other airlines’ staff as well. All the equipment is certified by the competent Russian (Federal Air Transport Agency) and European (European Aviation Safety Agency) civil aviation bodies.

In 2014, the Company installed and commissioned Boeing 737NG door trainer, Boeing 777-200ER/300ER specialised flat panel trainer and A320 cabin emergency evacuation trainer. Full flight simulators A320 (series 5000), A320 (series 7000) and A330-200 also underwent EASA certification in the reporting period.

In 2014, the Department was authorised to launch 28 new training programmes for engineering and ground-support personnel. It also introduced new forms of distance learning for Aeroflot airline’s line station personnel, including online professional development courses. In order to train engineering personnel, the Company makes use of state-of-the-art maintenance training devices for Airbus A320 and A330.

During 2015–2017, a training centre is scheduled to come on stream at Aeroflot airline facilities under an agreement with the Irkut Corporation to re-train air and cabin crew members for MC-21 airliners.

Aeroflot Aviation School

In 2014, Aeroflot airline’s Aviation School provided instruction to more than 14,000 aviation professionals. In the reporting period, the school focused mainly on ground-service of aircraft at the apron, flight attendant training in Russian and foreign aircraft, aviation security, regulations for hazardous cargo transportation and foreign languages.

External training

Over 4,000 professionals completed courses at external educational institutions and training centres in 2014. Those were primarily compulsory production personnel training and general training programmes. As part of Aeroflot airline’s 2014 pilot recruitment programme, 50 candidates were selected for targeted training at Ulyanovsk Higher Civil Aviation School and Saint Petersburg State University of Civil Aviation.

Aeroflot airline scrupulously chooses educational institutions to partner with on a constantly-improving mutually beneficial basis. The Company organises internship for students to subsequently offer them career opportunities. In 2014, Aeroflot airline established a scholarship for students of civil aviation schools.

Social programmes for Company employees

Aeroflot airline implements a socially responsible HR policy, making sure its employees get a fair salary and generous social benefits. The Company’s social programmes are aimed at creating favourable conditions for fostering professionalism, leadership and loyalty among the employees.

In 2014, the Company hosted a Staff Conference to have a unified employee representative body established. The employer’s representatives and employees reached a decision to extend Aeroflot airline’s collective bargaining agreement to 1 December 2017, keeping all the aviation-specific benefits and privileges intact. Aeroflot airline spends over RUB 3 billion annually on the implementation of social package-related programmes.

Aeroflot airline’s key social programmes are:

  • rest cures for employees and their families;
  • non-state pension provision;
  • corporate transport and parking;
  • season tickets to fitness clubs for employees;
  • home purchase support to Aeroflot airline’s air crew;
  • home lease for key people;
  • financial assistance to current and former employees;
  • daycare spending compensation for employees’s kids.

The Company regularly takes part in sports and other public events. In 2014, Aeroflot airline sports teams participated in a volleyball tournament on the 69th anniversary of the WWII Victory Day, in an international football tournament for airline teams and in an international hockey Nation Cup Prague tournament among airlines and airports held in the Czech Republic. In July 2014, the airline’s mountaineers traversed the Swiss Alps. In April, Aeroflot airline celebrated Aeroflot Day by hosting the traditional Runway award ceremony at Gostiny Dvor.

The Company provides non-financial incentives to recognise its most successful employees. In 2014, 50 employees of Aeroflot airline received Government Awards of the Russian Federation, Russian Federation Presidential Certificates of Honour, awards of the Russian Ministry of Transport and other government agencies. Also, over 1,500 employees received corporate awards.

Sochi-2014 project

Aeroflot airline’s volunteers actively participated in organising 2014 XXII Olympic Winter Games in Sochi. Over 40 of Aeroflot airline’s torch-bearers ran the Olympic and Paralympic torch relays. The Company ran an incentive programme to award tickets to the Olympics opening and closing ceremonies and sports contests to the best employees.

Health and safety

Transport industry, like mining and processing industries, has the biggest share of jobs exposed to harmful and hazardous working conditions, which makes health and safety matters a foremost priority. Aeroflot airline has a certificate confirming its compliance with regulatory occupational safety requirements No. 001, valid through 21 September 2016. In 2009, the Company introduced annual inspections of health and safety certification work.

In 2014, Aeroflot airline carried out a special assessment of working conditions at 4,415 workplaces as per Federal Law No. 426-FZ On Special Assessment of Working Conditions of 1 January 2014.

The year 2014 saw systematic work to ensure safe working conditions, with a focus on health and safety training, monitoring the working conditions and health and safety status, preventing occupational injuries and diseases.

4.2 Charity and social
programmes

Aeroflot Group strives to leverage its industry leadership to help the society, concentrating its efforts on the vulnerable social groups. The Group implements a number of charity and social programmes in all the regions of operation. The cornerstone of Aeroflot airline’s policy as a national airline is supporting sports and especially international events that boost Russia’s reputation.

Helping children

Miles of Mercy

2014 marked the sixth year of the Miles of Mercy charity programme that Aeroflot airline had established as one of the ways to provide assistance to children with serious illnesses. The campaign enables participants of the Aeroflot Bonus programme to contribute their bonus miles to the accounts of charitable organisations taking part in the programme, including the Give Life charitable fund, Vladimir Spivakov International Charity Foundation, the Russian Assistance Fund operated by Kommersant Publishing House, and the Line of Life fund. The contributed miles are used to carry children with serious illnesses to countries and cities where they can get the necessary treatment.

A Heart Has Two Wings

In 2014, Aeroflot airline continued its A Heart Has Two Wings national charity programme that aims to help children with serious, rare or hard-to-diagnose illnesses who live in remote areas of the country. The Company covered all the transport expenses for doctors and children with the accompanying adults. In 2014, the programme saw groups of doctors travel to Ulan-Ude, Arkhangelsk, Severodvinsk, Magadan, Khabarovsk, Simferopol and Barnaul. While in these cities, the Company, together with Scientific Centre of Children Health RAMS, organised on-site open sessions with the doctors. Over 700 children with rare illnesses from various Russian regions got treatment thanks to this initiative.

Train of Hope

In 2014, Aeroflot airline, for the ninth time, took part in the national charity campaign, Train of Hope, organised by Radio Russia as part of its Child’s Question social project. The purpose is to draw the attention of society, business representatives, executive government and law-makers to the issue of children without parents, to provide assistance to such children and to organise meetings with prospective adopters. This year the campaign also covered Simferopol and Sevastopol. Eight families from various corners of Russia planning to adopt or assume guardianship boarded the Crimea-bound Train of Hope in 2014.

Assistance to orphanages

In 2014, Aeroflot airline continued providing assistance to a number of orphanages across Russia, including the Reverend Sergius Residential School in the Sergiev-Posad district and Pokrov Orphanage in the Vladimir Region. The orphanages received edutainment games, stationery supplies and New Year presents. The kids also made a site visit to the Company’s production facilities and took part in an interactive programme that imitates plane flight. On top of that, Aeroflot airline kept arranging its regular on-site charity campaigns with volunteers involved.

Support for WWII veterans

Comrades in Arms

In 2014, Aeroflot airline carried out its annual Comrades in Arms campaign aimed to support WWII veterans and help them travel to Europe and remote Russian cities free of charge. The Company also organised a variety of festivities for the veterans and keeps providing them with financial support.

Discount tickets for selected social groups

In 2014, Aeroflot airline kept taking part in the publicly subsidised travel programme for residents of the remote Russian regions. Discount return tickets were made available for travel between Moscow and cities in the Far East (Vladivostok, Khabarovsk, Petropavlovsk-Kamchatsky, Yuzhno-Sakhalinsk, Yakutsk, Chita and Blagoveshchensk), along with flights between the Far East cities and European Russia with a layover in Moscow.

Support for Russian sports

Supporting sports is a priority of Aeroflot Group’s corporate social responsibility policy. The Group runs a large-scale programme to support Russian sports and teams, sponsoring both major international and national sports events.

General Partner for XXII Olympic and XI Paralympic Winter Games in Sochi

In its capacity of General Partner for the XXII Olympic and XI Paralympic Winter Games in Sochi, Aeroflot ensured fast and convenient air travel to the Olympic and Paralympic capital.

One of the key tasks was to make the Olympics easily accessible to the Russians. Aeroflot airline also offered a special fare, the Olympics for 5,000, to make air tickets to the Olympics more affordable: an economy class return flight from Moscow to Sochi cost RUB 5,000, all taxes and duties included.

During the Olympics, Aeroflot airline set up seamless air travel between Sochi, Moscow and Frankfurt. The Company boosted air travel to and from Sochi, increasing the number of its own flights to 63 a week and operating as many as 12 flights on the busiest days. In addition, Aeroflot launched direct flights from Frankfurt to Sochi. The Moscow–Sochi route was serviced by larger-capacity planes, including Boeing-777-300ER. From 20 January to 18 March 2014, Aeroflot airline operated 500 return flights from Moscow to Sochi, providing transportation for 133,887 people. On top of that, the Company operated 20 return flights from Frankfurt to Sochi, carrying a total of 2,915 passengers. During the Games, passengers were offered a special onboard menu.

Regular and additional Aeroflot airline flights to Sochi transported over 790 members of the Russian National Team and of the official delegation of the Russian Federation, 167 members of the Paralympic sports delegation, along with their sizeable and fragile special luggage.

Russian medalists were awarded Aeroflot airline Bonus Gold Level cards in recognition of their significant achievements.

Aeroflot airline completed a number of projects to get prepared for the Olympics, including regular connection with Sochi and Gelendzhik in almost any weather conditions. During the Games, the airline introduced a separate phone number for Sochi travellers and increased the number of phone lines of its call-centre.

A joint campaign of the Russian Olympic Committee, Aeroflot airline and Visa raised RUB 10 million in support of the Russian Olympians. The funds were used to establish a scientific and methodological centre for Olympic training that works on experimental substantiation of innovative technologies in sports and develops scientific guidelines for sports training of Russian teams.

Official Partner and Official Carrier of Russian National Football Team

Starting 2012, Aeroflot airline has been an official partner and carrier of the Russian national football team. In 2014, Aeroflot airline organised a Moscow–Sao Paulo (Brazil) charter flight for the team to the 2014 World Cup on board of the comfortable wide-body Airbus A330 aircraft.

Official Sponsor and Official Carrier of CSKA Professional Football Club

Starting 2009, Aeroflot airline has been an official sponsor and carrier of the CSKA professional football club. In exchange, the club provides advertising services to the Company and actively promotes its brand both nationally and globally.

Official Carrier of CSKA Professional Basketball Club

In 2014, Aeroflot airline became the official carrier of the CSKA professional basketball club. In this capacity the Company is set to provide professional management and strategic advisory services for transporting the team and club members. In exchange, the club is providing advertising services to the Company and promoting its brand both nationally and globally.

Sponsor of Russian Volleyball Federation

Since 2012, Aeroflot airline has been supporting volleyball.

Supporting cultural projects

In 2014, Aeroflot airline supported the ROSKINO film production company in holding international cultural events to promote Russian cinema at the top global film festivals.

Jointly with the Directorate of International Programmes, Aeroflot airline also arranged and held over 70 multinational projects and programmes aimed at preserving Russia’s cultural heritage, fostering intercultural dialogue and bolstering the national profile in humanitarian cooperation.

4.3 Environment
PROGRAMMES

Aeroflot airline’s environmental policy is aimed at ensuring sustainable development and preserving environmental balance. Being the industry leader, the Company observes all the mandatory requirements and strives to comply with the strictest international environmental standards.

In 2014, Aeroflot airline successfully implemented its environmental management system and passed a certification audit for compliance of the Company’s quality management and environmental management systems with the international standards ISO 9001:2008 and ISO 14001:2004, respectively. This made Aeroflot airline the first and only Russian airline with a certified integrated management system. The Company also developed its own environmental responsibility performance indicators.

The key focus in environmental management is on improving aircraft fuel efficiency achieved through fleet upgrades. Other priorities include:

  • improving energy efficiency of operations by implementing resource-saving policies and technologies;
  • streamlining the route network and implementing new piloting techniques to reduce noise and pollution;
  • recycling-based waste management aimed at reducing the environmental footprint;
  • using environmental performance indicators as a criterion for hiring vendors and contractors;
  • incentivising employees to use resources sparingly.

Fuel efficiency

Aeroflot airline implements a number of energy efficiency measures to help reduce specific aviation fuel consumption by 43.6% through 2020 (compared to 2007). The amount of fuel saved during the reporting period was 11.4 kt, which translates to USD 9.5 million. The main drivers here are fleet upgrades and cutting-edge energy-efficient aircraft. The Company is also working on lowering actual hourly in-flight fuel consumption, reducing fuel usage through improving service at the base airport and the cost of fuel.

Initiatives against air pollution

Aeroflot airline has a CO2-emissions monitoring and measuring system in place, which ensures compliance with all the relevant international requirements. The Company is a part of the European CO2 Emission Allowance Trading System and, as per EU Directive No. 421/2014 of 16 April 2014, plans to undergo a verification audit of its emissions report for 2013–2014.

According to Aviasales.ru travel search engine, Aeroflot airline is the greenest among all Russian airlines. The Company’s aircraft leaves the smallest carbon footprint in the atmosphere (66.57 g of CO2 per passenger-kilometre) thanks to its higher fuel efficiency.

Almost the entire Aeroflot airline fleet complies with ICAO standards for noise levels and emission of atmospheric pollutants. In 2014, the Company won the 7th Quietest Airline Contest at Vaclav Havel Airport Prague.

In order to reduce the environmental impact of ground vehicles, Aeroflot airline carries out regular instrumental controls and tuning of fuel systems to ensure their compliance with permitted toxicity and smoke levels.

Reducing waste discharge into water bodies

In 2014, the Company’s environment experts and SPU-1 DZM, which services Aeroflot airline’s Office Building (Melkisarovo), implemented a project to control the quantity and quality of waste water discharged by the office building’s treatment facilities. According to the inspection, the office complies with SanPiN 2.1.5.980-00 Hygienic Requirements for Surface Water Protection. Currently, the Company exercises monthly control over the quality and quarterly control over the quantity of treated waste water discharge.

Solid waste disposal

In 2014, the airline’s environment experts kept monitoring solid waste storage sites and supervised disposal of these wastes. During the year, 69% of solid wastes were recycled.

Aeroflot airline is the only Russian air carrier to collect and recycle de-icing fluid. In 2014, the airline allocated about RUB 5.7 million for this purpose.

Environmental fees

As per Federal Law No. 7-FZ On Environmental Protection of 10 January 2002, Aeroflot airline pays environmental fees for using natural resources. Fees for the negative impact are calculated based on the Natural Resource User Module 1.7 by the Russian Environmental Watchdog (Rosprirodnadzor).

In 2014, Aeroflot airline’s environmental fees increased 31.1% to RUB 6.7 million due to growing traffic and subsequent solid waste increase. At the same time, the limits for waste disposal were not exceeded.

11,438
tonnes of fuel saved

Total fees paid by Aeroflot airline for negative impact on the environment, RUB million

Vendor management system development

Aeroflot airline’s vendor management practices are mainly focused on safety. The Company is part of the IATA Fuel Quality Pool, IATA De-Icing/Anti-Icing Quality Control Pool and IATA Safety Audit programme for Ground Operations, which speeds up vendor due diligence.

Subsidiary integration

In 2014, Aeroflot Group continued developing quality management systems at its subsidiary airlines. This process included preparation for certification audits for compliance with the IOSA and ISO standards, increasing subsidiary airlines’ fuel efficiency and ensuring adherence to Aeroflot airline’s standards by all of the Group’s carriers.

Aeroflot airline fuel and energy consumption in 2014

Item Actual consumption
Volume used Value, thousand roubles (net of VAT)
Aviation fuel, tonnes 2,028,842 62,437,990
Heat energy, Gcal 38,561 54,770
Electric power, kWh 25,280,050 82,420
Vehicle fuel, litres 4,511,930 128,388
Aviation lubricants, litres 199,673 95,855
5
CORPORATE
GOVERNANCE
AND SECURITIES
CALM AND
CONFIDENT
A truly reliable company depends only on its own means

5.1 Corporate
Governance

Corporate Governance System

In line with top standards and requirements, JSC Aeroflot’s corporate governance system aims to implement the principles of transparency and accessibility of information about the Company and ensure equitable treatment of minority and majority shareholders.

JSC Aeroflotconstantly seeks to improve its corporate governance system, including the subsidiary and affiliate practices. In 2014, the Company assessed compliance of its corporate governance practices with the recommendations set forth in the Corporate Governance Code as approved by the Bank of Russia’s Board of Directors on 21 March 2014. This assessment allowed JSC Aeroflot’s Board of Directors to adopt an Action Plan to Improve Corporate Governance Practices at JSC Aeroflot(Minutes No. 8 of 02 December 2014). After securing an approval of the Russian Government, the final version of the Action Plan was adopted by JSC Aeroflot’s Board of Directors on 19 March 2015 (Minutes No. 14).

Among other things, the Action Plan aims to:

  • extend the powers of JSC Aeroflot’s directors in risk management and steering of the Company’s subsidiaries and affiliates;
  • document procedures to tackle conflicts of interest;
  • develop a comprehensive risk management system for Aeroflot Group;
  • enhance transparency for JSC Aeroflot’s shareholders and investors.

The Company is planning to implement most of the initiatives set forth in the Plan before June 2016.

In addition to the recommendations provided in the Corporate Governance Code, the Group seeks to implement the following innovative solutions for corporate governance: an IT platform for the Board of Directors; an IT platform to file, archive, classify and control corporate and other documents and subsidiary-related data; regular strategic meetings and workshops to be attended by members of the Company’s Board of Directors, executive bodies and key management, with professional moderators, third party experts, etc. involved

JSC Aeroflotcontributes greatly to the improvement of the corporate gover­nance regulation framework.

3
independent
directors
on the board

Corporate governance structure







Corporate governance is exercised by the Company’s executive and supervisory bodies, including General Meeting of Shareholders, Board of Directors, Executive Board, CEO and Revision Committee.

External auditors are signed to provide an independent review of JSC Aeroflot’s financial and operational activities in accordance with both the Russian Accounting Standards (RAS) and International Financial Reporting Standards (IFRS).

Key documents ensuring the respect of JSC Aeroflotshareholder rights include: Articles of Association of JSC Aeroflot, Statute on the General Meeting of Shareholders of JSC Aeroflot, Statute on the Board of Directors of JSC Aeroflot, Statute on the Executive Board of JSC Aeroflot, Statute on the Revision Committee of JSC Aeroflot, Statute on the Corporate Information Policy of JSC Aeroflot, Dividend Policy of JSC Aeroflotand Corporate Conduct Code of JSC Aeroflot.

Aeroflot developed and adopted a number of documents aiming to improve corporate governance standards within its aviation subsidiaries and affiliates, including: the Statute on participation of JSC Aeroflotrepresentatives in the governance bodies of the Group’s aviation subsidiaries and affiliates, a list of managers charged with approving materials for meetings of the Group’s governance bodies (Board of Directors / General Meeting of Shareholders / the sole shareholder draft decisions) and a list of transactions made by aviation subsidiaries and affiliates. On top of that, the Company developed a cross-functional governance system for its aviation subsidiaries and affiliates.

To ensure control over financial and operational activities of the aviation subsidiaries and affiliates the Group enabled each of them to have a dedicated revision committee made up of JSC Aeroflotrepresentatives. In addition to revision committee (internal) inspections, subsidiaries and affiliates are subject to inspections by an auditor approved pursuant to the relevant bidding procedures.

In accordance with the applicable laws and articles of association, each subsidiary and affiliate developed and adopted dedicated internal documents stipulating the responsibilities of its governance bodies. Among those are Statutes on the Board of Directors, Executive Board and Development Strategy. The Company also adopted, updated and implemented a Regulation on Purchase of Goods, Works and Services, In-Flight Meals Procurement Standards, etc.

The responsibilities of the Company’s corporate secretary are vested with the Corporate Governance Department and Executive Secretary of the Board.

General Meeting of Shareholders

The General Meeting of Shareholders is the Company’s highest governing body. The respective scope of competencies and meeting convocation, holding and summarising procedures are set forth in the Company’s Articles of Association and Statute on the General Meeting of Shareholders. The Annual General Meeting of Shareholders is held annually no earlier than three months and no later than six months after the end of the fiscal year.

In 2014, JSC Aeroflotconvoked the Annual General Meeting of Shareholders in Moscow on 27 June (Minutes No. 36 of 30 June 2014). The meeting was attended by owners of 73.95% of JSC Aeroflot’s total voting stock.

The Annual Meeting approved the Company’s Annual Report, 2013 Financial Statements (including Profit and Loss Statement), distribution of 2013 net profit and remuneration amount paid to the members of the Board of Directors and Revision Committee.

For the purposes of the 2013 dividend payout, the Meeting resolved to allocate RUB 2,774.8 million (RUB 2.4984 per share), or 25.0% of the Company’s RAS net profit.

The Meeting approved a new composition of the Board of Directors and Revision Committee, and the Company’s auditor for 2014 (selected pursuant the relevant bidding requirements). It also adopted the amended versions of JSC Aeroflot’s Articles of Association, Statutes on the Company’s General Meeting of Shareholders and Board of Directors, and approved a number of related-party transactions.

On 21 January 2014, an Extraordinary General Meeting of JSC Aeroflot’s Shareholders was held by way of absentee voting (Minutes No. 35 of 24 January 2014) to address associated related-party transactions and acquisition of new aircraft under a financial lease.

Board of Directors

JSC Aeroflot’s Board of Directors has overall authority over the Company and is responsible for overall governance of the Company’s operations, excluding matters of JSC Aeroflot’s General Meeting of Shareholders. The convocation and holding procedures for the Board meetings and other Board activities are stipulated by the Statute on the Company’s Board of Directors in line with the Federal Law on Joint-Stock Companies. Among the Board’s key focus areas are the Company’s long-term sustainable development, effective oversight of the Group’s executive bodies, uncompromising observance and protection of shareholder rights and their legitimate interests. Importantly, JSC Aeroflot’s corporate governance system aims to strike an optimum balance between the executive, non-executive and independent directors on the Company’s Board.

The resolutions passed by the Company’s Board of Directors sought to accomplish some of the Group’s top objectives, namely:

  • ensure flight safety and frequency;
  • define the Group’s strategy and rank its lines of business;
  • map out a development strategy for Aeroflot Group’s aircraft fleet and route network;
  • develop the aircraft fleet by way of new acquisitions and optimisation;
  • improve operating, financial and marketing practices and methods through upgrades, innovation, and implementation of best practices from global peers;
  • boost branch and representative office performance both domestically and internationally;
  • enforce higher standards for airport and in-flight passenger services, expand the service mix and improve customer experience;
  • promote cooperation with SkyTeam partners, use the membership to expand the Company’s route network and boost the international flight performance;
  • promote strategic partnerships in crucial destinations;
  • boost efficiency at JSC Aeroflotsubsidiaries and affiliates, streamline the non-core asset structure to cut unnecessary spending and increase investment returns;
  • develop and improve corporate policies;
  • develop and upgrade information technologies;
  • ensure information transparency, including shareholder and investor relations, procurement.

The Board members’ performance is assessed based on their attendance of the Board and Committee meetings. In 2015, we are planning to develop and introduce a new framework to assess the Board’s performance.

Membership of JSC Aeroflot’s Board of Directors as at 31 December 2014

Kirill Androsov

Chairman of the Board of Directors at JSC Aeroflot

Born in 1972.
Graduated from the St Petersburg Maritime Engineering University (School of Engineering and Economics) and St. Petersburg State University of Economics and Finance.
MBA from Chicago University Business School.
Doctoral Candidate in Economics.
From 2005 to 2008, Deputy Minister of Economic Development and Trade of the Russian Federation.
From 2008 to 2010, Deputy Head of the Executive Office of the Government of the Russian Federation.
Since 2010, Managing Partner of the Altera Capital Investment Fund.
Since 2011, member of the Public Council under the Federal Tax Service of Russia.
Since 2012, professor at the Higher School of Economics.

Holds no shares of JSC Aeroflot.

Mikhail Alexeev

Member of the Board of Directors at JSC Aeroflot, member of the Personnel and Remuneration Committee and Strategy Committee

Born in 1964.
Graduated from the Moscow Financial University (Financial Academy under the Government of the Russian Federation) with a degree in Finance and Credit.
Doctor of Economics.
From 1989 to 1991, Senior Expert, Lead, Department Head, Deputy Head of the Main Directorate at the USSR Ministry of Finance.
From 1992 to 1995, Head of Securities and Economic Analysis at Mezhkombank.
From 1995 to 1999, Deputy Chairman of the Management Board at Oneximbank.
From 1999 to 2006, Senior Vice-President and Deputy Chairman of the Management Board at Rosbank.
From 2006 to 2008, President and Chairman of the Management Board at Rosprombank.
Since 2008, Chairman of the Management Board at UniCreditBank.

Holds no shares of JSC Aeroflot.

Igor Kamenskoy

Independent member of the Board of Directors at JSC Aeroflot, Head of the Personnel and Remuneration Committee

Born in 1968.
Graduated from the Moscow State Pedagogical Institute with a degree in Russian Language and Literature.
From 1992 to 1998, Vice-President at Soyuzcontract Limited Liability Partnership.
From 1999, Vice-President at Rosbank.
From 2000 to 2002, Advisor to the Chairman of the State Duma.
From 2002 to 2009, member of the Federation Council, Committee Deputy Chairman with the Federation Council of the Russian Federation.
Since 2009, Chairman of the Board of Directors at Renaissance Capital.

Holds no shares of JSC Aeroflot.

Igor Kogan

independent member of the Board of Directors at JSC Aeroflot, Head of the Audit Committee, member of the Personnel and Remuneration Committee

Born in 1969.
Graduated from Lenin State Pedagogical Institute with a degree in Mathematics.
Doctoral Candidate in Economics.
From 1998 to 2009, Deputy Chairman and Chairman of the Management Board at ORGRESBANK.
Since 2009, Deputy Chairman of the Board of Directors at Nordea Bank, member of the Supervisory Council at the Agency for Housing Mortgage Lending.
From 2009, member of the Council, and later on, since June 2011, member of the Council Presidium at the Association of Russian Banks.\

Holds no shares of JSC Aeroflot.

Marlen Manasov

Independent member of the Board of Directors at JSC Aeroflot, member of the Personnel and Remuneration Committee and Strategy Committee

Born in 1965.
Graduated from the Moscow State University with a degree in Political Economics.
Economist, political economics lecturer.
Formerly, CEO at UBS Securities, member of the Board of Directors at UBS Bank, UBS Securities, Novoship, RTS Stock Exchange, Svyazinvest and NAUFOR.
Since 2010, member of the Board of Directors at Sovkomflot.
Since 2011, member of the Board of Directors at the RUSS-INVEST Investment Company.

Holds no shares of JSC Aeroflot.

Roman Pakhomov

Member of the Board of Directors at JSC Aeroflot, Head of the Strategy Committee, member of the Audit Committee and Personnel and Remuneration Committee

Born in 1971.
Graduated from Makarov State Marine Academy. MBA degree from the Graduate School of International Business at the Russian Presidential Academy of National Economy and Public Administration (Moscow) and a degree from the Kingston University (London).
Up to 1996, jobs at the Northern Shipping Company.
From 1996 to 1998, senior expert for corporate customers at Inkombank.
From 1998 to 1999, Deputy Chairman of the Management Board at Maritime Bank.
From 1999 to 2004, CEO at IC Center Capital.
From 2004 to 2008, Deputy CEO and CEO at VIM Airlines.
From 2008 to 2009, Executive Director at Atlant Soyuz Airlines.
From 2009 to 2010, CEO at the Rossiya State Transport Company, advisor to Deputy CEO at ROSTEC Corporation.
From 2010 to the present, CEO at Aviacapital-Service.

Holds no shares of JSC Aeroflot.

Dmitry Peskov

Member of the Board of Directors and Strategy Committee at JSC Aeroflot

Born in 1975.
Graduated from the Voronezh State University.
In 1999, completed a Master’s degree in Political Studies at Moscow School of Social and Economic Sciences and University of Manchester.
From 2000, led the strategy development exercise, chaired the Internet Policy Centre and oversaw the establishment of the Russian International Studies Association at MGIMO University, finishing his MGIMO stint as Deputy Vice-Rector for Research and Head of Innovations.
From 2009, Head of Strategic Initiatives at the All-Russian Exhibition Centre (VVC).
Since 2011, Head of Young Professionals at the Agency for Strategic Initiatives. Member of the Government Expert Council, member of the Board of Directors at the United Aircraft Corporation, Russian Railways, All-Russian Exhibition Centre (VVC) and Mashpribor.

Holds no shares of JSC Aeroflot.

Vitaly Saveliev

CEO, Chairman of the Executive Board and member of the Board of Directors at JSC Aeroflot

Born in 1954.
Graduated from Kalinin Leningrad Polytechnical Institute and Togliatti Leningrad Institute of Engineering and Economics.
Doctoral Candidate in Economics.
From 1987, Deputy Head of Construction Engineering at Glavleningradinzhstroy (Leningrad).
From December 1988, Head of the Leningrad branch of the US-Soviet Union joint venture Dialog.
Founder of DialogBank (1989), member of the bank’s Board of Directors.
From 1990 to 1993, CEO at the US-Soviet Union joint venture DialogInvest.
From 1993 to 1995, Chairman of the Management Board at Rossiya Bank.
From 1995, Chairman of the Management Board at Menatep Saint Petersburg.
From 2001, Deputy Chairman of the Management Board at Gazprom.
From 2002 to 2004, Vice-President at GROS United Company, Finance and IT Advisor to CEO at Svyazinvest.
From 2004 to 2007, Deputy Minister of Economic Development and Trade of the Russian Federation.
From 2007 to 2009, First Vice-President and Head of Telecom Asset Development at Sistema Telecom, First Vice-President and Head of Telecom Assets at Sistema Financial Corporation.
Since 2009, CEO, Chairman of the Executive Board at JSC Aeroflot.

Holds 0.121% in Charter Capital of JSC Aeroflot.

Dmitry Saprykin

Deputy CEO for Sales and Property at JSC Aeroflot, member of the Board of Directors and Strategy Committee

Born in 1974.
Graduated from the Moscow State Law Academy with a degree in Law and from Cornell Law School with the Master of Laws (LL.M.) degree and MBA Programme.
Doctoral Candidate in Law.
From 2006 to 2007, CEO at Moscow Cellular Communications.
From 2007 to 2009, Director of Transaction Support, Deputy Head of the Legal Division at Sistema Financial Corporation.
From 2009 to 2013, Deputy CEO for Legal and Property Issues at JSC Aeroflot.
Since 2013, Deputy CEO for Sales and Property at JSC Aeroflot.

Holds no shares of JSC Aeroflot.

Vasiliy Sidorov

Member of the Board of Directors at JSC Aeroflot, member of the Audit Committee, Personnel and Remuneration Committee and Strategy Committee

Born in 1971.
Graduated from the Moscow State Institute of International Relations (MGIMO University) with a degree in International Public Law and from Wharton Business School of the University of Pennsylvania with a degree in Finance.
From 1997 to 2000, Deputy CEO at Svyazinvest.
From 2000 to 2003, First Vice-President at Sistema Telecom.
From 2003 to 2006, President at MTS.
From 2006 to 2010, co-owner of the Telecom Express Group.
Since 2010, Managing Partner at Euroatlantic Investments Ltd.
Since 2012, member of the Board of Directors at Russian Railways, CEO at ARIDA.

Holds no shares of JSC Aeroflot.

Sergey Chemezov

Member of the Board of Directors and Personnel and Remuneration Committee at JSC Aeroflot

Born in 1952.
Graduated from the Irkutsk Institute of Economics, completed Advanced Courses at the Military Academy of the General Staff of the Russian Armed Forces.
Doctor of Economics, Professor, full member of the Academy of Military Science.
From 1996 to 1999, Head of Foreign Economic Relations at the Administrative Office of the Russian President.
From 1999 to 2001, CEO at Promexport (currently Rosoboronexport).
From 2001, First Deputy CEO at Rosoboronexport.
From 2004 to 2007, CEO at Rosoboronexport.
Since 2007, CEO at ROSTEC Corporation (a state corporation set up to further the development, manufacture and export of hi-tech industrial products).

Holds no shares of JSC Aeroflot.

Changes in the membership of the Board of Directors in 2014

Members of the Board of Directors elected in 2014:

  • Igor Kamenskoy —
    member of JSC Aeroflot’s Board of Directors since 27 June 2014;
  • Dmitry Peskov —
    member of JSC Aeroflot’s Board of Directors since 27 June 2014.

Members of the Board of Directors removed in 2014:

  • Aleksey Germanovich —
    member of JSC Aeroflot’s Board of Directors up to 27 June 2014;
  • Igor Lozhevsky —
    member of JSC Aeroflot’s Board of Directors up to 27 June 2014.

In 2014, JSC Aeroflot’s Board of Directors held 16 meetings, including 9 meetings in person and 7 meetings by way of absentee voting. The said meetings addressed over 140 items and passed over 200 resolutions on matters of the Board.

16
meetings held
by the board
of directors
of JSC Aeroflot

>140
items of JSC Aeroflot’s
board of directors
agenda discussed

Participation of Board members in 2014 Board meetings

Board member Number of meetings attended In person In absentia
Attendance in person Written opinion
Kirill Androsov 16 7 9
Mikhail Alexeev 16 6 1 9
Aleksey Germanovich* 8 2 1 5
Igor Kamenskoy** 7 3 4
Igor Kogan 16 7 9
Igor Lozhevsky* 8 2 1 5
Marlen Manasov 16 7 9
Roman Pakhomov 16 7 9
Dmitry Peskov** 8 4 4
Vitaly Saveliev 16 7 9
Dmitry Saprykin 16 7 9
Vasiliy Sidorov 16 7 9
Sergey Chemezov 16 5 2 9

* Member of the Board of Directors up to 27 June 2014.
** Member of the Board of Directors since 27 June 2014.

Remuneration for members of the Board of Directors

Guidelines for Board remuneration calculation and payouts are set forth in the Statute on Remuneration and Compensation Payments to the Members of the Board of Directors of JSC Aeroflotin line with the Federal Law on Joint-Stock Companies, other applicable laws of the Russian Federation and the Group’s internal regulations. The said statute was approved by JSC Aeroflot’s General Meeting of Shareholders on 24 June 2013.

The Board remuneration framework comprises fixed and variable (bonus) components. The key criterion defining the fixed remuneration component is the extent to which members of JSC Aeroflot’s Board of Directors are actually involved in the operations of the Board and its Committees. The variable (bonus) remuneration component is directly linked the Company’s market capitalisation growth on Moscow Exchange as benchmarked against the MICEX index performance.

In 2013, in order to provide for long-term incentives, Aeroflot approved a stock option plan for Board members valid through 2015. The total pool of the stock option plan for Board members is equivalent to 0.5% of JSC Aeroflot’s market capitalisation growth over the lifetime of the plan.

The stock option plan draws heavily on two underlying metrics, namely: JSC Aeroflot’s market capitalisation growth in the relevant year (maximum weight of 50%), and the Company’s rank in the Top 5 market cap growth peer chart in the relevant year (maximum weight of 50%). The second metric is accounted for only when JSC Aeroflot’s market capitalisation growth is positive.

On 27 June 2014, the Group’s Annual General Meeting of Shareholders resolved to pay members of the Board of Directors who are not civil servants the total remuneration of RUB 47,941,053.00 for 2013, and additional RUB 35,882,000.00 under the 2013 stock option plan (Minutes No. 36 of 27 June 2014).

Remuneration for members of JSC Aeroflot’s Board of Directors in 2013

Board member Remuneration, RUB Remuneration under stock option plan, RUB
Sergey Aleksashenko 2,889,798 1,757,836
Mikhail Alexeev 3,079,190 2,131,990
Kirill Androsov 5,000,000 5,926,640
Aleksey Germanovich 4,477,976 4,895,356
Igor Kogan 4,213,684 4,373,237
Igor Lozhevsky 4,480,000 4,899,355
Marlen Manasov 3,079,190 2,131,990
Aleksey Navalny 2,871,822 1,722,324
Gleb Nikitin
Roman Pakhomov 3,101,215 2,175,500
Vitaly Saveliev 3,800,000
Dmitry Saprykin 3,977,976
Vasiliy Sidorov 3,090,202 2,153,745
Alexander Tikhonov
Sergey Chemezov 3,880,000 3,714,027
TOTAL 47,941,053 35,882,000

Committees of the Board of Directors

In accordance with the Statute on Committees adopted by the Company’s Board of Directors, the said Board has set up three dedicated Committees, each acting as per the Board’s resolutions and an action plan based on the Board’s Action Plan.

In 2014, the Committees held a total of 22 meetings, addressing specific matters from JSC Aeroflot’s agenda and submitting recommendations and proposals for the Company’s Board of Directors and Executive Board to consider.

Personnel and Remuneration Committee

In 2014, the Committee held a total of six meetings, including one meeting by way of absentee voting.

The said meetings addressed matters of and submitted recommendations to JSC Aeroflot’s Board of Directors and Executive Board for streamlining the Company’s organisational structure, deciding on the management remuneration amount, parameters of the Company’s target stock option and profit-sharing plans, developing and implementing employee performance assessment system, defining key performance indicators (KPI) for the Group’s CEO and management, implementing the Central Bank’s Corporate Governance Code, etc.

Membership of the Personnel and Remuneration Committee as at 31 December 2014

  • Igor Kamenskoy — Independent member of JSC Aeroflot’s Board of Directors, Head of the Committee;
  • Mikhail Alexeev — Member of JSC Aeroflot’s Board of Directors;
  • Igor Kogan — Independent member of JSC Aeroflot’s Board of Directors;
  • Marlen Manasov — Independent member of JSC Aeroflot’s Board of Directors;
  • Roman Pakhomov — Member of JSC Aeroflot’s Board of Directors;
  • Vasiliy Sidorov — Member of JSC Aeroflot’s Board of Directors;
  • Sergey Chemezov — Member of JSC Aeroflot’s Board of Directors.

Strategy Committee

In 2014, the Strategy Committee held a total of five meetings in person addressing the implementation progress of Aeroflot Group’s Development Strategy (including adjustments to the Strategy), JSC Aeroflot’s Long-Term Development Programme, Dividend Policy, progress in the strategic airline alliance exercise and aircraft fleet development.

Membership of the Strategy Committee as at 31 December 2014

  • Roman Pakhomov — Member of JSC Aeroflot’s
  • Board of Directors, Head of the Committee;
  • Mikhail Alexeev — Member of JSC Aeroflot’s Board of Directors;
  • Marlen Manasov — Independent member of JSC Aeroflot’s Board of Directors;
  • Giorgio Callegari — Member of JSC Aeroflot’s Executive Board, Deputy CEO for Strategy and Alliances;
  • Shamil Kurmashov — Member of JSC Aeroflot’s Executive Board, Deputy CEO for Finance and Network and Revenue Management;
  • Dmitry Peskov — Member of JSC Aeroflot’s Board of Directors;
  • Vasiliy Sidorov — Member of JSC Aeroflot’s Board of Directors;
  • Dmitry Saprykin — Member of JSC Aeroflot’s Board of Directors and Executive Board, Deputy CEO for Sales and Property.

Audit Committee

In the reporting year, the Audit Committee held a total of eleven meetings. These meetings provided recommendations for JSC Aeroflot’s Board of Directors to ensure effective management and oversight of the Company’s business operations, and tackle financial, business and other risks associated with the Group’s transactions and operations, along with Aeroflot Group’s accounting framework, financial planning and budgeting. The Committee focused on the development of the Company’s internal audit capabilities. On top of that, the Committee addressed matters of shareholder and investor relations.

The Audit Committee carried out some random inspections to check the Company’s current operations and application of internal audit procedures.

Membership of the Audit Committee as at 31 December 2014

  • Igor Kogan — Independent member of JSC Aeroflot’s Board of Directors, Head of the Committee;
  • Roman Pakhomov — Member of JSC Aeroflot’s Board of Directors;
  • Vasiliy Sidorov — Member of JSC Aeroflot’s Board of Directors.

Executive Board

JSC Aeroflot’s sole executive body, CEO, and collective executive body, the Executive Board, are charged with running the Company’s ongoing operations. The executive bodies report directly the Board of Directors and General Meeting of Shareholders. The CEO also acts as the Chairman of the Executive Board. The Board of Directors is authorised to appoint members of the Executive Board, and remove them from office before the expiration of their term.

The Executive Board shall act in compliance with JSC ­Aeroflot’s Articles of Association and Statute on the Executive Board as approved by the General Meeting of Shareholders of JSC Aeroflot.

In 2014, the Executive Board of JSC Aeroflotheld a total of 24 meetings, including three meetings by way of opinion surveys.

The key matters addressed by JSC Aeroflot’s Executive Board in 2014 were as follows:

  • JSC Aeroflotflight security;
  • a plan to tackle the Airbus A320 pilot shortages in 2014–2016;
  • interaction with civil aviation schools;
  • aircraft fleet development for OOO Byudzhetny Perevozchik;
  • organisational structure of JSC Aeroflotand representative offices in Russia, the CIS and other countries;
  • shutdown of JSC Aeroflot’s representative offices in Lyon, Alicante, Krakow, Donetsk and Saratov;
  • establishment of JSC Aeroflot’s line station network in Kaliningrad, Sochi, Ufa and Kazan;
  • enhancement of service offerings within JSC Aeroflotand Aeroflot Group;
  • improvements in quality of the 2015 product offering based on the NPS study;
  • development of a marketing policy through 2020;
  • adoption of a new Statute on the Corporate Information Policy;
  • implementation of the Corporate Governance Code;
  • updates on the corporate philosophy elements, including Aeroflot Group’s mission, vision and values;
  • JSC Aeroflotmotivation system;
  • key performance indicators (KPI) for the CEO and members of the Executive Board, air crew KPI;
  • IFRS 2015 budget of JSC Aeroflotand consolidated budget of Aeroflot Group;
  • the Group’s Investment Programme;
  • implementation of the opex cutting programme of JSC Aeroflot, its subsidiaries and affiliates;
  • establishment of a single treasury covering JSC Aeroflot, its subsidiaries and affiliates;
  • proposals on how to respond to the crisis in the air transportation market;
  • financial monitoring of agents;
  • JSC Aeroflot’s credit lines and documentary credit facilities;
  • shareholder and investor relations;
  • JSC Aeroflot’s Annual Financial Statements for fiscal year 2013;
  • approval of JSC Aeroflot’s related-party transactions;
  • JSC Aeroflot’s dividend policy;
  • JSC Aeroflot’s treasury shares;
  • relations with large corporate clients;
  • feasibility of further block trades in seating capacities for tourist purposes due to the outdated nature of such practice;
  • securing financing for apron construction at the Sheremetyevo Airport;
  • JSC Aeroflot’s 2013 procurement;
  • Aeroflot Group’s Long-Term Development Programme;
  • JSC Aeroflot’s membership in regional aviation associations;
  • progress in implementation of Aeroflot Group’s Strategy;
  • boosting the Group’s ancillary revenue and switching to the hybrid business model;
  • progress in negotiations to set up strategic alliances with airlines;
  • a draft route network based on the distribution of destinations among the Group’s airlines;
  • sponsorship extended to the non-profit organisation of the Russian Volleyball Federation, and the CSKA professional football and basketball clubs;
  • support offered to the Far Eastern Federal University through an Endowment Foundation;
  • donation of an Il-96-300 to the Moscow State Technical University of Civil Aviation (MSTUCA);
  • an agreement with the Russian Orthodox Church;
  • signing up to the Anti-Corruption Charter of the Russian Business.

Membership of JSC Aeroflot’s Executive Board as at 31 December 2014

Vitaly Saveliev

Chairman of the Executive Board, CEO

Born in 1954.
Graduated from Kalinin Leningrad Polytechnical Institute and Togliatti Leningrad Institute of Engineering and Economics.
Doctoral Candidate in Economics.
From 1987, Deputy Head of Construction Engineering at Glavleningradinzhstroy (Leningrad).
From December 1988, Head of the Leningrad branch of the US-Soviet Union joint venture Dialog.
Founder of DialogBank (1989), member of the bank’s Board of Directors.
From 1990 to 1993, CEO at the US-Soviet Union joint venture DialogInvest.
From 1993 to 1995, Chairman of the Management Board at Rossiya Bank.
From 1995, Chairman of the Management Board at Menatep Saint Petersburg.
From 2001, Deputy Chairman of the Management Board at Gazprom.
From 2002 to 2004, Vice-President at GROS United Company, Finance and IT Advisor to CEO at Svyazinvest.
From 2004 to 2007, Deputy Minister of Economic Development and Trade of the Russian Federation.
From 2007 to 2009, First Vice-President and Head of Telecom Asset Development at Sistema Telecom, First Vice-President and Head of Telecom Assets at Sistema Financial Corporation.
Since 2009, CEO, Chairman of the Executive Board at JSC Aeroflot.

Holds 0.121% in Charter Capital of JSC Aeroflot.

Vladimir Antonov

First Deputy CEO for Aviation Security

Born in 1953.
Graduated from the Moscow Railway Engineering Institute.
From 1995 to 2011, Deputy CEO for Economic and Aviation Security at JSC Aeroflot, Deputy CEO for Aviation Security, Deputy CEO for Aviation and Operating Security and First Deputy CEO for Operations.
Since 2011, First Deputy CEO for Aviation Security at JSC Aeroflot.

Holds 0.000425% in Charter Capital of JSC Aeroflot.

Vasily Avilov

Deputy CEO for Administrative Management

Born in 1954.
Graduated from Dzerzhinsky Higher Naval Engineering College.
From 1997 to 2013, Head of Administration at JSC Aeroflot, Director of the Department of General Affairs, Deputy CEO and Managing Director.
Since 2013, Deputy CEO for Administrative Management at JSC Aeroflot.

Holds 0.0000002% in Charter Capital of JSC Aeroflot.

Kirill Bogdanov

Deputy CEO for IT

Born in 1963.
Graduated from the Leningrad Polytechnical Institute.
From 2004 to 2007, Executive Director at RAMAX International.
From 2007 to 2009, Director of Development and Control at the Telecommunications Assets of Sistema Financial Corporation.
Has 27 original patents for IT innovations.
Since 2009, Deputy Head of IT at JSC Aeroflot, Advisor to the CEO, Deputy CEO for IT.

Holds no shares of JSC Aeroflot.

Dmitry Galkin

Advisor to the Deputy CEO for Finance and Network and Revenue Management

Born in 1963.
Graduated from Ordzhonikidze Moscow Institute of Management.
From 1988 to 2013, Manager, Deputy Head and Head of the Internal Audit Service, Director of the Internal Audit Department at JSC Aeroflot.
Since 2013, Advisor to the Deputy CEO for Finance and Network and Revenue Management at JSC Aeroflot.

Holds 0.000003% in Charter Capital of JSC Aeroflot.

Vadim Zingman

Deputy CEO for Customer Relations

Born in 1970.
Graduated from St Petersburg University of Economics and Finance.
Doctoral Candidate in Economics.
From 2001 to 2008, Deputy Director of the Department for Government Regulation of Foreign Trade at the Ministry of Economic Development and Trade of the Russian Federation.
From 2008 to 2009, Director of Government Relations at Sistema Financial Corporation.
From 2009 to 2012, Advisor to the CEO, Deputy CEO for Customer Relations and Deputy CEO for Operations and Quality Management at JSC Aeroflot.
Since 2012, Deputy CEO for Customer Relations at JSC Aeroflot.

Holds no shares of JSC Aeroflot.

Giorgio Callegario

Deputy CEO for Strategy and Alliances

Born in 1959.
Graduated from the Polytechnic University of Turin (Italy).
From 1990 to 2011, Sales Manager, Vice-President for Sales, Vice-President for Business Development, Vice-President for Alliances, Business Development and International Relations, Deputy Vice-President for Alliances and Strategy at Alitalia.
Since 2011, Deputy CEO for Strategy and Alliances at JSC Aeroflot.

Holds no shares of JSC Aeroflot.

Shamil Kurmashov

Deputy CEO for Finance and Network and Revenue Management at JSC Aeroflot

Born in 1978.
Graduated from the Moscow State Institute of International Relations.
Doctoral Candidate in Economics.
From 2004 to 2007, Deputy CEO for Finance and Investment at Sistema Telecom.
From 2007 to 2009, Director of Investments, Deputy Head of the Finance and Investment Division at Sistema Financial Corporation.
From 2009 to 2013, Advisor to the CEO, Deputy CEO for Finance and Investment and Deputy CEO for Commerce and Finance at JSC Aeroflot.
Since 2013, Deputy CEO for Finance and Network and Revenue Management at JSC Aeroflot.

Holds no shares of JSC Aeroflot.

Director of the Flight Safety Department

Born in 1953.
Graduated from the Academy of Civil Aviation.
Doctoral Candidate in Technical Science.
From 2001 to 2012, Deputy Head of the Flight Safety Inspectorate and Deputy Director of the Flight Safety Department at JSC Aeroflot.
Since 2012, Director of the Flight Safety Department at JSC Aeroflot.

Holds no shares of JSC Aeroflot.

Igor Parakhin

Deputy CEO and Technical Director

Born in 1961.
Graduated from the Moscow Institute of Civil Aviation Engineers.
From 2001 to 2011, Head of Programme, Deputy Director of the Aviabusiness Higher Business School.
Since 2011, Acting Technical Director, Technical Director, Deputy CEO and Technical Director at JSC Aeroflot.

Holds 0.000007% in Charter Capital of JSC Aeroflot.

Dmitry Saprykin

Deputy CEO for Sales and Property

Born in 1974.
Graduated from the Moscow State Law Academy with a degree in Law and from Cornell Law School with the Master of Laws (LL.M.) degree and MBA Programme.
Doctoral Candidate in Law.
From 2006 to 2007, CEO at Moscow Cellular Communications.
From 2007 to 2009, Director of Transaction Support, Deputy Head of the Legal Division at Sistema Financial Corporation.
From 2009 to 2013, Deputy CEO for Legal and Property Issues at JSC Aeroflot.
Since 2013, Deputy CEO for Sales and Property at JSC Aeroflot.

Holds no shares of JSC Aeroflot.

Igor Chalik

Deputy CEO and Flight Director

Born in 1957.
Graduated from the Aktyubinsk Higher Flying School of Civil Aviation.
From 1994 to 2011, Second Pilot of an Il-86, Second Pilot, Commander, Pilot Instructor at A310, Deputy Commander of the A310 Air Squadron at Aviation Detachment No. 1, Commander of the A320 Air Squadron, Commander of the A330 Air Squadron of the Flight Operations Department, Deputy CEO and Director of the Flight Operations Department.
Since 2011, Deputy CEO and Flight Director at JSC Aeroflot.

Holds 0.04171% in Charter Capital of JSC Aeroflot.

Changes in the membership of the Executive Board in 2014
On 30 July 2014, Andrey Kalmykov, First Deputy CEO for Operations, left the Executive Board.

Remuneration for members of the Executive Board

The remuneration system designed for the Executive Board and the Company’s other staff enables Aeroflot to engage and retain highly qualified professionals. The remuneration amount depends on the Group-wide performance indicators. The incentives embedded in the senior managers’ remuneration are calculated in accordance with the Company’s KPI Based Employee Bonus System defined by the Statute on Bonus Payments to the Managers and Specialists of JSC Aeroflot(CEO Order No. 30 of 2 February 2011). The Statute stipulates that the incentive component of the Executive Board members’ compensation amount shall depend on their quarterly and annual performance under the KPIs approved for the relevant reporting period.

In 2013, in order to provide for long-term incentives, the Company’s Board of Directors approved a Statute on JSC Aeroflot’s Stock Option Plan. The Statute stipulates a long-term management stock option plan valid through 2015 with approximately 60 members on board.

The stock option plan draws heavily on two underlying metrics, namely: JSC Aeroflot’s market capitalisation growth in the relevant year (maximum weight of 50%), and the Company’s rank in the Top 5 market cap growth peer chart in the relevant year (maximum weight of 50%). The second metric is accounted for only when JSC Aeroflot’s market capitalisation growth is positive.

The total remuneration paid to the members of JSC Aeroflot’s Executive Board in 2014 stood at RUB 931,358,555.40.

KPI System

The 2014 KPI System for JSC Aeroflot’s CEO was approved by the Board of Directors (Minutes No. 11 of 16 December 2013), whereas the KPIs for the Company’s management and staff were approved by CEO Order No. 577 of 31 December 2013.

Pursuant to the directives of the Russian Government, JSC ­Aeroflot’s KPI System embraces financial, economic and industry-specific indicators coupled with bonus disqualification indicators, including:

  • mandatory financial and economic KPI of TSR (Total Shareholder Return) and ROIC;
  • KPI of JSC Aeroflot’s Overall Productivity (included as required by the Russian Government’s Directive No. 6362p-P13 of 24 October 2013);
  • Share of Supplies from Small and Medium-Sized Businesses, Efficient Energy Use and Environmental Friendliness (included in Aeroflot’s general KPI System and KPI lists for relevant department heads as required by the Russian Government’s Directive No. 6362p-P13 of 24 October 2013);
  • Innovative Development Programme Efficiency (since 2012, included in JSC Aeroflot’s general KPI System and KPIs for all of the Company’s Deputy CEOs as required by Letter of the Deputy Minister for Economic Development No. 3142-OF/D06 of 24 February 2012);
  • the bonus disqualification KPI of Flight Safety.

The divergence between the actual and target values of Group-level ROIC, EBITDAR, Net Income and RASK in 2014 stems from the impact the challenging market environment and exchange rates had on the Group’s financials and passenger demand.

The total shareholder return underruns result from the drop in the share value due to the macroeconomic and market forces affecting the Group’s operating and financial results (for example, a slowdown in passenger demand).

The actual flight safety and punctuality values were above the targets.

2014 KPI targets for CEO

Item Measurement units 2013 year 2014 year
Plan Actual Performance to plan Plan Actual Performance to plan
ROIC (Aeroflot Group) % 11.4% 13.3% 116.8% 12.2% 4.6% 37.4%
EBITDAR (Aeroflot Group) USD million 1,228.8 1,602.2 130.4% 1,408.0 1,266.8 90.0%
Net income (Aeroflot Group) USD million 31.34 230.30 734.7% 100 (446) 0.0%
Group-level revenue per available seat-kilometre (RASK) cent per ASK 7.71 8.16 105.8% 7.90 7.02 88.9%
Punctuality % 65.0% 59.9% 92.2% 86.0% 89.3% 103.8%
Flight safety % 99.956% 99.961% 101.1% 99.957% 99.972% 103.5%
Total shareholder Return (TSR) % n/a 21.4% (59.20%) 0.0%
Overall productivity million TKM per person n/a 0.37 0.38 103.7
Reduction of unit cost of product/works/service % 10.0% 14.56% 145.6% n/a

2015 KPI targets for CEO*

KPI (for Aeroflot Group) Weight, % Measurement unit Plan
Total shareholder Return (TSR) 5.0% % 0.0%
Return on invested capital (ROIC) 15.0% % 15.7%
Long-term debt / EBITDAR 5.0% 2.3
Investment programmes’ execution efficiency 5.0% % 80.0%
Investment programme efficiency 5.0% 3.8
Revenue per available seat-kilometre 5.0% RUB per ASK 3.20
Punctuality 15.0% % 87.0%
Flight safety of Aeroflot airline 20.0% % 99.957%
Passenger load factor 10.0% % 77.1%
Overall productivity 15.0% million ASK per person 4.066

* Approved by JSC Aeroflot’s Board of Directors, Minutes No. 15 of 23 April 2015.

In 2014, there were no changes in the KPI System or descriptions of modifications/adjustments in the KPI targets.

The 2015 KPI System was modified as compared to 2014 to bring its KPI list in line with the KPI Guidelines (Letter of the Federal Agency for State Property Management No. OD-11/22160 of 26 May 2014).

From 2015 onward, the scope of the CEO KPI list (with its KPI weights and targets) will be extended to include all members of the Company’s Executive Board. Aeroflot is thereby seeking to provide incentives for the management to pursue Group-wide corporate objectives, attain goals at the level of business units and improve the Group’s overall performance.

Committees

In pursuit of recommendations and proposals aiming to boost the Company’s business efficiency, JSC Aeroflotset up the Committees as follows:

  • Committee for Finance and Investments;
  • Committee for Innovative Development.

Committee for Finance and Investments

The Committee for Finance and Investments is a permanent collective advisory body of JSC Aeroflot.

In its operation, the Committee is guided by the applicable laws of the Russian Federation, resolutions of JSC Aeroflot’s Board of Directors, other regulations, rules and procedures of the Company, and the Statute on the Committee for Finance and Investments.

The Committee is charged, among other things, with monitoring progress in the implementation of the Company’s ongoing investment projects, providing an expert review of any such projects, passing resolutions on suspension of investment projects, determining their efficiency assessment criteria and drafting proposals on the Group’s financial, economic and marketing policies.

In 2014, the Committee for Finance and Investments held a total of 18 meetings.

Membership in the Committee for Finance and Investments as at 31 December 2014

  • Shamil Kurmashov — Deputy CEO for Finance and Network and Revenue Management, Chairman of the Committee;
  • Vadim Zingman — Deputy CEO for Customer Relations;
  • Dmitry Saprykin — Deputy CEO for Sales and Property;
  • Svetlana Arkhipova — Director of the Department for Financial Planning and Analysis;
  • Ilya Alexandrovsky — Director of the Sales Department;
  • Alexander Noskov — Director of the Economic Security Department;
  • Andrey Chikhanchin — Director of the Corporate Finance Department;
  • Evgeny Zenchenko — Deputy Director of the Corporate Strategy Department;
  • Dmitry Galkin — Advisor to the Deputy CEO for Finance and Network and Revenue Management;
  • Andrey Polozov-Yablonsky — Advisor to the CEO.

Committee for Innovative Development

The Committee for Innovative Development is a permanent collective advisory body of JSC Aeroflot’ Executive Board. It was set up to provide recommendations and proposals for the Executive Board to boost the Company’s business efficiency.

In its operation, the Committee is guided by the laws of the Russian Federation, resolutions of JSC Aeroflot’s Board of Directors and Executive Board, other regulations, rules and procedures of the Company, and the Statute on the Committee for Innovative Development.

The Committee is charged with reviewing innovative projects and providing an assessment of their efficiency, monitoring progress in the implementation of the ongoing innovative projects, passing resolutions on project suspension, setting out requirements for the design and quality of innovative development materials submitted to the Executive Board, and recommending projects for implementation.

In 2014, the Committee for Innovative Development held a total of 2 meetings.

Membership in the Committee for Innovative Development as at 31 December 2014*

  • Vitaly Saveliev — CEO and Chairman of the Committee;
  • Andrey Polozov-Yablonsky — Advisor to the CEO;
  • Kirill Bogdanov — Deputy CEO for IT;
  • Vadim Zingman — Deputy CEO for Customer Relations;
  • Shamil Kurmashov — Deputy CEO for Finance and Network and Revenue Management;
  • Dmitry Saprykin — Deputy CEO for Sales and Property;
  • Igor Parakhin — Deputy CEO and Technical Director;
  • Oleg Volkov — Director of the Department for Applied Systems;
  • Aleksey Gromakov — Director of the Department for Procurement Management.

* On 30 July 2014, Andrey Kalmykov, First Deputy CEO for Operations, left the Executive Board and Committee.

Internal Control and Audit

JSC Aeroflothas an efficient system in place for financial and economic control. It includes the Revision Committee, the Audit Committee of the Board of Directors, the Company’s governance and management bodies, and the Internal Audit Department, Aeroflot’s service for internal audit and control.

The internal control systems are designed to maximise the Company’s transparency, economic efficiency and compliance with the applicable laws.

On top of that, the Company regularly engages external auditors to confirm the accuracy of financial statements made in accordance with the Russian and international reporting standards.

Internal Audit Department

The internal control responsibilities are vested with the Internal Audit Department.

In its operation, the Department is guided by the International Standards for the Professional Practice of Internal Auditing and the underlying principles of independence, objectivity, proficiency and professional care.

In March 2014, JSC Aeroflot’s Board of Directors adopted a new version of the Statute on the Internal Audit Department produced in collaboration with the Audit Committee of the Board of Directors, and experts from the Russian Institute of Directors and PricewaterhouseCoopers Audit. The new Statute fully meets the requirements set forth in the International Standards for the Professional Practice of Internal Auditing and the Corporate Governance Code of the Bank of Russia.

The Internal Audit Department is in charge of internal audit of the Company’s units, branches and representative offices, providing advice on improvements in corporate governance and risk management, coordination of activities with the external auditor and overseeing insider information compliance. The Department also assesses efficiency of the systems for internal control, risk management and corporate governance.

In 2014, the Internal Audit Department conducted a total of 38 audits of the Company’s units and subsidiaries to identify potential risks and assess efficiency in Aeroflot’s key business lines and processes. Audit findings enabled the management to come up with proposals on further improvements in the Company’s key operations.

The Department regularly reports to the Audit Committee of JSC Aeroflot’s Board of Directors on progress in implementation of the annual plan, audits made and application of the Department’s recommendations.

In December 2014, the Board of Directors approved an Action Plan (Roadmap) for Implementation of the Corporate Governance Code at JSC Aeroflot. The Plan sets out initiatives meant to improve the systems for risk management, internal control and audit.

Revision Committee

The Revision Committee exercises control over JSC Aeroflot’s financial and economic operations to provide reasonable assurances of the Company’s business fully meeting the interests of its shareholders and requirements set forth in the applicable laws of the Russian Federation.

In its operation, the Revision Committee is guided by the Company’s Articles of Association and Statute on the Revision Committee of JSC Aeroflot.

As prescribed by the respective Statute, the Revision Committee checked for accuracy the information contained in the RAS-based annual financial statements for 2014, including the Income Statement and other documents submitted to the General Meeting of Shareholders for review. The Committee benchmarked the metrics related to the Company’s financial and economic activities in 2012–2014 and their compliance with the applicable laws in 2014.

Based on its audits, the Revision Committee prepared and approved a report providing an analysis of the Company’s balance sheet and financial results. The Committee’s report reflects changes in the balance sheet structure and key change drivers, assessing a wide range of the Company’s financial and economic operations, including compliance and procurement. The conducted audits and inspections enabled the Committee to provide recommendations meant to improve the Company’s business efficiency and thereby increase earnings and cut costs.

In its report, the Revision Committee passed a positive opinion on the accuracy of the Company’s financial statements citing no material grounds to disprove the information provided in the Balance Sheet and Income Statement of JSC Aeroflotas at 31 December 2014. The report also provides the Committee’s recommendations with regards to the Company’s business efficiency and compliance with the applicable laws.

The General Meeting of Shareholders of 27 June 2014 (Minutes No. 36 of 30 June 2014) elected members of JSC Aeroflot’s Revision Committee as follows:

  1. Igor Belikov — Head of the Russian Institute of Directors;
  2. Marina Mikhina — Advisor to the Head of the Federal Agency for State Property Management;
  3. Natalia Sligun — Deputy Head of Directorate and Head of Department at the Federal Agency for State Property Management;
  4. Mikhail Sorokin — Key Expert at a Directorate of the Federal Agency for State Property Management;
  5. Alexei Shchepin — Consultant at the Russian Ministry of Transport.

The General Meeting of Shareholders of 27 June 2014 resolved to pay members of JSC Aeroflot’s Revision Committee the total remuneration of RUB 1,152,000.

Remuneration for members of JSC Aeroflot’s Revision Committee in 2013

  • Igor Belikov — 432,000 RUR;
  • Sergey Poma — 360,000 RUR;
  • Vera Mironova — 360,000 RUR;
  • Marina Mikhina — 0 RUR;
  • Aleksander Vasilchenko — 0 RUR.

External audit

Each year, JSC Aeroflotengages an external auditor to check the financial (accounting) statements. In 2014, the Company’s auditors were as follows:

  • CJSC BDO for RAS-based financial statements;
  • ZAO PricewaterhouseCoopers Audit for IFRS financial statements.

Based on the 2014 checks, the auditors confirmed accuracy of the information provided in the financial statements of JSC Aeroflot.

5.2 Securities

Share Capital

JSC Aeroflot’s charter capital as at 31 December 2014 was RUB 1,110,616,299, consisting of 1,110,616,299 ordinary registered uncertificated shares with a par value of RUB 1 each. The Company did not issue preferred shares.

State registration numbers of JSC Aeroflotordinary share issues are 73-1 p-5142 (dated 22 June 1995) and 1-02-00010-A (dated 1 February 1999). The issues were merged by Decree No. 04-168/r of the Federal Securities Commission dated 23 January 2004, following which the issues of JSC Aeroflotordinary shares were assigned state registration number 1-01-00010-A, dated 23 January 2004.

In addition to outstanding shares, the Company has the right to issue a further 250 million ordinary registered shares (authorised shares). No additional shares were issued in 2014.

The total number of JSC Aeroflot’s shareholders as at 31 December 2014 was 10,563 (22 legal entities and 10,540 individuals), compared to 10,686 as at 31 December 2013 (26 legal entities and 10,660 individuals).

JSC Aeroflot’s register of shareholders is kept by CJSC Computershare Registrar (License No. 10-000-1-00252). The register holder’s details of are provided in the Contacts section at the end of the Annual Report.

34.8%
shares held
by legal entities,
including institutional
investors

6.3%
shares held
by individals and retail
investors

Structure of share capital of JSC Aeroflot

Russian Federation
Treasury and quasi-treasury shares
Rostec
Individuals
Legal entities (incl. institutional investors)

Information on the key shareholders of JSC Aeroflot

Holder Status As at 31 December 2013 As at 31 December 2014 Change of stake in share capital, %
Number of shares Stake in share capital Number of shares Stake in share capital
Legal entities 1,038,497,791 93.51% 1,040,412,580 93.68% 0.17
including:
Russian Federation (represented by the Federal Agency for State Property Management) Owner 568,335,339 51.17% 568,335,339 51.17%
CJSC National Settlement Depository Nominee 383,909,712 34.57% 385,852,633 34.74% 0.17
LLC Aeroflot-Finance Owner 49,690,915 4.47% 49,918,611 4.49% 0.02
Rostec state corporation for development, manufacture and export of high-tech industrial products Owner 16,720,724 1.51% 16,720,724 1.51%
LLC Aviacapital-Service Owner 19,488,599 1.75% 19,488,599 1.75%
JSC Aeroflot – Russian Airlines Issuer's account 227,696 0.02% (0.02)
Individuals 72,118,508 6.49% 70,174,661 6.32% (0.18)

Average daily trading volumes of JSC Aeroflot shares on the Moscow Exchange

Average daily volume, thousand shares
Average daily volume, RUB million

JSC Aeroflotshares, bonds and depositary receipts are traded on the stock market. The Company’s ordinary shares and exchange bonds are traded on the Russian market, and global depositary receipts (GDRs) and American depositary receipts (ADRs) are traded on foreign markets.

Shares of JSC Aeroflotare traded on the Moscow Exchange, where as at 31 December 2014 they were included in the Level 1 Quotation List (AFLT ticker). Securities transactions are subject to the T+ trading mode (T+2 settlement cycle). JSC Aeroflotshares are included in the main Russian stock indexes: MICEX, MICEX BMI (broad market), MICEX TRN (transport companies) and RTSI.

There was further growth of JSC Aeroflotshares trading volumes on the Moscow Exchange in 2014, with volumes more than doubling y-o-y from a daily average of 2,211 thousand to 5.080 thousand shares.

Outside Russia, JSC Aeroflotshares are traded as global depositary receipts (GDRs) at the over-the-counter section of the Frankfurt Stock Exchange and as American depositary receipts (ADRs) on the US over-the-counter market. One GDR/ADR represents 5 ordinary shares. Deutsche Bank Trust Company Americas acts as the depository bank, and LLC Deutsche Bank is the custodian. A total of 11,834,855 shares were converted into GDRs as of 31 December 2014, representing 1.07% of the charter capital.

In order to achieve higher GDR liquidity, the shares-to-GDR ratio was changed to 5:1 in January 2014. Also, in January 2014 the US Securities and Exchange Commission announced the launch of JSC Aeroflot’s programme of issuing Level-1 ADRs aimed at luring prospective investors and simplifying investments in Aeroflot for American OTC investors.

Maximum and minimum market price per share

2014 2013 2012 2011 2010
Maximum, RUB 86.46 86.60 55.85 81.80 84.86
Minimum, RUB 29.90 46.14 39.03 44.23 50.96

GDR programme

Programme type Sponsored Level-1 GDRs under Regulation S and Rule 144A
Ratio (shares:GDR) 5:1
Ticker AERAY
ISIN US0077712075, US0077711085

Level-1 ADR programme

Programme type Sponsored Level-1 ADRs
Ratio (shares:ADR) 5:1
Ticker AERZY
ISIN US00777K1060

Dividend Policy

In June 2014, the Annual General Meeting of JSC Aeroflot’s Shareholders approved payment of RUB 2,774.2 million (25.0% of the Company’s RAS net profit in 2013) as dividends for 2013 in accordance with the guidelines of Federal Agency for State Property Management. The amount of cash dividends per share was set at RUB 2.4984, and 8 July 2014 was chosen as at the record date. The payments were made between 27 June and 12 August 2014.

Dividends for 2013 paid to the federal budget amounted to RUB 1,419,929,010.96. The Company has no outstanding dividend payments to the federal budget.

Information on payment of the announced (accrued) dividends on JSC Aeroflot’s shares

Dividend period Total accrued dividends, ths RUB Total amount actually paid, ths RUB* Number of shares at record date Dividends per share, RUB
2009 388,383 388,346 1,110,616,299 0.3497
2010 1,205,130 1,204,915 1,110,616,299 1.0851
2011 2,000,018 1,999,927 1,106,143,588** 1.8081
2012 1,292,313 1,292,149 1,110,616,299 1.1636
2013 2,774,195 2,773,517 1,110,616,299 2.4984

* The reason for inconsistency between the amounts accrued and the amounts actually paid is that the shareholder register of JSC Aeroflotlacked current payment details of some shareholders as at the payment date.
** The reason for inconsistency in the number of shares was buyback of shares by the Company at the request of the shareholders. According to Article 76, Clause 6 of Federal Law No. 208-FZ On Joint-Stock Companies of 26 December 1995, the above-mentioned shares shall not confer any voting rights, shall not be taken into account in calculation of votes, and shall bear no dividends.

Bonds

JSC Aeroflot BO-03 bonds are traded on Moscow Exchange, where they are included in the Level 2 Quotation List, as well as in the Bank of Russia’s Lombard List (a list of securities that are acceptable as collateral for direct repo transactions).

Coupons on JSC Aeroflot’s bonds in the reporting year were paid in full and on schedule:

  • 3 April 2014: BO-03 bond payments of RUB 206,950,000.00 (two hundred and six million nine hundred and fifty thousand roubles) for the second coupon period;
  • 2 October 2014: BO-03 bond payments of RUB 206,950,000.00 (two hundred and six million nine hundred and fifty thousand roubles) for the third coupon period.

In May 2014, Fitch Ratings international agency affirmed for a fourth time the ratings it had assigned to JSC Aeroflot as follows:

  • Long-term foreign currency issuer rating was confirmed at the level of BB-, Stable Outlook.
  • Long-term local currency issuer rating was confirmed at the level of BB-, Stable Outlook.
  • The national long-term rating was confirmed at the level of A+ (rus), Stable Outlook.

Bonds of JSC Aeroflot

Type Issue name Number of bonds issued Par value, RUB Coupon, % Maturity date Offer Fitch credit rating
Exchange-traded bonds JSC Aeroflot BO-03 5,000,000 1,000 8.30 31 March 2016 -w BB-
6
RISK MANAGEMENT
REACHING
NEW HEIGHTS
Means considering even the smallest details
to achieve large-scale results

Risk description

Aeroflot Group is committed to building a unified risk management framework across its subsidiaries based on the approaches adopted by JSC Aeroflot, its major asset.

Aeroflot airline has put in place a comprehensive and effective risk management system, which promptly identifies risks, assesses their materiality, and promptly responds to them, helping to eliminate or minimise these risks. In assessing risks, the Company applies a probabilistic approach and uses mathematical models to measure risk impact on its performance.

Risk management spans all management levels and functional and project areas, with the respective functions distributed among the Board of Directors, Audit Committee, Executive Board, as well as risk management and other divisions of JSC Aeroflot.

To minimise its risks, Aeroflot airline has a targeted policy that includes insurance, hedging, setting limits, and coverage requirements. Other risk mitigants are personnel development, upgrading fleet and using advanced technologies in flight safety, market risk managements, and pilot training. The Company’s risk management relies on a holistic approach aimed at scaling down adverse risk impact and reducing the probability of risk events and Aeroflot airline’s total exposure to all types of risks.

Risk type Description Mitigants
Financial risks Risks triggered by movements in market indicators, such as FX and interest rates. Financial risks may cause a substantial reduction in the Company’s profit. Aeroflot airline implements a set of initiatives to mitigate the potential negative effect of financial risks or to eliminate them.
Market risks Risks of asset value reductions caused by changes in the market environment.
Price risk Risk related to changes in aviation fuel prices linked to global oil prices. Aviation fuel accounts for over 30% of the Company total expenses, and any fluctuations in fuel prices have a material impact on the Company’s aggregate expenditure. Aeroflot airline uses financial instruments to hedge its price risks. As at the beginning of 2015, the Company hedged nearly 70% of its planned fuel consumption. The hedging structure employed by Aeroflot airline is in line with its international peers’ practices.
Currency risk Currency risk is associated with FX rate fluctuations and can significantly affect both the Company’s and the Group’s financial performance as Aeroflot airline operates in international markets and carries out settlements in various currencies. The Company hedged around 23% of its open FX position in euro targeted in 2015. As at the end of 2014 – beginning of 2015, the performance of FX rates was favourable for the Company.
Interest rate risk Risk of interest rate fluctuations, which may result in relatively higher borrowing costs due to an increase in the Company’s interest expenses. The risk is primarily associated with Aeroflot airline’s lease agreements with a floating LIBOR rate. LIBOR movements in the international market may push up interest payments under the lease agreements. Aeroflot airline monitors interest rates on a regular basis and is ready to start hedging when needed.
Credit risks Risks pertaining to the inability of the Company’s counterparties to meet their financial obligations.
Aeroflot airline has the following credit risk sources:
  • receivables due from agents selling passenger and cargo transportation services under agency agreements;
  • transactions with counterparty banks that have an inherent credit risk (deposits, guarantees, derivative transactions).
Aeroflot airline applies a consistent approach to managing and mitigating its credit risks as set out in its internal regulations.
To reduce risks related to accounts receivable, agents selling air transportation services are required to provide security in the form of bank guarantees or deposits. Security amount is subject to monthly review depending on the agent’s financial standing, payment discipline, and sales volume. Aeroflot airline assesses counterparty credit risk every ten days. For counterparty banks, there is a system of credit risk limits: linked to risk duration, it helps calculate the potential amount to be paid by the bank to the Company. When setting a credit risk limit, the Company factors in the results of financial analysis and expert estimates of credit institutions. The available and the remaining limits are calculated based on the information from all the companies which are part of Aeroflot Group. Financial standing of counterparty banks and limits are reviewed on a quarterly basis. In addition, the Company regularly monitors various sources (mass media, official websites of government authorities, such as the Federal Bailiffs’ Service and Federal Tax Service of Russia, Higher Arbitration Court files, etc.) for non-financial information. As at the end of 2013, the Company had nearly 90 banks on its approved partner list. In 2013, thanks to its effective credit risk monitoring and management, Aeroflot airline did not incur any financial losses from its counterparty transactions.
Liquidity risks Risks pertaining to the Company’s inability to meet its obligations to counterparties. To mitigate liquidity risk, Aeroflot airline’s finance functions are engaged in careful planning of cash inflows and outflows to identify and promptly eliminate potential gaps by raising short-term loans from credit institutions.
Operating risks Risks related to Aeroflot airline’s operations, which may be caused by internal process errors, employee actions, automated system failures or external factors. Aeroflot airline has effective measures in place to minimise its operating risks and prevent potential losses.
The Company insures the bulk of its operating risks. Those which cannot be insured (other operating risks) are classified by their origin as either internal or external.
Aviation risks Aviation risks include risks of an aircraft going missing, loss of or damage to the aircraft and/or its parts and components, civil liability risk of the carrier, and military risks. All aviation risks of Aeroflot airline are subject to insurance and account for over two thirds of the Company’s total insurance expenditure.
In 2014, aviation risk insurance agreements were extended on a scheduled basis. JSC Aeroflot included its subsidiaries (Orenburg Airlines, Rossiya Airlines, Donavia, Aurora and Pobeda Airlines) in consolidated reinsurance coverage, reducing both its own and the Group’s insurance rates. Stabilisation of the global aviation insurance market was another factor driving the rates down by an average of 14%. Hence, despite the considerably higher aircraft fleet costs and the growing passenger traffic, the total aviation risk insurance premium remained flat against the previous insurance period.
As during the past two years, the Company’s direct insurer for the new insurance period was AlfaStrakhovanie, while SOGAZ became the coinsurer.
Aeroflot airline benefited from the combined offering of the two major Russian aviation insurers, which provided full coverage of Aeroflot airline’s aviation risks through coinsurance. Among western reinsurers, the Company selected Willis Ltd, the world’s leading aviation broker, and AON as a cobroker, for the second year running. With a cobroker engaged to place its risks, the Company was able to leverage the intellectual capital of both companies, ensure transparent pricing and enjoy additional advice on how to improve and extend the current coverage and insurance proposals.
Operational risks Risks of an aircraft going missing, loss of or damage to the aircraft and/or its parts and components.
Carrier civil liability risk Risks related to damages to the lives, health and property of third parties, lives and health of passengers, loss, partial loss or damage to passengers’ baggage and personal belongings, damages to cargo owner or shipper.
Military risks Risks associated with Aeroflot airline’s countries of operation, which primarily cover risks of wars, civil wars, coups d’état, upheavals, revolts, revolutions, etc., as well as actions that may result in malicious acts, sabotage, nationalisation, appropriation or terrorist acts against the Company’s assets.
Non-aviation risks Risks which are not related to operating an aircraft but have a material impact on the Company’s day-to-day business. These risks include medical and workplace accident risks. Non-aviation risks are also subject to insurance.
Medical risks Risks related to the health of the Company’s employees and their families. Heath insurance makes up nearly 30% of the Company’s total insurance expenditure. Aeroflot airline offers comprehensive voluntary health insurance to its employees and their families, retirees, and employees and their families working at the Company’s foreign representative offices in over 46 countries. SOGAZ is Aeroflot airline’s health insurance partner both in Russia and overseas. The insurance is provided to over 30 thousand persons, including over 19 thousand employees of the Company. In 2014, more than 1,300 people received health resort treatment arranged by Aeroflot Medical Centre.
Workplace accident risks These risks include death, disability (Group I, II and III) injury resulting from an accident, and temporary or permanent occupational disability due to an accident or illness. As per the Air Code of the Russian Federation, the Company provides accident insurance to its air and cabin crew members and employees involved in flight services, while at work or going to/from work. Accident insurance accounts for nearly 2% of the Company’s total insurance expenditure. It covers more than 11 thousand employees, who are classified into three groups depending on their position and insurance terms. Each group has its own insurance coverage based on the age, employment period and risks covered.
Other operating risks subject to insurance The Company is exposed to a wide range of non-aviation risks that may affect its operations, including risks of hijacking, theft of or damage to vehicles, accidents involving vehicle drivers or passengers, and risks related to operating hazardous industrial facilities, property loss or damage, management decisions, etc. Aeroflot airline has launched a number of insurance programmes covering a broad range of operating risks, including motor insurance (compulsory motor third-party liability and motor hull insurance), comprehensive civil liability insurance, hazardous industrial facilities insurance, liability insurance for temporary storage owners, liability insurance for the Board of Directors and the Executive Board, and property insurance.
Legal risks These risks include regulatory and geopolitical risks.
Regulatory risks Risks related to changes in:
  • currency regulations,
  • tax laws,
  • customs clearance rules and duties,
  • legislation on joint-stock companies.
Aeroflot airline closely monitors legislative changes and is actively involved in international organisations to contribute to the development and improvement of the aviation regulatory framework.
Geopolitical (country and regional) risks Risks related to geopolitical changes in the regions covered by the carrier’s route network. The airline is especially focused on analysing country-specific risks and selecting the appropriate response measures (suspending flights, changing routes, enhancing aviation security and sanitary and epidemiological control, etc.).
Business risks Risks associated with running and expanding business and inherent in any company operating in the market. Business risk management is directly linked to the Company’s strategy and management efficiency.
Competition risks Risk pertaining to competitor operations. Aeroflot airline flies routes where it competes extensively with domestic and international air carriers. Flexible in responding to market trends, the Company offers strong value for money. Its transfer passengers benefit from quick and easy connections between domestic and international flights with minimum waiting time.
Aeroflot airline fosters code-sharing cooperation with Sky Team Alliance members, expanding its flight coverage and travel offering.
By ensuring maximum flight safety, best in class services and a wide range of travel destinations and a loyalty programme, the Company maintains a great customer experience and strengthens its competitive edge in the long run.
Demand fluctuation risks Risks related to the seasonality of air travel demand. The air transportation industry is subject to seasonal demand fluctuations. Traditionally, travel activity peaks during holiday and vacation periods, when domestic and international flights have the highest load factor. Aeroflot airline increases passenger load by expanding its route network with travel destinations popular all year round. To boost its winter passenger traffic, the Company runs a variety of promotions, discounts and offers. In addition, the arrival and departure schedule is organised to ensure maximum passenger convenience, so that the traffic remains high even when demand is slack.
Reputational risks Risks pertaining to damage to the Company’s reputation. The Company puts strong emphasis on its reputation of a best in class, safe carrier and a reliable partner, putting every effort into protecting its good standing and brand.
Its management pays a lot of attention to monitoring and improving service quality and implementing cutting-edge service technologies, also by engaging third-party contractors, which help enhance customer loyalty.
Environmental risks Risks associated with the Company’s environmental footprint. Striving to minimise its environmental impact, Aeroflot airline upgrades its fleet with new generation aircraft that combine higher fuel efficiency with lower air emissions. The carrier has developed and approved the Environmental Management Guidelines in line with the ISO 14000 standards.
7
FINANCIAL RESULTS
WE AIM
TO BE FIRST
Achieving strong results and reaching goals no matter
what the obstacles or conditions

7.1 Overview
of Financial Results

Key figures of statement of profit or loss*

RUB million, unless otherwise stated 2014 2013 Change
Revenue
Operating costs
319,771
(308,503)
290,956
(271,161)
9.9%
13.8%
EBITDAR
EBITDAR margin
48,673
15.2
51,026
17.5
(4.6%)
(2.3 p.p.)
EBITDA
EBITDAR margin
24,839
7.8%
31,849
10.9%
(22.0%)
(3.1 p.p.)
Operating profit
Operating profit margin
11,268
3.5%
19,795
6.8%
(43.1%)
(3.3 p.p.)
(Loss)/profit for the year
Net profit margin
(17,146)
-
7,335
2.5%
-
-
Adjusted net profit for the year
Adjusted net profit margin
10,844
3.4%
15,944
5.5%
(32.0%)
(2.1 p.p.)

* Please note that in this and other tables, charts and text of this section immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding.

In 2014 Aeroflot Group’s total revenue amounted to RUB 319,771 million, up by 9.9% as compared to 2013 on the back of passenger traffic growth of 10.7% and other revenue increase.

Aeroflot Group financial results were significantly influenced by the change in USD/RUB and EUR/RUB exchange rates. The exchange rates contributed to the revenue dynamics, however, positive effect of Russian currency devaluation was offset by the adjustments in fare policy in order to maintain passenger traffic. Depreciation of the Rouble also led to an increase in the operating costs and resulted in revaluation of aircraft finance lease liabilities. As a result of liabilities revaluation and other one-off mainly non-cash effects Aeroflot Group’s net loss amounted to RUB 17,146 million compared to net profit of RUB 7,335 million in 2013. Net profit adjusted by the aforementioned factors amounted to RUB 10,844 million.

Despite external macroeconomic instability and sharp decline in the international tourism segment, Aeroflot Group generated positive operating profit of RUB 11,268 million compared to RUB 19,795 million in 2013.

Financial highlights of JSC Aeroflot and Group’s subsidiaries for 2014**

RUB million, unless otherwise stated JSC Aeroflot Total for airline subsidiaries
2014 2013 Change 2014 2013 Change
Revenue 257,684 221,316 16.4% 75,847 76,467 (0.8%)
Operating profit 16,266 17,280 (5.9%) (7,382) 436
EBITDA 27,673 26,938 2.7% (5,287) 2,806
Net profit/(loss) (5,784) 8,956 (15,383) (3,352)

** before intra-Group balances are eliminated.

Airline subsidiaries’ performance negatively affected bottom line of the Group due to the decline in the operating profitability in the environment of slowdown of consumer demand as well as due to one-off provisions.

Transportation and other revenue

Revenue dynamics

RUB million, unless otherwise stated 2014 2013 Change
Passenger flight revenue 268,636 247,768 8.4%
incl. scheduled passenger flights 253,613 230,594 10.0%
incl. charter passenger flights 15,023 17,174 (12.5%)
Cargo flights 8,718 9,778 (10.8%)
Airline agreements revenue 21,605 16,886 27.9%
Other revenue 20,812 16,524 26.0%
Total revenue 319,771 290,956 9.9%

Revenue breakdown in 2014

Scheduled passenger flights
Charter passenger flights
Cargo transportation
Airline agreements
Other revenue

Revenue breakdown in 2013

In 2014, passenger flight revenue accounted for 84.0% of Group’s total revenue, including 79.3% for scheduled passenger flights and 4.7% for charter passenger flights. The share of cargo revenue stood at 2.7%, while the share of other revenue was 13.3%, including a 6.8% share of airline agreements revenue.

Passenger flights revenue amounted to RUB 268,636 million, up by 8.4% as compared to 2013. The key driver of the passenger flight revenue increase was the revenue from scheduled passenger flights that showed a 10.0% growth and reached RUB 253,613 million on the back of a 10.7% y-o-y increase in Group’s passenger traffic. The revenue from charter passenger flights declined by 12.5% to RUB 15,023 million as a result of the overall market developments in the segment.

Cargo revenue stood at RUB 8,718 million, down by 10.8% y-o-y, primarily due to the suspension of Aeroflot airline cargo fleet operations in 2013 and refocus on passenger fleet belly cargo operations.

Other revenue, including airline agreements revenue, amounted to RUB 42,417 million, up by 27.0% y-o-y, mainly affected by airline agreements, nominated in foreign currency, Aeroflot Bonus and third-party aircraft fuelling income as the main revenue growth contributors.

Yields

In 2014, scheduled flight yields decreased by 0.7% due to a number of factors, including domestic yields (a 2.8% yield decline) on the back of tougher market competition, introduction of non-refundable fares and limited air tickets price increase at the end of the year. Rouble yields of international destinations grew by 0.8%, following the positive effect the Rouble weakening had on fares denominated in foreign currency during Q4 2014. This was partially offset by a reduction in outbound flight fares denominated in foreign currency , which was aimed at maintaining passenger load factor during the sharp depreciation of the Rouble. In Q4 2014, international scheduled flight yields showed an increase of 12.1%.

The growth in cargo yields was related to the suspension of the dedicated cargo fleet operations in 2013 and switching entirely to passenger fleet belly cargo operations.

Scheduled passenger flights yields, RUB/PKM

2013
2014
Change

Cargo yeilds, RUB/TKM

2013
2014
Change

Operating costs

Operating costs dynamics

RUB million, unless otherwise stated 2014 2013 Change
Aircraft servicing and passenger services 61,070 52,830 15.6%
% of revenue 19.1% 18.2% 0.9 p.p.
Staff costs 52,148 45,349 15.0%
% of revenue 16.3% 15.6% 0.7 p.p.
Operating lease expenses 23,834 19,177 24.3%
% of revenue 7.5% 6.6% 0.9 p.p.
Aircraft maintenance 19,224 20,374 (5.6%)
% of revenue 6.0% 7.0% (1.0 p.p.)
Sales and marketing, administration and general expenses 22,206 21,471 3.4%
% of revenue 6.9% 7.4% (0.5 p.p.)
Depreciation, amortisation and customs duties 13,571 12,054 12.6%
% of revenue 4.2% 4.1% 0.1 p.p.
Other costs 29,251 20,778 40.8%
% of revenue 9.1% 7.1% 2.0 p.p.
Total operating costs, excluding aircraft fuel 221,304 192,033 15.2%
% of revenue 69.2% 66.0% 3.2 p.p.
Aircraft fuel 87,199 79,128 10.2%
% of revenue 27.3% 27.2% 0.1 p.p.
Total operating costs 308,503 271,161 13.8%
% of revenue 96.5% 93.2% 3.3 p.p.

Operating costs breakdown in 2014

Aircraft fuel
Aircraft servicing and passenger services
Staff costs
Operating lease expenses
Aircraft maintenance
Sales and marketing, administration and general expenses
Depreciation, amortisation and customs duties
Other costs

Operating costs breakdown in 2013

In 2014, Aeroflot Group’s operating costs amounted to RUB 308,503 million, up by 13.8%, with the largest share of aircraft fuel (28.3%), aircraft servicing and passenger services (19.8%) and staff (16.9%) costs.

Aircraft fuel costs increased by 10.2% in 2014 compared to 2013 and reached RUB 87,199 million, following the fluctuations of oil and jet fuel prices and the Rouble weakening as well as the increase in the operations volume , aircraft fleet and network expansion.

Aircraft servicing and passenger services costs amounted to RUB 61,070 million, up by 15.6% y-o-y, mainly due to effect of the Rouble exchange rate movements, Group’s expansion and changed service tariffs.

Staff costs went up by 15.0% y-o-y to RUB 52,148 million on the back of Group’s headcount growth, growth in scale and size of operations, 2013 year-end salary inflation adjustment as well as other factors, including the review of the incentive system in subsidiaries to bring it up with JSC Aeroflotstandards.

Operating lease expenses grew by 24.3% y-o-y up to RUB 23,834 million, which was primarily related to the effect of the Rouble exchange movements as well as Group’s aircraft fleet expansion throughout the year.

Aircraft maintenance costs decreased by 5.6% to RUB 19,224 million, mainly due to the revision of the repair and maintenance programme after MD-11 and IL-96 aircraft phase out.

Sales and marketing, administration and general expenses amounted to RUB 22,206 million and were in line with the previous year.

Depreciation, amortisation and customs duties grew by 12.6% and amounted to RUB 13,571 million as a result of Group’s aircraft fleet expansion.

Other costs amounted to RUB 29,251 million, up by 40.8% y-o-y, primarily due to accruals of provisions for accounts receivable and bank fees.

EBITDA and EBITDAR

In 2014, Aeroflot Group’s EBITDA declined by 22.0% y-o-y to RUB 24,839 million, with its EBITDA margin slipping from 10.9% in 2013 to 7.8% in 2014. Group’s EBITDAR was also down in 2014 and amounted to RUB 48,673 million, a 4.6% y-o-y decrease. EBITDAR margin decreased from 17.5% in 2013 to 15.2% in 2014. Margins’ decline was driven by higher operating costs growth compared to revenue growth as a result of the aforementioned factors.

EBITDAR (RUB million) and EBITDAR margin (%)

EBITDAR
EBITDAR margin, %

EBITDA (RUB million) and EBITDA margin (%)

EBITDAR
EBITDAR margin, %

Financial income and costs

Financial income and expenses dynamics

RUB million, unless otherwise stated 2014 2013 Change
Financial income
Realised gain on derivative financial instruments 1,058 1,812 (41.6%)
Interest income on bank deposits and security deposits 958 543 76.4%
Gain on disposal of investments 1 331
Other financial income 454
Total financial income 2,471 2,686 (8.0%)
Financial expenses
Foreign exchange loss 9,720 3,348 190.3%
Realised loss on derivative financial instruments 3,871 1,192 224.7%
Loss on change in fair value of derivative financial instruments/td> 9,869 939 951.0%
Interest expenses 4,934 3,320 48.6%
Other financial expenses 5 15 (66.7%)
Total financial expenses 28,399 8,814 222.2%
Hedging result
Ineffective portion of fuel hedging (1,187)
Effect of revenue hedging with foreign exchange liabilities (536)
Total hedging result (1,723)

In 2014, finance income decreased to RUB 2,471 million, down by 8.0% y-o-y, due to reduced realised gain on derivative financial instruments.

Finance costs surged to RUB 28,399 million in 2014, mainly due to foreign exchange loss of RUB 9,720 million, which was primarily driven by revaluation of finance lease liabilities, increased interest expenses (up to RUB 4,934 million) as well as losses from derivatives (RUB 13,740 million).

In 2014, hedging result included the effect of hedging of revenue with finance lease liabilities denominated in foreign currency and ineffective portion of fuel hedging and amounted to RUB 1,723 million.

Cash flows

Aggregated consolidated statement of cash flows

RUB million, unless otherwise stated 2014 2013 Change
(Loss)/profit before income tax (16,352) 13,704
Depreciation and amortisation 12,136 10,658 13.9%
Change in provisions 4,328 998 333.7%
Foreign exchange loss 14,795 3,348 341.9%
Loss on change in fair value of derivative financial instruments 9,869 939 951.0%
Hedging result 1,723
Interest expenses 4,934 3,320 48.6%
Other adjustments 88 (83)
Working capital changes and income tax paid/refunded 4,456 (3,939)
Net cash flows from operating activities 35,977 28,945 24.3%
Purchases of property, plant and equipment and intangible assets (6,160) (4,410) 39.7%
Purchases of investments and deposits placement (2,552) (361) 606.9%
Proceeds from sale of investments and deposits return 1,869 228 719.7%
Prepayments / return of prepayments for aircraft, net (11,741) 629
Other 92 315 (70.8%)
Net cash flows used in investing activities (18,492) (3,599) 413.8%
Free cash flow 17,485 25,346 (31.0%)
Proceeds from loans and borrowings 18,398 6,500 183.0%
Repayment of loans and borrowings (9,870) (14,579) (32.3%)
Sale/(buyback) of treasury shares, net 2 353 (99.4%)
Repayment of the principal of financial lease liabilities (15,629) (9,795) 59.6%
Interest paid (3,409) (2,857) 19.3%
Dividends paid (2,833) (1,289) 119.8%
(Payments)/proceeds on settlement of derivative financial instruments, net (1,451) (127) 1,042.5%
Proceeds from sale of treasury shares to non-controlling shareholders 119 12 891.7%
Net cash used in / from financing activities (14,673) (21,782) (32.6%)
Effect of exchange rate fluctuations 5,075 26
Net increase/(decrease) in cash and cash equivalents 7,887 3,590 119.7%
Cash and cash equivalents at the beginning of the year 18,660 15,070 23.8%
Cash and cash equivalents at the end of the year 26,547 18,660 42.3%
Cash flows from operating activities

In 2014, net cash flows from operating activities had a gain of RUB 7,032 million (24.3% y-o-y) and reached RUB 35,977 million despite loss before income tax of 16,352. Core adjustments to net cash flows from operating activities for 2014 were related to:

  1. foreign exchange loss of RUB 14,795 million related to USD/RUB change from 32.73 as of 1 January 2014 to 56.26 as of 31 December 2014;
  2. depreciation and amortisation of RUB 12,136 million, up by RUB 1,478 million (13.9% y-o-y), primarily due to increase in cost of fixed assets (27.9% y-o-y);
  3. loss from change in the fair value of derivative financial instruments, standing at RUB 9,869 million, which is non-cash revaluation of hedging instruments due to the Rouble devaluation and decline in jet fuel price in US dollars;
  4. income tax paid/refunded and working capital change mainly due to the change in accounts receivable and prepayments as well as accounts payable and accrued liabilities.
Free cash flow

In 2014, free cash flow totalled RUB 17,485, down by RUB 7,861 million (31.0% y-o-y), which was driven by the increase in net cash flows used in investing activities by RUB 14,893 million, and the increase in net cash flows from operating activities by RUB 7,032 million.

Key drivers of y-o-y change in net cash flows used in investing activities are:

  1. aircraft prepayments for Airbus A320, Airbus A321 and Boeing 777, totalling RUB 21,361 million (RUB 7,154 million in 2013);
  2. purchases of investments and deposits placement, totalling RUB 2,552 million (RUB 361 million in 2013);
  3. purchases of property, plant and equipment and intangible assets, totalling RUB 6,160 million (RUB 4,410 million).

In 2014, the internal-financing ratio (net cash flows from operating activities to capital expenditure) stood at 413.0% (607.8% in 2013).

Cash and cash equivalents grew by RUB 7,887 million (42.3% y-o-y) from RUB 18,660 million to RUB 26,547 million, driven among other factors by the effect of exchange rate fluctuations on cash and cash equivalents in the amount of RUB 5,075 million (RUB 26 million in 2013). Cash and cash equivalents and short-term financial investments reached RUB 27,508 million (RUB 18,932 million in 2013).

Cash flows from operating activities and free cash flow (RUB million)

Free cash flow
Net cash flows from operating activities

Capital expenditure*, cash flows from operating activities, depreciation and amortisation (RUB million)

Depreciation and amortisation
Net cash flows from operating activities
Capital expenditure

* Capital expenditure doesn’t include prepayments for aircraft.

Consolidated statement of financial position summary

Aggregated consolidated statement of financial position

RUB million, unless otherwise stated 31 December 2014 31 December 2013 Change
ASSETS
Cash, cash equivalents and short-term financial investments 27,508 18,932 45.3%
Other current assets 64,705 62,533 3.5%
Total current assets 92,213 81,465 13.2%
Property, plant and equipment 116,044 88,777 30.7%
Other non-current assets 69,461 38,942 78.4%
Total non-current assets 185,505 127,719 45.2%
TOTAL ASSETS 277,718 209,184 32.8%
LIABILITIES AND EQUITY
Current liabilities 135,136 67,971 98.8%
Non-current liabilities 156,087 86,733 80.0%
Total equity (13,505) 54,480
TOTAL LIABILITIES AND EQUITY 277,718 209,184 32.8%

Assets breakdown as at 31 December

Other non-current assets
Property, plant and equipment
Other current assets
Cash, cash equivalents, and short-term financial investments
Non-current assets

In 2014, non-current assets increased by 45.2% and reached RUB 185,505 million mainly due to the increase in property, plant and equipment by RUB 27,267 million (30.7% y-o-y). Key contributor to the increase in the property, plant and equipment was the addition of six Boeing 777 aircraft under financial lease agreements. The growth of non-current assets was also influenced by prepayments for Airbus A320 and Airbus A321 under new agreements, totalling RUB 21,361 million.

Current assets

In 2014, current assets grew by 13.2% up to RUB 92,213 million on the back of RUB 8,576 million cash and short-term financial investment increase.

Equity

In 2014, equity, including non-controlling interests, dropped by RUB 67,985 million to a negative value of RUB 13,505 million. The key driver of this decrease was the adoption of specific hedge accounting in regards to foreign currency risks for part of revenue denominated in USD with finance lease liabilities denominated in the same currency, and foreign currency risks for part of revenue in EUR with derivative financial instruments, as well as risks of changes in aircraft fuel prices with derivative financial instruments.

As at 31 December 2014, the hedging reserve, including deferred tax, in the Group’s equity stood at RUB 48,657 million. The effect from this reclassification of losses recognised in other comprehensive expenses from hedging will affect the results of future periods along with revenue recognition and aircraft fuel purchases.

Current liabilities

In 2014, current liabilities increased by RUB 67,165 million or by 98.8% y-o-y, which was mainly driven by a surge of RUB 26,099 million in derivative financial instruments value. To a lesser extent the growth was attributed to RUB 12,703 million increase in accounts payable and accrued liabilities, RUB 8,224 million increase in financial lease liabilities and RUB 6,135 million increase in unearned traffic revenue. Short-term loans and borrowings and current portion of long-term loans and borrowings rose by RUB 12,314 million, primarily due to the raise of the new debt.

Non-current liabilities

In 2014, non-current liabilities increased by 80% or by RUB 69,354 million and reached RUB 156,087 million. The key drivers of the increase were finance lease liabilities that grew by RUB 69,018 million due to the sharp Rouble depreciation and addition of six Boeing 777 to Aeroflot Group’s fleet in 2014.

Debt and liquidity

Net debt dynamics

RUB million, unless otherwise stated 31 December 2014 31 December 2013 Change
Loans and borrowings 24,203 13,406 80.5%
Financial lease 149,278 72,036 107.2%
Pension liability 659 707 (6.8%)
Customs duties 169 436 (61.2%)
Total debt 174,309 86,585 101.3%
Cash, cash equivalents and short-term financial investments 27,508 18,932 45.3%
Net debt 146,801 67,653 117.0%
Net debt / EBITDA 5.9x 2.1x

Total debt increased to RUB 174,309 million, up by 101.3% as of 31 December 2014. This was primarily driven by the increase in finance lease liabilities denominated in foreign currency after the Rouble exchange rate significantly changed against the US dollar and Euro. Although the share of foreign currency liabilities stands at 98.1% of the total volume of financial lease liabilities, 65.8% of payments under financial lease agreements are due from 2018 onwards.

Aeroflot Group’s loans and borrowings, both fixed-rate and variable-rate, were mainly used to finance the working capital. The shares of foreign currency and Rouble denominated liabilities in the loan portfolio are 49.3% and 50.7% respectively.

Cash, cash equivalents and short-term financial investments amounted to RUB 27,508 million as at 31 December 2014, which represents an increase of 45.3% y-o-y. In 2014, net cash flows from operating activities reached RUB 35,977 million, as compared to RUB 28,945 million in 2013. The current liquidity ratio as at 31 December 2014 amounted to 0.7x versus 1.2x as at 31 December 2013.

As at 31 December 2014, the Group had RUB 21.6 billion undrawn credit facilities from Russian and international banks.

Currency breakdown of loans and borrowings as at 31 December 2014

US dollar
Russian rouble

Currency breakdown of financial lease liabilities as at 31 December 2014

US dollar
Russian rouble

Financial lease payment
schedule

Liabilities breakdown as at 31 December, %

Non-current liabilities
Current liabilities

Loan portfolio breakdown

Bank Interest rate Currency Short-term loans and borrowings Long-term loans and borrowings and short-term portion of long-term loans and borrowings
Rosbank Libor+4.5% USD 3,382
Alfa Bank from 11.9% to 14.8% RUB 2,804
Nordea Bank Libor+5.0% USD 2,523
CREDIT BANK OF MOSCOW 5.75% USD 2,253
VTB 7.5% USD 2,251
Citibank Libor+3.5% USD 1,154
Rossia Bank from 11.3% to 14.0% RUB 1,100
Gazprombank 13.0% RUB 758
BFA Bank 12.4% and 12,9% RUB 513 1 500
Sberbank of Russia from 11.0% to 12.5% RUB 503
BO–03 series bonds 8.3% RUB 102 5,000
Other USD 360
Total     17,343 6,860
IFRS Consolidated Financial Statements for the year ended 31 December 2014
IFRS Consolidated Financial
Statements for the year
ended 31 December 2014

7.2 Statement of
management’s
responsibilities

for the preparation and approval of the Consolidated Financial Statements as at and for the year ended 31 December 2014

The following statement, which should be read in conjunction with the independent auditor’s responsibilities stated in the independent auditor’s report set out below, is made with a view to distinguishing the respective responsibilities of management and those of the independent auditor in relation to the consolidated financial statements of Joint Stock Company Aeroflot — Russian Airlines and its subsidiaries (the «Group»).

Management is responsible for the preparation of consolidated financial statements that present fairly the consolidated financial position of the Group as at 31 December 2014, and the financial 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 judgements and estimates that are reasonable and prudent;
  • stating whether IFRS have been complied with, subject to any material departures being disclosed and explained in the notes to 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, information about financial position of the Group, and the financial results of its operations and cash flows 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 of the Group for the year ended 31 December 2014 (set out on pages 142–189) were approved on 27 February 2015 and signed on behalf of management by:

V.G. Saveliev

General Director

Sh.R. Kurmashov

Deputy General Director for Finance and Network and Revenue Management

7.3 Independent
Auditor’s Report

To the Shareholders and Board of Directors of Joint Stock Company Aeroflot — Russian Airlines

We have audited the accompanying consolidated financial statements of Joint Stock Company Aeroflot — Russian Airlines and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2014 and the consolidated statements of profit or loss, comprehensive income, changes in equity and cash flows for 2014, and notes comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the fair presentation of these consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 express an opinion on the fair presentation of these consolidated financial statements.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2014, and its financial performance and its cash flows for 2014 in accordance with International Financial Reporting Standards.

27 February 2015
Moscow, Russian Federation

A.N. Korablev

Senior Manager (licence no. 01-000389), ZAO PricewaterhouseCoopers Audit

Audited entity: Joint Stock Company Aeroflot — Russian Airlines

State registration certificate № 032.175, issued by
the Moscow Registration Chamber on 21 June 1994
Certificate of inclusion in the Unified State Register of Legal Entities
issued on 2 August 2002 under registration № 1027700092661
Address of audited entity:
10 Arbat street, 119002, Russian Federaion

Independent auditor

ZAO PricewaterhouseCoopers Audit
State registration certificate № 008.890, issued by the Moscow Registration Chamber
on 28 February 1992
Certificate of inclusion in the Unified State Register of Legal Entities
issued on 22 August 2002 under registration № 1027700148431
Certificate of membership in self regulated organisation non-profit partnership
“Audit Chamber of Russia” № 870. ORNZ 10201003683 in the register
of auditors and audit organizations

7.4 IFRS Consolidated
Financial Statements

according to International Financial Reporting Standards (IFRS) for the year ended 31 December 2014

Consolidated Statement of Profit or Loss for the year ended 31 December 2014 (All amounts in millions of Russian Roubles, unless otherwise stated)

Note 2014 2013
Traffic revenue 5 277,354 257,546
Other revenue 6 42,417 33,410
Revenue 319,771 290,956
Operating costs, excluding staff costs and depreciation and amortisation 7 (239,327) (212,105)
Staff costs 8 (52,148) (45,349)
Depreciation and amortisation 19, 20 (12,136) (10,658)
Other operating expenses and income, net 9 (4,892) (3,049)
Operating costs (308,503) (271,161)
Operating profit 11,268 19,795
Finance income 10 2,471 2,686
Finance costs 10 (28,399) (8,814)
Hedging result 10 (1,723)
Share of results of associates 31 37
(Loss)/profit before income tax (16,352) 13,704
Income tax 11 (794) (6,369)
(Loss)/profit for the year (17,146) 7,335
Attributable to:
  • Shareholders of the Company
(15,471) 8,016
  • Non-controlling interest
(1,675) (681)
(LOSS)/PROFIT FOR THE YEAR (17,146) 7,335
(Loss)/profit per share — basic (in Roubles per share) (14.6) 7.6
(Loss)/profit per share — diluted (in Roubles per share) (14.6) 7.6
Weighted average number of shares outstanding (millions) 1,056.9 1,054.1
Weighted average number of diluted shares outstanding (millions) 1,056.9 1,054.1

The consolidated statement of profit or loss should be read in conjunction with the notes set out on pages 150 to 189 which are forming part of the consolidated financial statements

Approved on 27 February 2015 and signed on behalf of management

V.G. Saveliev

General Director

Sh.R. Kurmashov

Deputy General Director for Finance and Network and Revenue Management

Consolidated Statement of Comprehensive Income for the year ended 31 December 2014 (All amounts in millions of Russian Roubles, unless otherwise stated)

Note 2014 2013
(Loss)/profit for the year (17,146) 7,335
Other comprehensive (loss)/profit:
Items that may be reclassified subsequently to profit or loss:
  • Translation from the functional currency to the presentation currency
33 28
  • Loss from the change in fair value of hedging derivative financial instruments
22 (60,389) (903)
  • Deferred tax related to the loss on the change in fair value of financial instruments
11 12,115 2
Other comprehensive loss for the year (48,241) (873)
TOTAL COMPREHENSIVE (LOSS)/PROFIT FOR THE YEAR (65,387) 6,462
Total comprehensive (loss)/profit attributable to:
  • Shareholders of the Company
(63,712) 7,143
  • Non-controlling interest
(1,675) (681)
TOTAL COMPREHENSIVE (LOSS)/PROFIT FOR THE YEAR (65,387) 6,462

The consolidated statement of comprehensive income should be read in conjunction with the notes set out on pages 150 to 189 which are forming part of the consolidated financial statements

Consolidated Statement of Financial Position as at 31 December 2014 (All amounts in millions of Russian Roubles, unless otherwise stated)

Note 31 December 2014 31 December 2013
ASSETS
Current assets
Cash and cash equivalents 12 26,547 18,660
Short-term financial investments 961 272
Accounts receivable and prepayments 14 56,769 55,691
Current income tax prepayment 668 476
Aircraft lease security deposits 13 321 405
Expendable spare parts and inventories 15 6,516 4,927
Derivative financial instruments 22 431 1,034
Total current assets 92,213 81,465
Non-current assets
Deferred tax assets 11 18,540 2,174
Investments in associates 140 123
Long-term financial investments 16 6,115 6,099
Aircraft lease security deposits 13 2,110 1,088
Other non-current assets 17 3,759 5,955
Prepayments for aircraft 18 29,241 12,318
Property, plant and equipment 19 116,044 88,777
Intangible assets 20 2,762 3,350
Goodwill 21 6,660 6,660
Derivative financial instruments 22 134 1,175
Total non-current assets 185,505 127,719
TOTAL ASSETS 277,718 209,184
LIABILITIES AND EQUITY
Current liabilities
Derivative financial instruments 22 26,312 213
Accounts payable and accrued liabilities 23 48,952 36,249
Unearned traffic revenue 22,469 16,334
Deferred revenue related to frequent flyer programme 24 799 577
Provisions 25 2,349 881
Finance lease liabilities 26 16,912 8,688
Short-term borrowings and current portion of long-term loans and borrowings 27 17,343 5,029
Total current liabilities 135,136 67,971
Non-current liabilities
Long-term loans and borrowings 27 6,860 8,377
Finance lease liabilities 26 132,366 63,348
Provisions 25 4,845 1,655
Deferred tax liabilities 11 133 1,647
Deferred revenue related to frequent flyer programme 24 2,560 1,862
Derivative financial instruments 22 4,839 4,546
Other non-current liabilities 28 4,484 5,298
Total non-current liabilities 156,087 86,733
TOTAL LIABILITIES 291,223 154,704
Equity
Share capital 30 1,359 1,359
Treasury shares reserve (3,571) (3,573)
Accumulated profit on disposal of treasury shares 1,659 1,659
Investment revaluation reserve (5) (10)
Translation from the functional currency to the presentation currency (28)
Hedging reserve 22 (48,657) (383)
Retained earnings 45,584 61,122
Equity attributable to shareholders of the Company (3,631) 60,146
Non-controlling interest (9,874) (5,666)
TOTAL EQUITY (13,505) 54,480
TOTAL LIABILITIES AND EQUITY 277,718 209,184

The consolidated statement of financial position should be read in conjunction with the notes set out on pages 150 to 189 which are forming part of the consolidated financial statements

Consolidated Statement of Cash Flows for the year ended 31 December 2014 (All amounts in millions of Russian Roubles, unless otherwise stated)

Note 2014 2013
Cash flows from operating activities:
(Loss)/profit before income tax (16,352) 13,704
Adjustments for:
  • Depreciation and amortisation
19, 20 12,136 10,658
  • Charge/(reversal) of impairment provision for accounts receivable and prepayments, net
9 3,103 (834)
  • Loss on accounts receivable write-off
9 33 616
  • Change in impairment provision for obsolete expendable spare parts and inventory
242 376
  • Charge of provision for impairment of property, plant and equipment
19 34 184
Non-cash operations, related to assets classified as held for sale (13)
(Gain)/loss on disposal of property, plant and equipment (1,907) 193
Gain on accounts payable write-off 9 (384) (119)
Share of financial results of associates (31) (37)
Gain on sale of investments and accrual of provision for impairment of investments 10 (1) (331)
Loss from change in the fair value of derivative financial instruments 10 9,869 939
Hedging result 10 1,723
Change in provisions 25 1,271 1,639
Interest expense 10 4,934 3,320
Foreign exchange loss 10 14,795 3,348
Write-off of VAT 9 20
Recovery of VAT 9 (285)
Change in the share-based payment provision 36 (34)
Change in other provisions and other assets impairments (46) 193
Other operating expenses/(income), net 165 (224)
Other finance (income)/costs, net (449) 15
Loss/(gain) on derivative
financial instruments, net 2,813 (620)
Dividend income (60) (49)
Total operating cash flows before working capital changes 31,603 32,944
Change in accounts receivable and prepayments 4,658 (3,014)
Change in expendable spare parts
and inventories (1,831) (1,019)
Change in accounts payable and accrued liabilities 8,452 4,345
Total operating cash flows after working capital changes 42,882 33,256
Change in restricted cash 12 (82) (60)
Income taxes paid (6,863) (4,260)
Income tax refunded 40 9
Net cash flows from operating activities 35,977 28,945
Cash flows from investing activities:
Proceeds from sale of investments and deposits return 1,869 228
Purchases of investments and deposits placement (2,552) (361)
Proceeds from sale of property, plant
and equipment 126 66
Purchases of property, plant and equipment
and intangible assets (6,160) (4,410)
Dividends received 70 58
Prepayments for aircraft (21,361) (7,154)
Return of prepayments for aircraft 9,620 7,783
Payments and return of operating lease security deposits, net (104) 191
Net cash flows used in investing activities (18,492) (3,599)
Cash flows from financing activities:
Proceeds from loans and borrowings 18,398 6,500
Repayment of loans and borrowings (9,870) (14,579)
Repayment of the principal element of finance lease liabilities (15,629) (9,795)
Interest paid (3,409) (2,857)
Proceeds from disposal of treasury shares 2 365
Proceeds from sale of treasury shares
to non-controlling shareholders 119 12
Purchase of treasury shares (12)
Dividends paid (2,833) (1,289)
(Payments)/proceeds on settlement of derivative financial instruments, net (1,451) (127)
Net cash used in financing activities (14,673) (21,782)
Effect of exchange rate fluctuations on cash
and cash equivalents 5,075 26
Net increase in cash and cash equivalents 7,887 3,590
Cash and cash equivalents at the beginning
of the year 18,660 15,070
Cash and cash equivalents at the end of the year 12 26,547 18,660
Non-cash transactions as part of the investing activities:
Property, plant and equipment acquired under finance leases 34,472 18,605

The consolidated statement of cash flows should be read in conjunction with the notes set out on pages 150 to 189 which are forming part of the consolidated financial statements

Consolidated Statement of Changes in Equity for the year ended 31 December 2014 (All amounts in millions of Russian Roubles, unless otherwise stated)

Equity attributable to shareholders of the Company
Note Share capital Accumulated result on disposal of treasury shares less treasury shares reserve Investment revaluation reserve Accumulated currency translation reserve Hedging reserve Share-based payment reserve Retained earnings Total Non-controlling interest Total equity
1 January 2013 1,359 (2,440) (12) (54) 517 207 54,339 53,916 (4,522) 49,394
Profit/(loss) for the year 8,016 8,016 (681) 7,335
Translation from the functional currency to the presentation currency 2 26 28 28
Loss from the change in fair value of derivative financial instruments net of related deferred tax 11.22 (900) (900) (900)
Total other comprehensive loss (872) (872)
Total comprehensive profit/(loss) 7,144 (681) 6,463
Disposal of subsidiary (347) (347)
Share-based payments (207) (207) (207)
Additions of treasury shares (12) (12) (12)
Disposal of treasury shares 538 538 538
Sale of shares to non-controlling shareholders 12 12
Dividends declared (1,233) (1,233) (128) (1,361)
31 December 2013 1,359 (1,914) (10) (28) (383) 61,122 60,146 (5,666) 54,480
1 January 2014 1,359 (1,914) (10) (28) (383) 61,122 60,146 (5,666) 54,480
Loss for the year (15,471) (15,471) (1,675) (17,146)
Translation from the functional currency to the presentation currency 5 28 33 33
Loss from the change in fair value of derivative financial instruments net of related deferred tax 11.22 (48,274) (48,274) (48,274)
Total other comprehensive loss (48,241) (48,241)
Total comprehensive loss (63,712) (1,675) (65,387)
Disposal of treasury shares 2 2 2
Sale of treasury shares to non-controlling shareholders 2,585 2,585 (2,283) 302
Dividends declared (2,652) (2,652) (250) (2,902)
31 December 2014 1,359 (1,912) (5) (48,657) 45,584 (3,631) (9,874) (13,505)

The consolidated statement of changes in equity should be read in conjunction with the notes set out on pages 150 to 189 which are forming part of the consolidated financial statements

Notes to the Consolidated Financial Statements for the year ended 31 December 2014 (All amounts in millions of Russian Roubles, unless otherwise stated)

  1. Nature of the business

Joint Stock Company Aeroflot — Russian Airlines (the «Company» or «Aeroflot») was formed as an opened joint stock company following the Russian Government decree in 1992 (hereinafter — the «1992 decree»). The 1992 decree conferred all the rights and obligations of Aeroflot — Soviet Airlines and its structural units upon the Company, including inter-governmental bilateral agreements and agreements signed with foreign airlines and enterprises in the field of civil aviation. Following the Decree of the Russian President No. 1009 dated 4 August 2004, the Company was included in the List of Strategic Entities and Strategic Joint Stock Companies.

The principal activities of the Company are the provision of passenger and cargo air transportation services, both domestically and internationally, and other aviation-related services from Moscow Sheremetyevo Airport. The Company and its subsidiaries (the «Group») also conduct activities comprising airline catering and hotel operations. Associated entities mainly comprise aviation security services and other ancillary services.

As at 31 December 2014 and 2013, the Government of the Russian Federation (the “RF”) represented by the Federal Agency for Management of State Property owned 51.17% of the Company. The Company’s headquarters are located in Moscow at 10 Arbat Street, 119002, RF

The principal subsidiaries are:

Company name Registered address Principal activity 31 December
2014
31 December
2013
OJSC Donavia ("Donavia") Rostov-on-Don,RF Airline 100.00% 100.00%
OJSC Rossiya airlines ("AK Rossiya") St. Petersburg, RF Airline 75% minus one share 75% minus one share
OJSC Vladivostok Avia ("Vladavia") Primorsk Region, RF Airline 26.60% 52.16%
OJSC Aurora Airlines ("AK Aurora") Yuzhno-Sakhalinsk, RF Airline 51.00% 100.00%
OJSC Orenburg airlines ("Orenburgavia") Orenburg, RF Airline 100.00% 100.00%
CJSC Aeroflot-Cargo Moscow, RF Cargo transportation services 100.00% 100.00%
LLC Dobrolet ("Dobrolet") Moscow, RF Airline 100.00% 100.00%
LLC Pobeda Airlines ("Pobeda") Moscow, RF Airline 100.00%
LLC Aeroflot-Finance ("Aeroflot-Finance") Moscow, RF Finance services 100.00% 100.00%
CJSC Aeromar Moscow Region, RF Catering 51.00% 51.00%
CJSC Sherotel Moscow Region, RF Hotel 100.00% 100.00%

In 2013, following an order of the Russian Prime-Minister, OJSC Aurora Airlines was founded based on two Far East airlines — OJSC Sahalinskiye Aviatrassi and OJSC Vladivostok Avia. 49% of OJSC Aurora Airlines was sold for RUB 181 million to the governments of the Russian Far East regions in January 2014.

On 16 September 2014 the Company registered legal entity LLC Low Cost Carrier, which was renamed to LLC Pobeda Airlines on 9 December 2014.

The Group’s major associate is:

Company name Registered address Principal activity 31 December
2014
31 December
2013
CJSC AeroMASH–AB (“AeroMASH–AB”) Moscow Region,RF Aviation security 45.00% 45.00%

The table below provides information on the Group’s aircraft fleet as at 31 December 2014 (number of items):

Type of aircraft Ownership Aeroflot Donavia Vladavia AK Rossiya Orenburgavia AK Aurora Pobeda Group total
Il-96-300 Owned 5 5
An-24 Owned 1 1
Mi-8 Owned 3 3
Total owned 5 3 1 9
Airbus A319 Finance lease 4 9 13
Airbus A320 Finance lease 1 1
Airbus A321 Finance lease 21 21
Airbus A330 Finance lease 8 8
Boeing B737 Finance lease 2 2
Boeing B777 Finance lease 10 10
An-148 Finance lease 6 6
Total finance lease 44 15 2 61
SSJ 100 Operating lease 16 16
Airbus A319 Operating lease 3 10 7 6 26
Airbus A320 Operating lease 62 1 11 74
Airbus A321 Operating lease 5 5
Airbus A330 Operating lease 14 14
Boeing B737 Operating lease 6 24 3 8 41
Boeing B767 Operating lease 3 3
Boeing B777 Operating lease 3 3
DHC 8 S-300 Operating lease 4 4
DHC 8 S-200 Operating lease 3 3
DHC 6 S-400 Operating lease 2 2
Total operating lease 106 10 1 21 27 18 8 191
Total fleet 155 10 4 36 27 21 8 261

As at 31 December 2014: 5 aircraft Il-96-300 and 3 aircraft Mi-8 are not operated, 11 Boeing B737 and 1 aircraft Airbus A320 are under redelivery maintenance.

  1. Basis of preparation and summary of significant accounting policies
Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards («IFRS») and in accordance with the Federal Law No. 208 — FZ “On consolidated financial reporting” dated 23 July 2010. The consolidated financial statements are presented in millions of Russian Roubles («RUB million»), except where specifically noted otherwise.

These consolidated financial statements have been prepared on the historical cost convention except for financial instruments which are initially recognised at fair value, financial assets available for sale and financial instruments measured at fair value through profit or loss, as well as derivative financial instruments to which specific hedge accounting rules are applicable. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented in these consolidated financial statements, unless otherwise stated.

All significant subsidiaries directly or indirectly controlled by the Group are included in these consolidated financial statements. A list of the Group’s principal subsidiaries is set out in Note 1.

Functional and presentation currency

The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. Since 1 January 2007, the functional currency of the Company and its subsidiaries is the Russian Rouble (“RUB” or “rouble”). Since 1 January 2013 the presentation currency of the Group’s consolidated financial statements is the Russian Rouble as well.

Consolidation

Subsidiaries represent investees, including structured entities, which the Group controls, as the Group:

  1. has the powers to control significant operations which has a considerable impact on the investee’s income,
  2. runs the risks related to variable income from its involvement with investee or is entitled to such income, and
  3. is able to use its powers with regard to the investee in order to influence the amount of its income.

The existence and effect of substantive rights, including substantive potential voting rights, are considered when assessing whether the Group has power over another entity. For a right to be substantive, the holder must have practical ability to exercise that right when decisions about the direction of the relevant activities of the investee need to be made. The Group may have power over an investee even when it holds less than majority of voting power in an investee. In such a case, the Group assesses the size of its voting rights relative to the size and dispersion of holdings of the other vote holders to determine if it has de-facto power over the investee.

Protective rights of other investors, such as those that relate to fundamental changes of investee’s activities or apply only in exceptional circumstances, do not prevent the Group from controlling an investee.

Subsidiaries are consolidated from the date on which control is transferred to the Group (acquisition date) and are deconsolidated from the date on which control ceases.

Subsidiaries are included in the consolidated financial statements at the acquisition method. Identifiable assets acquired and liabilities and contingent liabilities received in a business combination are measured at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.

Goodwill is measured through the deduction of net assets of the acquired entity from the total of the following amounts: consideration transferred for the acquired entity, non-controlling share in the acquiree and fair value of the existing equity interest in the acquiree held immediately by the Group before the acquisition date. Any negative amount (“negative goodwill, bargain purchase”) is recognised in profit or loss, after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities assumed and reviews appropriateness of their measurement.

The consideration transferred for the acquiree is measured at the fair value of the assets given up, equity instruments issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services. Transaction costs related to the acquisition and incurred for issuing equity instruments are deducted from equity; transaction costs incurred for issuing debt as part of the business combination are deducted from the carrying amount of the debt and all other transaction costs associated with the acquisition are expensed.

The Group measures non-controlling interest that represents the ownership interest and entitles the holder to a proportionate share of net assets in the event of liquidation on a transaction by transaction basis, either at: a) fair value, or
b) in proportion to the non-controlling share in the net assets of the acquiree.

Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the cost cannot be recovered. Unrealised losses are also eliminated, unless the cost cannot be recovered. The Company and its subsidiaries use uniform accounting policies consistent with the Group’s policies.

Non-controlling interest is that part of the net results and of the equity of a subsidiary attributable to interests which are not owned, directly or indirectly, by the Company. Non-controlling interest forms a separate component of the Group’s equity.

Purchases of non-controlling interests

The Group applies the economic entity model to account for transactions with owners of non-controlling interest. Any difference between the purchase consideration and the carrying amount of non-controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the difference between sales consideration and carrying amount of non-controlling interest sold as a capital transaction in the consolidated statement of changes in equity.

Investments in associates

Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The carrying amount of associates includes goodwill identified on acquisition less accumulated impairment losses, if any. Dividends received from associates reduce the carrying value of the investment in associates. Other post-acquisition changes in the Group’s share of net assets of an associate are recognised as follows:

  1. the Group’s share of profits or losses of associates is included in the consolidated statement of profit or loss for the year as a share of financial results of equity accounted investments,
  2. the Group’s share in other comprehensive income is recorded as a separate line item in other comprehensive income,
  3. all other changes in the Group’s share of the carrying value of net assets of the associates are recorded in the consolidated statement of profit or loss within the share of financial results of equity accounted investments.

However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the associate’s assets.

Disposals of subsidiaries or associates

When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained interest in an associate or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are recycled to profit or loss.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

Goodwill

Goodwill is carried at cost less accumulated impairment losses, if any. The Group performs goodwill impairment testing on an annual basis and whenever there are indications that goodwill may be impaired. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed. Goodwill is allocated to the cash generating units (namely, the Group’s subsidiaries). These units represent the lowest level at which the Group monitors goodwill and are not larger than an operating segment.

Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the disposed operation, generally measured on the basis of the relative values of the disposed operation and the portion of the cash-generating unit which is retained.

Foreign currency translation

Monetary assets and liabilities denominated in foreign currency are translated into each entity’s functional currency at the official exchange rate of the Central Bank of the Russian Federation (“CBRF”) at the respective end of the reporting period. Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of transactions in foreign currency and from the translation of monetary assets and liabilities denominated in foreign currency into each entity’s functional currency at year-end official exchange rates of the CBRF are recognised in the consolidated statement of profit or loss for the year within finance income or costs except for foreign exchange differences arising on translation of financial assets and liabilities representing hedge instruments. Foreign exchange differences on hedge instruments are recognised in the hedging reserve.

Translation at year-end rates does not apply to non-monetary items in the consolidated statement of financial position that are measured at historical cost. Non-monetary items measured at fair value in a foreign currency, including equity investments, are translated using the exchange rates at the date when the fair value was determined. Effects of exchange rate changes on non-monetary items measured at fair value in a foreign currency are recorded as part of the fair value gain or loss.

The table below presents official US Dollar and Euro to rouble exchange rates used for the translation:

Official exchange rates
Roubles for 1 US Dollar Roubles for 1 Euro
Average rate for 2014 38.42 50.82
31 December 2014 56.26 68.34
Average rate for 2013 31.85 42.31
31 December 2013 32.73 44.97

At 26 February 2015 the official exchange rates of US Dollar and Euro to rouble were 62.59 roubles for 1 US Dollar and 71.17 roubles for 1 Euro, respectively.

Revenue recognition

Revenue is measured at the fair value of the consideration 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 reporting date is reported in the Group’s consolidated statement of financial position in a separate line item (unearned traffic revenue) within current liabilities. 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 recognised as traffic revenue at the date the tickets are issued based on an analysis of historical patterns of actual sales data. Commissions, which are payable to the sales agents are recognised as sales and marketing expenses within operating costs in the consolidated statement of profit or loss in the period of ticket sale by agents.

Passenger revenue includes revenue from code-share agreements with certain other airlines as per which the Group and other airlines sell seats for each other’s flights («code-share agreements»). Revenue from the sale of code-share seats on other airlines is recorded at the moment of the transportation service provision and is accounted for net in Group’s passenger revenue in the consolidated statement of profit or loss. Revenue from the sale of code-share seats on Group’s flights by other airlines are recorded at the moment of the transportation service provision and is fully accounted for in the Group’s traffic revenue in the consolidated statement of profit or loss.

Cargo revenue: The Group’s cargo transport services are recognised as revenue when the air transportation is provided. The value of cargo transport services sold but not yet provided is reported in the Group’s consolidated statement of financial position in a separate line item (unearned traffic revenue) within current liabilities.

Catering: Revenue is recognised when meal packages are delivered to the aircraft, as this is the date when the risks and rewards of ownership are transferred to customers.

Other revenue: Revenue from bilateral airline agreements is recognised when earned with reference to the terms of each agreement. Hotel accommodation revenue is recognised when the services are provided. Revenues from sales of goods are recognised at the point of transfer of risks and rewards of ownership of the goods, normally when the goods are shipped to the customer. If the Group agrees to transport goods to a specified location, revenue is recognised when the goods are passed to the customer at the destination point. Revenues from sale of services are recognised in the period in which the services were rendered.

Segment information

The Group determines and presents operating segments based on the information that internally is provided to the General Director of the Group, who is the Group’s chief operating decision maker. Segments whose revenue, financial result or assets are not less than ten percent or more of all the segments are reported separately.

Intangible assets

The Group’s intangible assets other than goodwill have definite useful lives and primarily include capitalised computer software with the useful life of 5 years. Intangible assets are amortised using the straight-line method over their useful lives. Acquired licenses for computer software are capitalised on the basis of the costs incurred to acquire and bring them to use. If impaired, the carrying amount of intangible assets is written down to the higher of value in use and fair value less costs to sell.

Property, plant and equipment

Property, plant and equipment are reported at cost, less accumulated depreciation and impairment losses (where appropriate). Depreciation is calculated in order to allocate the cost (less estimated residual value where applicable) over the remaining useful lives of the assets.

(a) Fleet

  1. Owned aircraft and engines: Owned fleet consists of Russian-made aircraft, while engines are both Russian and foreign-made. The full list of aircraft is presented in Note 1.
  2. 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.
  3. Capitalised costs on regular repairs and maintenance works of aircraft operated under finance lease: Expenditure incurred on modernisation and improvements projects that are significant in size (mainly aircraft modifications involving installation of replacement parts) are separately capitalised. The carrying amount of those parts that are replaced is derecognised from the consolidated statement of financial position and included in operating costs in the Group’s consolidated statement of profit or loss. Capitalised costs of aircraft checks and major modernisation 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 and included in operating costs (aircraft maintenance) in the Group’s consolidated statement of profit or loss.
  4. Depreciation of fleet: The Group depreciates fleet assets owned or held under finance leases on a straight-line basis to the end of their estimated useful life or lease term, if it is shorter. The airframe, engines and interior of aircraft are depreciated separately over their respective estimated useful lives.
  5. The Group’s fleet assets have the following useful lives:
    Airframes of aircraft — 20–32 years
    Engines — 8–10 years
    Interiors — 5 years
    Buildings — 15–50 years
    Facilities and transport vehicles — 3–5 years
    Other non-current assets — 1–5 years
  6. Capitalised leasehold improvements: Capitalised costs that relate to the rented fleet are depreciated over the shorter of: their useful lives and the lease term.

(b) Land, buildings and other plant and equipment

Property, plant and equipment is stated at the historical US Dollar cost recalculated at the exchange rate on 1 January 2007, the date of the change of the functional currency of the Company and its major subsidiaries from the US Dollar to the Russian Rouble. Depreciation is accrued based on the straight-line method on all property, plant and equipment based upon their expected useful lives or, in the case of leasehold properties, over the duration of the leases or useful life if it is shorter. The useful lives of the Group’s property, plant and equipment range from 1 to 50 years. Land is not depreciated.

Construction in progress

Construction in progress represents costs related to construction of property, plant and equipment, including corresponding variable out-of-pocket expenses directly attributable to the cost of construction, as well the acquisition cost of other assets that require assembly or any other preparation. The carrying value of construction in progress is regularly analysed for the potential accrual of the impairment provision.

Gain or loss on disposal of non-current asset

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 recognised in the Group’s consolidated statement of profit or loss within operating costs.

Finance lease

Where the Group is a lessee in a lease which transferred substantially all the risks and rewards incidental to ownership to the Group, the assets leased are capitalised in property, plant and equipment at the commencement of the lease at the lower of: the fair value of the leased assets and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. Corresponding lease liabilities net of future interest expenses are recorded as a separate line item (finance lease liabilities) within current and non-current liabilities in the Group’s consolidated statement of financial position. Interest expenses within lease payments are charged to profit or loss over the lease terms using the effective interest method. The assets acquired under finance leases are depreciated over their useful life or the shorter lease term, if the Group is not reasonably certain that it will obtain ownership by the end of the lease term.

Customs duties, legal fees and other initial direct costs increase the total amount recorded in assets in the Group’s consolidated statement of financial position. The interest component of lease payments included in financial costs in the Group’s consolidated statement of profit or loss.

Capitalisation of borrowing costs

Borrowing costs including interest accrued, foreign exchange difference and other costs directly attributable to the acquisition, construction or production of assets that are not carried at fair value and that necessarily take a substantial time to get ready for intended use or sale (the «qualifying assets») are capitalised as part of the costs of those assets, if the commencement date for capitalisation is on or after 1 January 2009. The Group considers prepayments for aircraft as the qualifying asset with regard to which borrowing costs are capitalised.

The capitalisation starts when the Group: (a) bears expenses related to the qualifying asset;
(b) bears borrowing costs;
(c) takes measures to get the asset ready for intended use or sale.

Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale.

The Group capitalises borrowing costs related to capital expenditure made on qualifying assets. Borrowing costs capitalised are calculated at the Group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual borrowing costs incurred less any investment income on the temporary investment of those borrowings are capitalised.

Impairment of property, plant and equipment

At each reporting date the management reviews its property, plant and equipment to determine whether there is any indication of impairment of those assets. If any such indication exists, the recoverable amount of the asset is estimated by management as the higher of: an asset’s fair value less costs to sell and its value in use. The carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recorded within operating costs in the Group’s consolidated statement of profit or loss. An impairment loss recognised for an asset in prior years is reversed where appropriate if there has been a change in the estimates used to determine the asset’s value in use or fair value less costs to sell.

Operating leases

Where the Group is a lessee in a lease which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term. The lease term is the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Related direct expenses including custom duties for imported leased aircraft are recognised within non-current assets at the time of the aircraft transfer and amortised using a straight-line method over the term of lease agreement. Amortisation charges are recognised within operating costs. In compliance with the customs legislation of the Russian Federation, the Group pays customs duties in instalments, and therefore customs duties payment obligations are initially recognised at amortised cost.

The operating lease agreements include requirements to perform regular repairs and maintenance works during the lease term. Accordingly, the Group accrues a provision in the amount of discounted expenses needed to perform regular repairs and maintenance works. The estimated expenses are based on the most reliable data available at the time of such estimation. The provisions of the operating lease agreements, age and condition of the aircraft and engines, market value of fixtures, key parts and components subject to replacement and the cost of required work are taken into account. The provision is recorded at the discounted value.

The costs of regular repairs and maintenance works performed for aircraft held under finance lease are capitalized and amortized over the shorter of (i) the scheduled usage period to the next major inspection event or (ii) the remaining life of the asset or (iii) remaining lease term.

Aircraft lease security deposits

Aircraft lease security deposits represent amounts paid to the lessors of aircraft in accordance with the provisions of operating lease agreements. These security deposits are returned to the Group at the end of the lease period. Security deposits related to lease agreements are presented separately in the consolidated statement of financial position (aircraft lease security deposits) and recorded at amortised cost.

Classification of financial assets

Financial assets have the following categories: a) loans and receivables, b) financial assets available for sale, and c) financial assets measured at fair value through profit or loss, which are recognised in this category from the date of the initial recognition.

Loans and receivables are unquoted non-derivative financial assets with fixed or determinable payments other than those that the Group intends to sell in the near term. Financial assets that would meet the definition of loans and receivables may be reclassified if the Group has the intention and ability to hold these financial assets for the foreseeable future or until maturity.

Derivative financial instruments, including currency and interest rate options, fuel options, and currency and interest rate swaps are carried at their fair value. All derivative instruments are carried as assets when fair value is positive and as liabilities when fair value is negative. Changes in the fair value of derivative instruments are included in profit or loss for the year, except for instruments subject to special hedge accounting rules, whose fair value changes are recorded in other comprehensive income.

All other financial assets are included in the available-for-sale category, which includes investment securities which the Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

Classification of financial liabilities

Financial liabilities have the following measurement categories: a) held for trading, which also includes financial derivatives, and (b) other financial liabilities. Liabilities held for trading are carried at fair value with changes in value recognised in profit or loss for the year (as finance income or finance costs) in the period in which they arise. Other financial liabilities are carried at amortised cost.

Financial instruments — key measurement terms

Depending on their classification, financial instruments are carried at fair value, cost or amortised cost, as described below.

Fair value — is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the quantity held by the entity.

A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active market is measured at the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the measurement date. This is applicable for assets carried at fair value on a recurring basis if: (a) the Group manages the group of financial assets and financial liabilities on the basis of the Company’s net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in accordance with the Group’s documented risk management or investment strategy; (b) the Group provides information on that basis about the group of assets and liabilities to the entity’s key management personnel; and (c) the market risks, including duration of the Group’s exposure to a particular market risk (or risks) arising from the financial assets and financial liabilities is substantially the same.

Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available.

Financial instrument measured at fair value are analysed by levels of the fair value hierarchy as follows:

  1. level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities,
  2. level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and
  3. level 3 measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs).

Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition and includes transaction costs. Measurement at cost is only applicable to investments in equity instruments that do not have a quoted market price and whose fair value cannot be reliably measured and derivatives that are linked to, and must be settled by, delivery of such unquoted equity instruments.

Amortised cost is the amount at which the financial instrument was recognised at initial recognition less any principal repayments, minus or plus accrued interest, and for financial assets — less any write-down (direct or through the valuation provision account) for incurred impairment losses. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of related items in the consolidated statement of financial position.

The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate.

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents and advisors, levies by regulatory agencies and securities exchanges, and transfer taxes and duties imposed on property transfer. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.

Initial recognition of financial instruments

Derivative financial instruments, including financial instruments subject to special hedge accounting rules, are initially recognised at fair value. All other financial instruments are initially recorded at fair value plus transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets.

All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the Company/Group becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets

The Group derecognises financial assets when:

(a) the assets are redeemed or the rights to cash flows from the assets expired, or
(b) the Group has transferred the rights to the cash flows from financial assets or entered into a transfer agreement, while:

  1. also transferring all substantial risks and rewards of ownership of the assets, or
  2. neither transferring nor retaining all substantial risks and rewards of ownership but losing control over such assets.

Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing to impose additional restrictions on the sale.

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all of the following circumstances: (i) in the normal course of business, (ii) in the event of default and (iii) in the event of insolvency or bankruptcy.

Financial instruments and hedge accounting

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The group designates certain derivatives as hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).

The group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative instruments used for hedging purposes are disclosed in note 22. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the income statement as a separate line below operating result of the Group.

Amounts accumulated in equity are reclassified to profit or loss (as profit or loss from financing activities) in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within financial gains and losses as a separate line.

Available-for-sale investments

Available for sale investments are carried at fair value. Interest income on available-for-sale debt securities is calculated using the effective interest method and recognised in profit or loss for the year as finance income. Dividends on available-for-sale equity instruments are recognised in profit or loss for the year as finance income when the Group’s right to receive payment is established and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognised in other comprehensive income until the investment is derecognised or impaired at which time the cumulative gain or loss is reclassified from other comprehensive income to finance income in profit or loss for the year.

Impairment losses are recognised in profit or loss for the year when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of available-for-sale investments. A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The cumulative impairment loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that asset previously recognised in profit or loss — is reclassified from other comprehensive income to finance costs in profit or loss for the year.

Impairment losses on equity instruments are not reversed and any subsequent gains are recognised in other comprehensive income. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through current period’s profit or loss.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, and short-term highly liquid investments (including bank deposits) with contractual maturities of three months or less. Cash and cash equivalents are carried at amortised cost using the effective interest method.

Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated statement of cash flows. Balances restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period are included in other non-current assets in the Group’s consolidated statement of financial position.

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 individually recognised at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Doubtful accounts receivable balances are assessed individually and any impairment losses are included in other operating costs in the Group’s consolidated statement of profit or loss.

Impairment of financial assets carried at amortised cost

Impairment losses are recognised in profit or loss when incurred as a result of one or more events (“loss events”) that occurred after the initial recognition of the financial asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The primary factors that the Group considers in determining whether a financial asset is impaired are its overdue status and realisability of related collateral, if any.

Impairment losses are always recognised through an allowance account to write down the asset’s carrying amount to the present value of expected cash flows (which exclude future credit losses that have not been incurred) discounted at the original effective interest rate of the asset. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account through profit or loss for the year.

Uncollectible assets are written off against the related impairment loss provision after all the necessary procedures to recover the asset have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off are credited to impairment loss account within the profit or loss for the year.

If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial difficulties of the counterparty, impairment is measured using the original effective interest rate before the modification of terms. The renegotiated asset is then derecognised and a new asset is recognised at its fair value only if the risks and rewards of the asset substantially changed. This is normally evidenced by a substantial difference between the present values of the original cash flows and the new expected cash flows.

Prepayments

In these consolidated financial statements, prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are included to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or loss when the services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in the Group’s consolidated statement of profit or loss for the year.

Trade and other payables

Trade payables are accrued when the counterparty performs its obligations under the contract and are carried at amortised cost using the effective interest method.

Loans and borrowings

Loans and borrowings are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.

Short-term loans and borrowings comprise:

  • interest bearing loans and borrowings with a term shorter than one year;
  • current portion of long-term loans and borrowings.

Long-term loans and borrowings include liabilities with the maturity exceeding one year.

Expendable spare parts and inventories

Inventories, including aircraft expendable spare parts, are valued at cost or net realisable value, whichever is lower. The costs are determined on the first-in, first- out («FIFO») basis. The Group accrues a provision for the full amount of obsolete inventories which the Group does not plan to continue using in its operations.

Value added taxes

Value added tax («VAT») related to sales of goods or provision of services is recorded as a liability to the tax authorities on an accruals basis. Domestic flights in general are subject to VAT at 18% and international flights are subject to VAT at 0%. Input VAT invoiced by domestic suppliers as well as VAT paid in respect of imported leased aircraft and spare parts may be recovered, subject to certain restrictions, against output VAT. The recovery of input VAT is typically delayed by up to six months and sometimes longer due to compulsory tax audit requirements and other administrative matters. Input VAT claimed for recovery as at the date of the consolidated statement of financial position is presented net of the output VAT liability. Recoverable input VAT that is not claimed for recovery in the current period is recorded in the consolidated statement of financial position as VAT receivable. VAT receivable that is not expected to be recovered within the twelve months from the reporting date is classified as a non-current asset. Where provision has been made for uncollectible receivables, the bad debt expense is recorded at the gross amount of the account receivable, including VAT.

Frequent flyer programme

Since 1999 the Group operates a frequent flyer programme referred to as Aeroflot Bonus. Subject to the programme’s terms and conditions, the miles earned entitle members to a number of benefits such as free flights and flight class upgrades. In accordance with IFRIC 13 Customer Loyalty Programmes, accumulated but as yet unused bonus miles are deferred using the deferred revenue method to the extent that they are likely to be used. The fair value of miles accumulated on the Group’s own flights is recognised under current and non-current deferred revenue related to frequent flyer programme (Note 24) within current and non-current liabilities in the Group’s consolidated statement of financial position. The fair value of miles accumulated by Aeroflot-Bonus participants for using services provided by the partners of the programme, as well as the fair value of promo miles, is recognised as other current and non-current liabilities related to frequent flyer programme (Notes 23 and 28) in accounts payable and accrued non-current liabilities, respectively, in the Group’s consolidated statement of financial position. Revenue is recognised upon the provision of air transportation services to passengers.

Employee benefits

Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits (such as health services and etc.) are accrued in the year in which the associated services are rendered by the employees of the Group.

Provisions

Provisions are recognised if, and only if, 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 reporting date and adjusted to reflect the current best estimate (Note 27). Where the effect of the time value of money is significant, the amount of a provision is stated at the present value of the expenditures required to settle the obligation.

Income tax

Income taxes have been provided for in the consolidated financial statements in accordance with legislation using tax rates and legislative regulations enacted or substantively enacted at the end of the reporting period. Income tax expense/benefit comprises current and deferred tax and is recognised in the consolidated statement of profit or loss for the year, unless it should be recorded within other comprehensive income or directly in equity since it relates to transactions which are also recognised within other comprehensive income or directly in equity in this or any other period.

Current tax is the amount expected to be paid to or recovered from tax authorities in respect of taxable profits or losses for the current and prior periods. Taxable profits or losses are based on estimates if the consolidated financial statements are authorised prior to filing relevant tax returns. Other tax expenses, except from the income tax, are recorded within other operating costs in the Group’s consolidated statement of profit or loss.

Deferred income tax is provided using the balance sheet liability method for tax losses carried forward and temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for consolidated financial reporting purposes. In accordance with the initial recognition exemption, deferred taxes are not recorded for temporary differences arising on initial recognition of an asset or a liability in a transaction other than a business combination if the transaction, when initially recorded, affects neither accounting nor taxable profit. Deferred tax liabilities are not recorded for temporary differences on initial recognition of goodwill, and subsequently for goodwill which is not deductible for tax purposes. Deferred tax assets and liabilities are measured at tax rates enacted or substantively enacted at the end of the reporting period which are expected to apply to the period when the temporary differences will reverse or the tax losses carried forward will be utilised.

Deferred tax assets for deductible temporary differences and tax losses carried forward are recorded only to the extent that it is probable that future taxable profit will be available against which the deductions can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Deferred tax assets and liabilities are netted only within the individual companies of the Group.

The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or on gains upon their disposal. The Group does not recognise deferred tax liabilities on such temporary differences except to the extent that Management expects the temporary differences to reverse in the foreseeable future.

Uncertain income tax positions

The Group’s uncertain tax positions are reassessed by management at the end of each reporting period. Liabilities are recorded for income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the positions were to be challenged by the tax authorities. The assessment is based on the interpretation of tax laws that have been enacted or substantively enacted by the end of the reporting period, and any known court or other rulings on such issues. Liabilities for penalties, interest and taxes other than income tax are recognised based on management’s best estimate of the expenditure required to settle the obligations at the end of the reporting period.

Pensions

The Group makes certain payments to employees on retirement. These obligations 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 consolidated statement of profit or loss in order to spread the regular cost over the average service lives of employees. Actuarial gains and losses are recognised in financial results immediately. 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 twelve months after the reporting date they are discounted using a discount rate determined by reference to the average government bond yields at the reporting date.

The Group also participates in a defined contribution plan, under which the Group has committed to making additional contributions as a percentage (20% in 2014) of the contribution made by employees choosing to participate in the plan. Contributions made by the Group on defined contribution plans are charged to expenses when incurred. Contributions are also made to the Government Pension fund at the statutory rates in force during the year. Such contributions are expensed as incurred.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity.

Share-based compensation

The title to future equity compensations (shares or share options) to employees for the provided services is measured at fair value of these instruments at the date of the transfer and is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to these awards.

The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. The effect of revisiting initial estimates, if any, is recognised in profit or loss in alignment with the Group’s equity.

For share-based payment awards with non-vesting conditions, the grant-date fair value is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

Treasury shares purchased

Where the Company or its subsidiaries purchase the Company’s equity instruments, the consideration paid, including any directly attributable incremental costs, net of income taxes, is deducted from equity attributable to the Company’s owners until the equity instruments are cancelled, reissued or disposed of. The Company’s shares, which are held as treasury stock or belong to the Company’s subsidiaries, are reflected as a reduction of the Group’s equity.

The sale or re-issue of such shares does not impact net profit for the current year and is recognised as a change in the shareholders’ equity of the Group. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s shareholders.

Dividend distributions by the Company are recorded net of the dividends related to treasury shares.

Dividends

Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved by the shareholders in the General Shareholders’ Meeting.

Earnings/loss per share

Earnings per share are determined by dividing the profit or loss attributable to the Company’s shareholders by the weighted average number of participating shares outstanding during the reporting year. The calculation of diluted earnings per share includes shares planned to be used in the option programme when the average market price of ordinary shares for the period exceeds the exercise price of the options.

Changes in presentation of consolidated financial statements

Where necessary, corresponding figures have been adjusted to conform to the presentation of the current year amounts.

  1. Critical accounting estimates and judgements in applying accounting policies

The Group makes estimates and assumptions that affect the amounts recognised in the consolidated financial statements and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. Judgements that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

Useful lives and residual value of property, plant and equipment

The assessment of the useful lives of property, plant and equipment and their residual value are matters of management judgement based on the use of similar assets in prior periods. To determine the useful lives and residual value of property, plant and equipment, management considers the following factors: nature of the expected use, estimated technical obsolescence and physical wear. A change in each of the above conditions or estimates may require the adjustment of future depreciation expenses.

Value of tickets which were sold, but will not be used

Sales representing the value of tickets that have been issued, but which will never be used, are recognised as traffic revenue at the date the tickets are issued based on an analysis of historical patterns of actual sales data. The assessment of the probability that the tickets will not be used is a matter of management judgement. A change in these estimates may require the adjustment to the revenue amount in the consolidated statement of profit or loss (Note 5) and to the unearned traffic revenue in the consolidated statement of financial position.

Frequent flyer programme

At the reporting date, the Group estimates and recognises the liability pertaining to air miles earned by Aeroflot Bonus programme (Note 2) members. The estimate has been made based on the statistical information available to the Group and reflects the expected air mile utilisation pattern after the reporting date multiplied by their assessed fair value. The assessment of the fair value of a bonus mile, as well as the management’s expectations regarding the amount of miles to be used by Aeroflot Bonus members, are a matter of management judgement. A change in these estimates may require the adjustment of deferred revenue related to frequent flyer programme in the consolidated statement of financial position (Note 24) and adjustment to revenue in the consolidated statement of profit or loss (Note 5).

Compliance with tax legislation

Compliance with tax legislation, particularly in the Russian Federation, is subject to a 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 (Note 39).

Classification of a lease agreement as operating and finance lease

Management applies professional judgement with regard to the classification of aircraft lease agreements as operating and finance lease agreements in order to determine whether all significant risks and rewards related to the ownership of an asset are transferred to the Group in accordance with the agreement and which risks and rewards are significant. A change in these estimates may require a different approach to aircraft accounting.

Estimated impairment of goodwill

The Group tests goodwill for impairment at least annually. The recoverable amount of each cash generating unit was determined based on value-in-use calculations. These calculations require the use of estimates as further detailed in Note 21.

Deferred tax asset recognition

The recognised deferred tax asset represents income taxes recoverable through future deductions from taxable profits and is recorded in the consolidated statement of financial position. Deferred income tax assets are recognised to the extent that realisation of the related tax benefit is probable. The future taxable profits and the amount of tax benefits that are probable in the future are based on the medium term business plan prepared by management and extrapolated results thereafter. The business plan is based on management expectations that are believed to be reasonable under the circumstances.

  1. Adoption of new or revised standards and interpretations
New standards and interpretations effective from 1 January 2014

The following new standards and interpretations became effective for the Group from 1 January 2014:

IFRIC 21 — “Levies” (issued on 20 May 2013, effective for annual periods beginning on or after 1 January 2014);

Amendments to IFRS 10, IFRS 12 and IAS 27 — “Investment Entities” (issued on 31 October 2012, effective for annual periods beginning on or after 1 January 2014);

“Offsetting financial assets and financial liabilities” — Amendments to IAS 32 (issued in December 2011, effective for annual periods beginning on or after 1 January 2014);

Amendments to IAS 36 — “Recoverable amount disclosures for non-financial assets” (issued on 29 May 2013, effective for annual periods beginning on or after 1 January 2014; earlier application is permitted if IFRS 13 is applied for the same accounting and comparative period);

Amendments to IAS 39 — “Novation of Derivatives and Continuation of Hedge Accounting” (issued on 27 June 2013, effective for annual periods beginning on or after 1 January 2014).

These Standards, amendments to standards and interpretations did not have material impact on the Group’s consolidated financial statements.

New Accounting Pronouncements

The following new standards or amendments effective for the annual periods beginning on or after 1 January 2015 and which the Group has not early adopted:

IFRS 9 “Financial Instruments Part 1: Classification and Measurement” (issued in June 2014 effective for annual periods beginning on or after 1 January 2018). The Group is considering the implications of the amendment and its impact on the Group’s consolidated financial statements;

Amendments to IAS 19 — “Defined benefit plans: Employee contributions” (issued in November 2013 and effective on or after 1 July 2014). These amendments were approved for implementation in Russian Federation;

IFRS 14 “Regulatory deferral accounts” (issued in January 2014, effective for annual periods beginning on or after 1 January 2016). This standard was approved for implementation in Russian Federation;

IFRS 15 “Revenue from contracts with customers” (issued on 28 May 2014, effective for annual periods beginning on or after 1 January 2017). The Group is considering the implications of the standard and its impact on the Group’s consolidated financial statements;

Annual Improvements to International Financial Reporting Standards, 2012 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). These improvements were approved for implementation in Russian Federation;

Annual Improvements to International Financial Reporting Standards, 2013 (issued in December 2013 and effective for annual periods beginning on or after 1 July 2014). These improvements were approved for implementation in Russian Federation;

Accounting for Acquisitions of Interests in Joint Operations — Amendments to IFRS 11 «Joint Arrangements» (issued on 6 May 2014 and effective for the annual periods beginning on or after 1 January 2016). These amendments were approved for implementation in Russian Federation;

Clarification of Acceptable Methods of Depreciation and Amortisation — Amendments to IAS 16 “Property, plant and equipment» and IAS 38 «Intangible Assets” (issued in May 2014 and effective on or after 1 January 2016). These amendments were approved for implementation in Russian Federation;

Equity Method in Separate Financial Statements — Amendments to IAS 27 (issued on 12 August 2014 and effective from 1 January 2016);

Annual Improvements to International Financial Reporting Standards, 2014 (issued on 25 September 2014 and effective on or after 1 January 2016);

Amendments to IFRS 10 and IAS 28 (issued on 11 September 2014 and effective for the periods beginning on or after 1 January 2016);

«Disclosure Initiative» — Amendments to IAS 1 (issued in December 2014 and effective for annual periods beginning on or after 1 January 2016);

Applying the Consolidation Exception for Investment entities — Amendments to IFRS 10, IFRS 12 and IAS 28 (issued in December 2014 and effective for annual periods beginning on or after 1 January 2016).

Unless otherwise described above, the new standards, amendments to standards and interpretations are not expected to affect significantly the Group’s consolidated financial statements.

Standards, amendments to standards and interpretations effective for annual periods on or after 1 January 2015 were not approved for implementation in Russian Federation, if above not stated otherwise.

  1. Traffic revenue
2014 2013
Scheduled passenger flights 253,613 230,594
Charter passenger flights 15,023 17,174
Cargo flights 8,718 9,778
Total traffic revenue 277,354 257,546
  1. Other revenue
2014 2013
Airline agreements revenue 21,605 16,886
Revenue from partners under frequent flyer programme 7,685 5,615
Refuelling services 2,815 2,154
Catering services on board 1,118 1,217
Ground handling and maintenance 1,000 902
Hotel revenue 447 515
Sales of duty free goods 604 420
Other revenue 7,143 5,701
Total other revenue 42,417 33,410
  1. Operating costs less staff costs and depreciation and amortisation
2014 2013
Aircraft servicing and ground handling 51,965 46,015
Operating lease expenses 23,834 19,177
Aircraft maintenance 19,224 20,374
Sales and marketing expenses 11,415 12,808
Administration and general expenses 10,791 8,663
Passenger services 9,105 6,815
Communication expenses 7,784 5,903
Food and beverages for catering services 5,980 4,924
Custom duties 1,435 1,396
Insurance expenses 1,358 1,242
Cost of duty free goods sold 362 192
Other expenses 8,875 5,468
Operating costs less aircraft fuel, staff costs and depreciation and amortisation 152,128 132,977
Aircraft fuel 87,199 79,128
Total operating costs less staff costs and depreciation and amortisation 239,327 212,105
  1. Staff costs
2014 2013
Wages and salaries 42,379 36,703
Pension costs 7,980 6,930
Social security costs 1,789 1,716
Total staff costs 52,148 45,349

Pension costs include:

  • compulsory payments to the Pension Fund of the RF,
  • contributions to a non-government pension fund under a defined contribution pension plan under which the Group makes additional pension contributions as a fixed percentage (20% in 2014, 20% in 2013) of the transfers made personally by the employees participating in the programme, and
  • an increase in the net present value of the future benefits which the Group expects to pay to its employees upon their retirement under a defined benefit pension plan as follows:
2014 2013
Payments to the Pension Fund of the RF 7,904 6,866
Defined contribution pension plan 37 45
Defined benefit pension plan 39 19
Total pension costs 7,980 6,930
  1. Other operating expenses and income, net
2014 2013
Gain/(loss) on fixed assets disposal 1,872 (377)
Gain on accounts payable write-off 384 119
Fines and penalties received from suppliers 307 207
Recovery of VAT 285
Insurance compensation received 61 171
Write-off of VAT (20)
(Increase)/decrease of bad debt provision (3,103) 834
Increase of accrued reserves (1,271) (1,639)
Loss on accounts receivable write-off (33) (616)
Other expenses and income, net (3,394) (1,728)
Total other operating expenses and income, net (4,892) (3,049)
  1. Finance income and costs
Finance income: 2014 2013
Realised gain on derivative financial instruments (Note 22) 1,058 1,812
Interest income on bank deposits and security deposits 958 543
Gain on disposal of investments 1 331
Other finance income 454
Total finance income 2,471 2,686
Finance income: 2014 2013
Foreign exchange loss (9,720) (3,348)
Realised loss on derivative financial instruments (Note 22) (3,871) (1,192)
Loss on change in fair value of derivative financial instruments (Note 22) (9,869) (939)
Interest expense (4,934) (3,320)
Other finance costs (5) (15)
Total finance costs (28,399) (8,814)
Finance income: 2014 2013
Ineffective portion of fuel hedging (1,187)
Effect of revenue hedging with liabilities in foreign currency (536)
Total hedging result (1,723)
  1. Income tax
2014 2013
Current income tax charge 6,559 6,224
Deferred income tax (benefit)/expense (5,765) 145
Total income tax 794 6,369

Reconciliation of the income tax estimated based on the applicable tax rate to the income tax is presented below:

2014 2013
(Loss)/profit before income tax (16,352) 13,704
Tax rate applicable in accordance with Russian legislation 20% 20%
Theoretical income tax expense at tax rate in accordance with Russian legislation 3,270 (2,741)
Tax effect of items which are not deductible or assessable for taxation purposes:
  • Non-taxable income
737 105
  • Non-deductible expenses
(3,811) (2,653)
  • Unrecognised current year tax losses
(477) (36)
  • Recognition of previously unrecognised tax losses
54 149
  • Write-off of deferred tax assets
(201) (993)
  • Prior years income tax adjustments
(219) (18)
  • Deferred income tax, recognized as part of other comprehensive income
(147) (182)
Total income tax (794) (6,369)

During the year the Group revised its estimates related to the possibility of usage of deferred tax assets of OJSC “Orenburg airlines” and made a write-off in the amount of RUB 201 million (2013: RUB 993 million related to OJSC “Vladivostok Avia”).

31 December
2014
Movements for
the year
31 December
2013
Movements for
the year
31 December
2012
Tax effect of temporary differences:
Tax losses carried forward 1,017 560 457 (947) 1,404
Long-term financial investments 25 (6) 31 (1) 32
Accounts receivable (133) (177) 44 (54) 98
Property, plant and equipment 9,933 8,700 1,233 (78) 1,309
Accounts payable 2,209 745 1,464 826 639
Derivative financial instruments 6,117 5,607 510 189 321
Deferred tax assets before tax set off 19,168 15,429 3,739 (65) 3,803
Tax set off (628) 936 (1,565) (667) (898)
Deferred tax assets after tax set off 18,540 16,365 2,174 (732) 2,905
Property, plant and equipment (92) 2,317 (2,409) (34) (2,104)
Customs duties related to the imported aircraft
under operating leases (461) 140 (601) 166 (767)
Long-term financial investments (15) (15) 157 (172)
Accounts receivable (164) (3) (161) (56) (105)
Accounts payable (29) (3) (26) (311) 14
Deferred tax liabilities before tax set off (761) 2,451 (3,212) (78) (3,134)
Tax set off 628 (936) 1,565 667 898
Deferred tax liabilities after tax set off (133) 1,515 (1,647) 589 (2,236)
Movements for the year, net 17,880 (143)
Less deferred tax recognised directly in equity (12,115) (2)
for the year 5,765 (145)

The Group has unrecognised potential deferred tax assets in respect of unused tax losses carried forward. These tax losses carried forward expire as follow:

31 December
2014
31 December
2013
Tax losses carried forward expiring by the end of:
- 31 December 2018 1,989 2,258
- 31 December 2019 3,909 3,909
- 31 December 2021 915 915
- 31 December 2022 1,552 1,552
- 31 December 2023 96 96
- 31 December 2024 160
Total tax losses carried forward 8,621 8,730

Deferred tax asset in respect of the change in the fair value of the derivative financial instruments of RUB 12,115 million (2013: deferred tax liability of RUB 2 million) has been recognised in these consolidated financial statements as a part of comprehensive income.

A deferred tax liability in relation to temporary differences of RUB 205 million (2013: RUB 192 million) relating to investments in subsidiaries of the Group has not been recognised in these consolidated financial statements as the Group is able to control the timing of reversal of the temporary difference, and reversal is not expected in the foreseeable future.

Management believes that the deferred tax assets of RUB 13,814 million as at 31 December 2014 (31 December 2013: RUB 3 million) and deferred tax liabilities of RUB 351 million as at 31 December 2014 (31 December 2013: RUB 3 million) are recoverable after more than twelve months after the end of the reporting period.

  1. Cash and cash equivalents
31 December 2014 31 December 2013
Cash on hand and bank accounts denominated in roubles 13,211 9,776
Bank accounts denominated in US Dollars 7,626 4,023
Bank deposits denominated in roubles with maturity of less than 90 days 3,431 1,891
Bank deposits denominated in US Dollars with maturity of less than 90 days 1,309
Bank accounts denominated in other currencies 1,350 1,067
Bank accounts denominated in Euro 778 499
Cash in transit 151 95
Total cash and cash equivalents 26,547 18,660

The Group’s exposure to interest rate risk and a sensitivity analysis for financial assets are disclosed in Note 34. Most of the funds are held with a highly reliable state-controlled Russian bank — OJSC Sberbank of Russia (“Sberbank of RF”) with long-term credit rating BBB (Fitch rating agency) as at 31 December 2014 (31 December 2013: BBB according to Fitch rating agency), and OJSC Bank BFA (“Bank BFA”) with long-term credit rating B (S&P rating agency) as at 31 December 2014 (31 December 2013: B according to S&P rating agency).

As at 31 December 2014 the Group had restricted cash of RUB 186 million (31 December 2013: RUB 104 million) recorded within other non-current assets in the Group’s consolidated statement of financial position.

  1. Aircraft lease security deposits

A security deposit is held with the lessor to secure the lessee’s fulfilment of its obligations in full, on a timely basis and in good faith. The security deposit is transferred to the lessor by instalments or in a single instalment. The security deposit is usually equal to three monthly lease payments. The lessee has the right to replace the security deposit, in full or in part, with a letter of credit. The security deposit can be offset against the last lease payment or any payment if there is any non-fulfilment of obligations by the lessee. The security deposit is returned subsequent to the lease agreement’s termination/cancellation or return of the aircraft immediately after the date of lease termination and fulfilment by the lessee of its obligations. The security deposits under aircraft lease agreements are recorded at amortised cost using an average market yield from 3.7% to 9.5% p.a. in 2014 (2013: from 5.0% to 9.5% p.a.).

Aircraft lease security deposits
1 January 2013 1,322
Payment of security deposits 322
Amortisation charge 241
Return of security deposits (503)
Foreign exchange difference 111
31 December 2013 1,493
Payment of security deposits 304
Amortisation charge 127
Return of security deposits (372)
Foreign exchange difference 935
Deposit write-off (56)
31 December 2014 2,431
31 December
2014
31 December
2013
Current portion of security deposits 321 405
Non-current portion of security deposits 2,110 1,088
Total aircraft lease security deposits 2,431 1,493
31 December
2014
31 December
2013
International companies 2,408 1,473
Russian companies 23 20
Total aircraft lease security deposits 2,431 1,493
  1. Accounts receivable and prepayments
31 December
2014
31 December
2013
Trade accounts receivable 29,683 24,889
Other financial receivables 5,119 1,547
Less: impairment provision (4,532) (2,440)
Total financial receivables 30,270 23,996
Prepayments to suppliers 9,284 10,869
VAT and other taxes recoverable 10,959 10,501
Prepayments for aircraft 4,498 8,197
Deferred customs duties related to the imported aircraft under operating leases, current portion 842 935
Other receivables 916 1,193
Accounts receivable and prepayments 56,769 55,691

Accounts receivable and prepayments include prepayments for acquisition of aircraft to be delivered within 12 months after the reporting date. Movements on the Prepayments for aircraft line item are due to the approaching aircraft delivery dates as well as the refund of prepayments related to the delivery of aircraft in the current period.

Deferred customs duties of RUB 842 million as of 31 December 2014 (31 December 2013: RUB 935 million) relate to the current portion of customs duties related to imported aircraft under operating leases. These customs duties are recognised within operating costs in the Group’s consolidated statement of profit or loss over the term of the operating lease. The non-current portion of the deferred customs duties is disclosed in Note 17.

Financial receivables are analysed by currencies in Note 34.

As at 31 December 2014 and 31 December 2013, sufficient impairment provision was made against accounts receivable and prepayments.

The movements in the Group’s impairment provision for accounts receivable and prepayments are as follows:

Impairment provision
1 January 2013 3,274
Increase in impairment provision 1,100
Provision use (577)
Release of provision (1,357)
31 December 2013 2,440
Increase in impairment provision 3,550
Provision use (1,011)
Release of provision (447)
31 December 2014 4,532

Financial receivables are analysed by credit quality in Note 34.

  1. Expendable spare parts and inventories
31 December 2014 31 December 2013
Expendable spare parts 4,349 3,629
Fuel 714 362
Other inventories 2,129 1,370
Total expendable spare parts and inventories, gross 7,192 5,361
Less: impairment provision for obsolete expendable spare parts and inventories (676) (434)
Total expendable spare parts and inventories 6,516 4,927
  1. Long-term financial investments
31 December 2014 31 December 2013
Available-for-sale investments:
Available-for-sale securities 6,062 6,062
Mutual investment funds 15 15
SITA Investment Certificates 39 20
Total available-for-sale investments (before impairment provision) 6,116 6,097
Other long-term investments:
Loans issued to related parties and promissory notes of related parties (Note 36) 29
Total other long-term financial investments (before impairment provision) 29
Less: provision for impairment of long-term financial investments (1) (27)
Total long-term financial investments 6,115 6,099

Available-for-sale securities are mainly represented by the initial value of the Group’s investment in OJSC MASH, a state-related company engaged in servicing of aircraft, passengers and handling cargo of Russian and foreign airlines, and providing non-aviation services to entities operating in Sheremetyevo airport and adjacent area, and to Sheremetyevo airport passengers.

The RF represented by the Federal Agency for State Property Management owns over 80% of the entity’s shares (Note 36).

Management is unable to measure the fair value of the Group’s investments in OJSC MASH reliably, as this entity has not published its most recent financial information, its shares are not quoted and recent trade prices are not publicly accessible. As at 31 December 2014 the investments are recognised in the consolidated statement of financial position at their initial cost of RUB 6,013 million (31 December 2013: RUB 6,013 million).

  1. Other non-current assets
31 December 2014 31 December 2013
Deferred customs duties related to the imported aircraft under operating leases, non-current portion 2,083 2,915
VAT recoverable on acquisition of aircraft 328 1,886
Other non-current assets 1,348 1,154
Total other non-current assets 3,759 5,955
  1. Prepayments for aircraft

As at 31 December 2014 and 31 December 2013 non-current portion of prepayments for aircraft were RUB 29,241 million and RUB 12,318 million, respectively. Movements in the non-current portion of prepayments are due to concluding new agreements for delivery of Airbus A320 and A321.

As at 31 December 2014 and 31 December 2013 non-current prepayments include advance payments for the acquisition of the following aircraft:

Expected lease type Aircraft type 31 December 2014 31 December 2013
Number of aircraft, units Expected delivery date Number of aircraft, units Expected delivery date
Lease type is not determined Boeing B787 22 2016–2019 22 2016–2019
Lease type is not determined Airbus A350 22 2018–2023 22 2018–2023
Operating lease SSJ 100 12 2015
Finance lease Boeing B777 3 2016 6 2015–2016
Lease type is not determined Airbus A320 30 2016–2018 10 2016–2017
Lease type is not determined Airbus A321 19 2016–2018 4 2016–2017

Prepayments made to purchase aircraft expected to be delivered within 12 months after the reporting date are recorded within accounts receivable and prepayments (Note 14).

  1. Property, plant and equipment
Owned aircraft and engines Leased aircraft and engines Land and buildings Transport, equipment and other Construction in progress Total
Cost
1 January 2013 6,175 75,504 10,948 12,233 721 105,581
Additions 1,013 18,024 108 2,197 1,293 22,635
Capitalised expenditures 2,101 330 2,431
Disposals (774) (1,032) (34) (748) (2,588)
Transfers 66 416 (482)
31 December 2013 6,414 94,597 11,088 14,098 1,862 128,059
Additions (i) 1,358 33,672 249 2,624 1,027 38,930
Capitalised expenditures 1,473 172 1,645
Disposals (ii) (902) (3,218) (16) (661) (7) (4,804)
Transfers 60 200 397 878 (1,535)
31 December 2014 6,930 126,724 11,718 16,939 1,519 163,830
Owned aircraft and engines Leased aircraft and engines Land and buildings Transport, equipment and other Construction in progress Total
Accumulated depreciation
1 January 2013 (4,233) (17,246) (3,871) (6,231) (15) (31,596)
Charge for the year (887) (6,866) (370) (1,711) (9,834)
(Accrual)/release of impairment provision (240) 56 1 (183)
Disposals 731 1,032 4 564 2,331
31 December 2013 (4,629) (23,080) (4,237) (7,322) (14) (39,282)
Charge for the year (382) (8,851) (396) (1,711) (11,340)
(Accrual)/release of impairment provision 17 8 (59) (34)
Disposals (ii) 884 1,462 6 518 2,870
31 December 2014 (4,110) (30,469) (4,627) (8,507) (73) (47,786)
Carrying amount
31 December 2013 1,785 71,517 6,851 6,776 1,848 88,777
31 December 2014 2,820 96,255 7,091 8,432 1,446 116,044
  1. The 2014 additions mainly relate to the addition of six aircraft Boeing B777, with initial cost of RUB 33,672 million which were received under finance lease terms (the 2013 additions mainly relate to the addition of four aircraft Boeing B777, with initial cost of RUB 18,024 million which were received under finance lease terms).
  2. The 2014 disposals mainly relate to cabins of 6 aircraft Tu-204 of OJSC “Vladivostok Avia” which were received under finance lease terms with the book value of RUB 1,723 million.

In 2014, capitalised borrowing costs amounted to RUB 362 million with capitalisation rate of 2.9% p.a. (2013: 3.7% p.a.).

As at 31 December 2014 property and land (including tenancy) with the total carrying amount of RUB 713 million (31 December 2013: RUB 771 million) were pledged to third and related parties as a security for the Group’s borrowings (Note 27).

As at 31 December 2014 the cost of fully depreciated property plant and equipment was RUB 7,793 million (31 December 2013: RUB 5,552 million).

  1. Intangible assets
Software Licences Investments in software and R&D Trademark and client base Other Total
Cost
1 January 2013 2,144 134 643 1,686 2 4,609
Additions 466 419 885
Disposals (3) (14) (17)
31 December 2013 2,607 134 1,048 1,686 2 5,477
Additions 296 157 453
Disposals (637) (21) (658)
31 December 2014 2,266 134 1,184 1,686 2 5,272
Accumulated amortisation
1 January 2013 (914) (71) (321) (1) (1,307)
Charge for the year (521) (19) (284) (824)
Disposals 4 4
31 December 2013 (1,431) (90) (605) (1) (2,127)
Charge for the year (553) (243) (796)
Disposals 412 1 413
31 December 2014 (1,572) (89) (848) (1) (2,510)
Carrying amount
31 December 2013 1,176 44 1,048 1,081 1 3,350
31 December 2014 694 45 1,184 838 1 2,762
  1. Goodwill

The aggregate carrying amount of goodwill, allocated to the Group entities is presented in the table below:

CGU name 31 December 2014 31 December 2013
AK Rossiya 5,357 5,357
Orenburgavia 1,145 1,145
AK Aurora 158 158
Total 6,660 6,660

For the purposes of impairment testing, goodwill is allocated between the cash generating units (the “CGUs”), i.e. the Group subsidiaries that represent the lowest level within the Group at which the goodwill is monitored for internal management purposes and are not larger than an operating segment of the Group.

The recoverable amount of CGU was calculated on the basis of value in use, which was determined by discounting the future cash flows to be generated as a result of the entity’s operations.

Key assumptions against which the recoverable amounts are estimated concerned the discount rate, the terminal growth rate (for the calculation of the terminal value) and cash flows.

AK Rossiya

The discount rate was assumed at 17.5% p.a. for 2015–2016 and 13.4% p.a. for subsequent periods (31 December 2013: 12.9% p.a. for the whole projection period). This rate was calculated based on the risk-free rate on ten-year U.S. government bonds, adjusted for country risk (for Russia) and currency risk (roubles), the risk of investing in equities, and the risk associated with small-cap shares. The industry average D/E ratio and Beta coefficient as at 31 December 2014 were taken into account in the calculation.

The cost of debt was calculated based on the effective rate on AK Rossiya’s long-term loans in roubles and the effective rate of finance lease, adjusted for currency risk, and share of financial leasing in overall AK Rossiya’s debt.

Pre-tax WACC was 17.6% p.a. (31 December 2013: 16.1% p.a.).

The growth rate for the terminal value calculation was set at the level of Russia’s GDP long-term growth rate of 2.3% p.a. (2013: 3.5% p.a.).

As a basis for cash flows forecast the Group adopted the approved AK Rossiya’s budget for 2014 and management’s estimate for subsequent periods.

Orenburgavia

he discount rate was assumed at 17.5% p.a. for 2015–2016 and 13.4% p.a. for subsequent periods (31 December 2013: 13.2% p.a. for the whole projection period). This rate was calculated based on the risk-free rate on ten-year U.S. government bonds, adjusted for country risk (for Russia) and currency risk (roubles), the risk of investing in equities, and the risk associated with small-cap shares. The industry average D/E ratio and Beta coefficient as at 31 December 2014 were taken into account.

The cost of debt was calculated based on the effective rate on Orenburgavia’s long-term loans in roubles.

Pre-tax WACC was 15.6% p.a. (31 December 2013: 16.5% p.a.).

Estimated seat load factor is 71.8%.

The growth rate for the terminal value calculation was set at the level of Russia’s GDP long-term growth rate of 2.3% (2013: 3.5%).

As a basis for Orenburgavia’s cash flows forecast the Group adopted the approved Orenburgavia’s budget for 2014.

The Group’s management maintained sensitivity analysis of goodwill impairment test results against seat load factor fluctuations as the most sensitive variable of the model. In case of decrease of this variable by 200 bps the Group should recognise full impairment of goodwill associated with Orenburgavia.

  1. Derivative finacial instruments
31 December
2014
31 December
2013
Derivative financial assets
including:
  • Current
  • Non-current

431
134

1,034
1,175
Total derivative financial assets 565 2,209
Derivative financial liabilities
including:
  • Current
  • Non-current

26,312
4,839

213
4,546
Total derivative financial liabilities 31,151 4,759

As at 31 December 2014 gross values of derivative financial asset and liabilities amounted to RUB 12,949 million and RUB 43,535 million, respectively. Net amounts of derivative financial assets and liabilities after offsetting were RUB 565 million and RUB 31,151 million.

As at 31 December 2013 gross values of derivatives amounted to RUB 2,209 million as assets and RUB 4,759 million as liabilities. Net amounts of assets and liabilities after offsetting were RUB 794 million and RUB 3,345 million, respectively.

The Group assesses the fair value and performs analysis of derivative financial instruments on a regular basis for the purposes of consolidated financial statements or when so requested by the management. Changes in fair value of derivative financial instruments determined using Levels 2 and 3 inputs:

Derivative financialinstruments
2014 2013
1 January (2,551) (1,605)
Level 3 derivative financial instruments that are not subject to special hedge accounting rules
Change in fair value for the year (6,629) (1,951)
Additions (427) 394
Settlements during the year (Note 10) (2,779) (35)
Level 3 derivative financial instruments that are subject to special hedge accounting rules
Change in fair value for the year (13,939)
Additions (12)
Level 2 derivative financial instruments that are subject to special hedge accounting rules
Change in fair value for the year (4,215) (8)
Settlements during the year (Note 10) (34) 655
31 December (30,586) (2,550)
of which:
  • Assets
  • Liabilities

565
(31,151)

2,209
(4,759)
31 December (30,586) (2,550)

For the purpose of risk management the Group applies the following derivative financial instruments:

(a) Cross-currency interest rate swaps with a fixed interest rate

In April and May 2013, the Group entered into two cross-currency interest rate swap agreements with a fixed interest rate with a Russian bank to hedge some of its Euro-denominated revenues from potential unfavourable RUB/EUR exchange rate fluctuations. As a result of efficiency test performed for this hedging instrument the loss from the change in fair value of this derivative financial instrument of RUB 4,060 million was recorded within the other comprehensive income together with the corresponding deferred tax of RUB 849 million.

Level 2 market inputs in the fair value hierarchy were used to assess the fair value of the instrument. The fair value was determined based on discounted contractual cash flows using one-month MosPrime discount rate for cash flows in roubles and EURIBOR —for Euro-denominated cash flows. Cash flows under this agreement are expected through to the end of the first quarter of 2016.

(b) Interest rate swap with a fixed interest rate

During 2014, interest rate swap with a fixed interest rate was closed due to the contractual term expiration. The results of closure of the transaction were reported within finance expenses in the amount of RUB 34 million. Decrease of hedging reserve and corresponding deferred tax amounted to RUB 30 million and RUB 6 million, respectively were recorded within the other comprehensive income.

(c) Fuel options

As of 31 December 2014 the Group was party to a number of option agreements concluded in 2012, 2013 and 2014 with Russian banks to hedge a portion of its aircraft fuel costs. Decrease in fair value of these derivative financial instruments amounted to a loss of RUB 9,364 million for 2014, which is reported in the consolidated statement of profit or loss (2013: a profit of RUB 79 million).

For certain option agreements concluded in 2014 the Group applies cash flow hedge accounting model according to IAS 39 in order to decrease exposure to volatility of cash flows from change in fuel prices.

Loss from change in fair value of option agreements to which hedge accounting is applied for 12 months 2014 amounted to RUB 13,952 million, effective part of this hedging relationship in the amount of RUB 12,763 million before deferred income tax was recognised within hedging reserve, ineffective part amounting to RUB 1,187 million — within hedging result line item of the consolidated statement of profit or loss.

A similar transaction entered into in September 2013 was closed in the first half of 2014 due to the contractual term expiration. The gain of RUB 26 million on the closure of this transaction was recorded in 2014 within the finance income line item of the consolidated statement of profit or loss.

(d) Currency options

The Group entered into currency option agreements with a number of Russian banks to hedge the currency risk. The loss from the change in fair value of these derivative financial instruments in 2014 recorded in the consolidated statement of profit or loss amounted to RUB 531 million (2013: loss in amount of RUB 1,018 million).

For the year ended 31 December 2014, the gain on the currency and fuel options was RUB 1,058 million, the loss was RUB 3,837 million

(2013: RUB 831 million and RUB 866 million, respectively) which were recorded within finance income and finance costs, respectively.

Assessment principles for currency and fuel options

The derivative financial instruments listed below are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivative financial instruments are included in profit or loss for the reporting period if hedge accounting is not applied. In case hedge accounting is applied the effective portion is accounted within hedge reserve.

Level 3 market inputs were used to assess the fair value of the instrument and the Monte-Carlo method was applied. The following inputs were used to assess the fair value of the options:

  • spot price for Brent crude oil observable in the information systems at the valuation date;
  • forecast price for Brent crude oil determined based on the data provided by analysts for the term of the option;
  • volatility calculated based on historical closing prices for underlying asset; and
  • respective currency market rate (MosPrime LIBOR, EURIBOR, etc.).
  1. Accounts payable and accrued liabilities
31 December
2014
31 December
2013
Accounts payable 27,097 18,989
Dividends payable 36 25
Other financial payables 5,906 1,643
Total financial payables 33,039 20,657
Staff related liabilities 6,906 7,152
VAT payable on imported leased aircraft 2,005 3,786
Advances received (other than unearned traffic revenue) 1,181 1,927
Other taxes payable 3,838 981
Other current liabilities related to frequent flyer programme(Note 24) 1,489 896
Income tax payable 72 142
Customs duties payable on imported leased aircraft 115 267
Other payables 307 441
Total accounts payable and accrued liabilities 48,952 36,249

As at 31 December 2014, staff related liabilities primarily include salary payable, as well as social contribution liabilities of RUB 4,132 million (31 December 2013: RUB 4,329 million) and the unused vacation accrual of RUB 2,682 million (31 December 2013: RUB 2,266 million).

As at 31 December 2014, accounts payable and accrued liabilities include the current portion of VAT payable of RUB 2,005 million (31 December 2013: RUB 3,786 million) and customs duties payable of RUB 115 million (31 December 2013: RUB 267 million) relating to imported leased aircraft, which are payable in equal monthly instalments over a thirty-four-month period from the date these assets were cleared through customs.

Financial payables by currency are analysed in Note 34

  1. Deferred revenue and other liabilities related to frequent flyer programme

Deferred revenue and other liabilities related to frequent flyer programme (Aeroflot Bonus programme) as at 31 December 2014 and 31 December 2013 represent the number of bonus miles earned when flying on the Group flights, but unused by the Aeroflot Bonus programme members and the number of promo-miles and bonus miles earned by programme members for using programme partners’ services, respectively, and are estimated at fair value. Deferred revenue and other liabilities related to frequent flyer programme also include liabilities under the Company’s discount programme as at 31 December 2014 and 31 December 2013, which represent the fair value of coupons for a discount on the repeated purchase of tickets at Aeroflot’s web-site.

31 December 2014 31 December 2013
Deferred revenue related to frequent flyer programme, current 799 577
Deferred revenue related to frequent flyer programme, non-current 2,560 1,862
Other current liabilities related to frequent flyer programme (Note 23) 1,489 896
Other non-current liabilities related to frequent flyer programme (Note 28) 3,279 2,451
Total deferred revenue and other liabilities related to frequent flyer programme 8,127 5,786
  1. Provisions
Litigations Tax risks Regular repairs and maintenance works Total provisions
1 January 2013 102 122 224
Additional provision for the year 474 14 1,252 1,740
Release of provision for the year (12) (89) (101)
Unwinding of the discount 559 559
Foreign exchange loss, net 114 114
31 December 2013 564 47 1,925 2,536
Additional provision for the year 1,055 2,224 3,279
Release of provision for the year (440) (47) (1,521) (2,008)
Unwinding of the discount 634 634
Foreign exchange loss, net 193 2,181 2,374
Other changes 379 379
31 December 2014 1,372 5,822 7,194
31 December 2014 31 December 2013
Current liabilities 2,349 881
Non-current liabilities 4,845 1,655
Total provisions 7,194 2,536
Litigations

The Group is a defendant in legal claims of a different nature. Provisions for liabilities represent management’s best estimate of probable losses on existing and potential lawsuits (Note 39).

Tax risks

The Group makes a provision for contingent liabilities and accrued fines and penalties based on the best management’s estimate of the amount of additional taxes that may be required to be paid (Note 39).

Regular repairs and maintenance works

As at 31 December 2014, the Group made a provision of RUB 5,822 million (31 December 2013: RUB 1,925 million) for regular repairs and maintenance works of aircraft used under operating lease terms.

  1. Finance lease liabilities

The Group leases aircraft from third and related parties under finance lease agreements (Note 36). The aircraft that the Group have operated under finance lease agreements as at 31 December 2014 are listed in Note 1.

31 December 2014 31 December 2013
Total outstanding payments on finance lease contracts 170,485 86,514
Future finance lease interest expense (21,207) (14,478)
Total finance lease liabilities 149,278 72,036
including:
  • Current finance lease liabilities
16,912 8,688
  • Non-current finance lease liabilities
132,366 63,348
Total finance lease liabilities 149,278 72,036
Due for repayment: 31 December 2014 31 December 2013
Principal Future interest expense Total payments Principal Future interest expense Total payments
On demand or within 1 year 16,912 4,191 21,103 8,688 2,652 11,340
Later than 1 year and not later than 5 years 65,406 11,832 77,238 29,409 7,802 37,211
Later than 5 years 66,960 5,184 72,144 33,939 4,024 37,963
Total 149,278 21,207 170,485 72,036 14,478 86,514

As at 31 December 2014 interest payable amounted to RUB 480 million (31 December 2013: RUB 251 million) and is included in accounts payable and accrued liabilities.

The effective interest rate as at 31 December 2014 was 3.0% p.a. (31 December 2013: 4.1% p.a.).

The Group hedges foreign currency risk arising on a portion of the future revenue stream denominated in US dollars with the debt (lease obligations) denominated in the same currency. The Group applies cash flow hedge accounting model to this hedging transaction, in accordance with IAS 39. At 31 December 2014, finance lease liabilities in the amount of RUB 144,059 million denominated in US dollars are designated as a hedging instrument denominated in US dollars of highly probable revenue forecasted or the period 2015 — 2026. The Group expects that this hedging relationship will be highly effective since the future cash outflows on the lease liabilities match the future cash inflows on the revenue being hedged. At 31 December 2014, a foreign currency loss of RUB 43,596 million (before deferred income tax) on the finance lease liabilities, representing an effective portion of the hedge, is deferred in the hedging reserve in other comprehensive income. The amount reclassified from the hedging reserve to profit or loss from inception of the hedge was RUB 536 million.

In 2014 interest expense on finance leases was RUB 2,966 million (2013: RUB 1,786 million).

Leased aircraft and engines with the carrying amount disclosed in Note 19 are effectively pledged for finance lease liabilities as the rights to the leased asset revert to the lessor in the event of default.

  1. Loans and borrowings
31 December
2014
31 December
2013
Short-term bank loans, bonds and other borrowings:
Short-term loans in US dollars 10,409
Short-term loans in Russian Roubles 1,603 1,000
Current portion of bonds in Russian Roubles 102 101
Current portion of long-term bank loans in US dollars 1,154 792
Current portion of loans and borrowings in Russian Roubles 4,075 3,136
Total short-term loans and borrowings 17,343 5,029
Long-term bank loans, bonds and other borrowings:
Long-term loans in Russian Roubles 5,575 5,636
Long-term bonds in Russian Roubles 5,102 5,101
Long-term loans and borrowings in US dollars 1,514 1,669
Less:
  • Current portion of bonds in Russian Roubles
(102) (101)
  • Current portion of long-term bank loans in US dollars
(1,154) (792)
  • Current portion of loans and borrowings in Russian Roubles
(4,075) (3,136)
Total long-term loans and borrowings 6,860 8,377

Description of the main changes in loans and borrowings during 2014:

The Group has opened long-term credit lines with OJSC Alfa-Bank in the amount of RUB 3,600 million. As at 31 December 2014 the outstanding amount of the credit lines was RUB 2,800 million. Interest rates varies from 11.9% to 14.8% p.a. The loans are unsecured.

The Group has opened long-term credit line with OJSC AKB ROSBANK in the amount of USD 60 million. As at 31 December 2014 the credit line was entirely used and the outstanding amount including interest accrued was RUB 3,382 million. Interest rate is LIBOR +4.5% p.a. The loan is unsecured.

The Group has opened long-term credit line with OJSC Nordea Bank in the amount of USD 55 million. As at 31 December 2014 the principal outstanding amount of the credit line was USD 44.85 million, which is equal to RUB 2,523 million. Interest rate is LIBOR +5.0% p.a. The loan is unsecured.

The Group has opened long-term credit line with OJSC Moscow Credit Bank in the amount of RUB 4,000 million, which can be obtained in roubles or foreign currency. As at 31 December 2014 the principal outstanding amount was USD 40 million, which is equal to RUB 2,523 million (including interest). Interest rate is 5.75% p.a. The loan is unsecured.

The Group has opened long-term credit line with PJSC VTB in the amount of RUB 5,000 million which can be obtained either in US Dollars, Euro or roubles. As at 31 December 2014 the principal outstanding amount of the credit line was USD 40 million, which is equal to RUB 2,251 million (including interest). Interest rate is 7.5% p.a. The loan is unsecured.

The Group has opened long-term credit line with PJSC Gazprombank in the amount of RUB 1,500 million with interest rate of 13.0% p.a. As at 31 December 2014 the principal outstanding amount of the credit line was RUB 750 million. The loan is unsecured.

As at 31 December 2014 and 31 December 2013, the fair value of loans and borrowings, including bonds was not materially different from their carrying amounts.

As at 31 December 2014 the Group has bonds issued (BO-03 series) with notional amount of RUB 5,000 million and interest coupon rate of 8.3% p.a. As at 31 December 2014 effective yield to maturity for these bonds was 11.3% p.a.

As at 31 December 2014 the Group was able to attract RUB 21,562 million of cash (31 December 2013: RUB 16,229 million) available under existing credit lines granted to the Group by various lending institutions.

As at 31 December 2014 bank loans in the amount of RUB 2,000 million (31 December 2013: RUB 1,600 million) were secured by property and land (Note 19).

  1. Other non-current liabilities
31 December 2014 31 December 2013
Other non-current liabilities related to frequent flyer programme (Note 24) 3,279 2,451
VAT payable on imported leased aircraft 328 1,886
Defined benefit pension obligation, non-current portion 659 707
Customs duties payable on imported leased aircraft 54 169
Other non-current liabilities 164 85
Total other non-current liabilities 4,484 5,298

As at 31 December 2014 other non-current liabilities include the non-current portion of VAT payable of RUB 328 million (31 December 2013: RUB 1,886 million) and customs duties of RUB 54 million (31 December 2013: RUB 169 million) relating to imported leased aircraft, which are payable in equal monthly instalments over a thirty-four-month period from the date these assets are cleared through customs.

Non-current customs duties payable on imported leased aircraft have been discounted using a discount rate of 10.8% to 12.0% p.a. (31 December 2013: 9.8% to 12.0% p.a.).

  1. Non-controlling interest

The following table provides information about the subsidiary (AK Rossiya) with non-controlling interest that is material to the Group:

2014 2013
Portion of non-controlling interest’s voting rights held 25% plus 1 share 25% plus 1 share
Loss attributable to non-controlling interest for the year (1,356) (158)
Accumulated losses attributable to non-controlling interests in subsidiary (3,809) (2,452)

The summarised financial information of AK Rossiya is presented below:

31 December 2014 31 December 2013
Current assets 5,200 4,016
Non-current assets 11,431 10,492
Current liabilities 11,974 9,593
Non-current liabilities 19,892 14,723
Revenue 35,655 32,090
Loss for the year (5,449) (657)
Comprehensive loss for the year (5,449) (657)

As at 31 December 2014 there are no significant restrictions in getting access to the subsidiary’s assets or using them for settling the subsidiary’s obligations.

  1. Share capital

As at 31 December 2014 and 31 December 2013 share capital was equal to RUB 1,359 million.

Number of ordinary shares authorised and issued (shares) Number of treasury shares (shares) Number of ordinary shares outstanding (shares)
31 December 2013 1,110,616,299 (53,757,439) 1,056,858,860
31 December 2014 1,110,616,299 (53,716,189) 1,056,900,110

All issued shares are fully paid. The total number of unissued ordinary shares is 250,000,000 shares (31 December 2013: 250,000,000 shares) with a par value of RUB 1 per share (31 December 2013: RUB 1 per share).

Ordinary shareholders are entitled to one vote per share.

In 2014, the number of the Group’s treasury shares decreased by 41,250 shares due to the exercise of rights under the share option programme (Note 36) (2013: the decrease was 9,057,005 shares).

As at 31 December 2014, treasury shares were held by wholly-owned subsidiaries of the Group and by the Company:

31 December 2014
(shares)
31 December 2013
(shares)
Aeroflot 227,696
Aeroflot Finance 53,714,098 53,527,652
LLC Partner ("Partner") 2,091 2,091
Total number of treasury shares 53,716,189 53,757,439

These ordinary shares carry voting rights in the same proportion as other ordinary shares. Voting rights of ordinary shares of the Company held by the entity within the Group are effectively controlled by management of the Group.

The Company’s shares are listed on the Moscow Exchange; as at 31 December 2014 and 31 December 2013, they were traded at RUB 31.8 per share and RUB 84.1 per share, respectively.

The Company launched Global Depositary Receipts (GDRs) programme in December 2000. For the liquidity increase in January 2014 the Company adjusted the ratio of ordinary shares to GDR to 5:1, as at 31 December 2014 the GDRs were traded on the Frankfurt stock exchange at RUB 180 per GDR. As at 31 December 2013 the ratio of ordinary shares to GDR was 100:1 and the GDRs were traded on the Frankfurt stock exchange at RUB 8,005 per GDR.

  1. Dividends

At the annual shareholders’ meeting held on 27 June 2014 the shareholders approved dividends in respect of 2013 in the amount of RUB 2.4984 per share totalling to RUB 2,774 million for the Company’s total declared and placed shares.

At the annual shareholders’ meeting held on 24 June 2013 the shareholders approved dividends in respect of 2012 in the amount of RUB 1.1636 per share totalling to RUB 1,292 million for the Company’s total declared and placed shares.

All dividends are declared and paid in roubles.

  1. Operating segments

The Group has a number of operating segments, but none of them, except for “Passenger Traffic”, meet the quantitative threshold for determining reportable segment.

The passenger traffic operational performance is measured based on internal management reports which are reviewed by the Group’s General Director. Passenger traffic revenue by flight routes is allocated based on the geographic destinations of flights. Passenger traffic revenue by flight routes is used to measure performance as the Group believes that such information is the most material in evaluating the results.

Passenger traffic Other Inter-segment sales elimination Total Group
2014
External sales 317,850 1,921 319,771
Inter-segment sales 2 11,645 (11,647)
Total revenue 317,852 13,566 (11,647) 319,771
Operating profit 11,225 344 (301) 11,268
Finance income 2,471
Finance costs (28,399)
Hedging result (1,723)
Share of results of associates 31
Loss before income tax (16,352)
Income tax (794)
Loss for the year (17,146)
31 December 2014
Segment assets 262,661 8,568 (12,860) 258,369
Investments in associates 142 142
Unallocated assets 19,207
Total assets 277,718
Segment liabilities 291,267 4,165 (4,413) 291,019
Unallocated liabilities 204
Total liabilities 291,223
2014
Capital expenditures and PP&E additions (Note 19) 39,951 622 40,573
Depreciation (Note 19) 11,118 222 11,340
2013
External sales 288,652 2,304 290,956
Inter-segment sales 10 9,204 (9,214)
Total revenue 288,662 11,508 (9,214) 290,956
Operating profit 18,597 1,400 (202) 19,795
Finance income 2,686
Finance costs (8,814)
Share of results of associates 37
Profit before income tax 13,704
Income tax (6,369)
Profit for the year 7,335
31 December 2013
Segment assets 210,903 6,971 (11,480) 206,394
Investments in associates 141 141
Unallocated assets 2,649
Total assets 209,184
Segment liabilities 153,415 4,782 (5,282) 152,915
Unallocated liabilities 1,789
Total liabilities 154,704
2013
Capital expenditures and PP&E additions (Note 19) 24,614 452 25,066
Depreciation (Notes 19) 9,670 164 9,834
Passenger revenue: 2014 2013
International flights from the RF to:
CIS 8,184 9,457
Europe 33,691 31,271
Middle East and Africa 7,012 6,996
Asia 17,352 14,512
North America 7,934 7,497
Total passenger revenue from flights from the RF 74,173 69,733
International flights to the RF from:
CIS 7,881 9,487
Europe 34,292 32,116
Middle East and Africa 7,148 7,301
Asia 18,074 15,414
North America 7,921 7,326
Total passenger revenue from flights to the RF 75,316 71,644
Domestic flights 104,009 89,215
Other international flights 115 2
Total passenger traffic revenue 253,613 230,594
  1. Presentation of financial instruments by measurement category

Financial assets and liabilities are classified by measurement categories as at 31 December 2014 as follows:

Note Loans and receivables Available-for-sale financial assets Financial assets at fair value through profit or loss Derivative financial instruments (hedging) Total
Cash and cash equivalents 12 26,547 26,547
Short-term financial investments 960 1 961
Financial receivables 14 30,270 30,270
Aircraft lease security deposits 13 2,431 2,431
Derivative financial instruments 22 529 36 565
Long-term financial investments 16 6,115 6,115
Other non-current assets 186 186
Total financial assets 60,394 6,116 529 36 67,075
Note Liabilities at fair value through profit or loss Derivative financial instruments (hedging) Other financial liabilities Total
Derivative financial instruments 22 (12,360) (18,791) (31,151)
Financial payables 23 (33,039) (33,039)
Finance lease liabilities 26 (149,278) (149,278)
Loans and borrowings 27 (24,203) (24,203)
Total financial liabilities (12,360) (18,791) (206,520) (237,671)

Financial assets and liabilities are classified by measurement categories as at 31 December 2013 as follows:

Assets Note Loans and receivables Available-forsale financial assets Assets at fair value through profit or loss Derivative financial instruments (hedging) Total
Cash and cash equivalents 12 18,660 18,660
Short-term financial investments 530 530
Financial receivables 14 23,996 23,996
Aircraft lease security deposits 13 1,493 1,493
Derivative financial instruments 22 2,018 192 2,210
Long-term financial investments 16 29 6,070 6,099
Other non-current assets 104 104
Total financial assets 44,812 6,070 2,018 192 53,092
Assets Note Loans and receivables Available-for-sale financial assets Assets at fair value through profit or loss Derivative financial instruments (hedging) Total
Cash and cash equivalents 12 18,660 18,660
Short-term financial investments 530 530
Financial receivables 14 23,996 23,996
Aircraft lease security deposits 13 1,493 1,493
Derivative financial instruments 22 2,018 192 2,210
Long-term financial investments 16 29 6,070 6,099
Other non-current assets 104 104
Total financial assets 44,812 6,070 2,018 192 53,092
Note Liabilities at fair value through profit or loss Derivative financial instruments (hedging) Other financial liabilities Total
Derivative financial instruments 22 (3,981) (779) (4,760)
Financial payables 23 (20,657) (20,657)
Finance lease liabilities 26 (72,036) (72,036)
Loans and borrowings 27 (13,490) (13,490)
Total financial liabilities (3,981) (779) (106,183) (110,943)
  1. Risks connected with financial instruments

The Group manages risks related to financial instruments, which include market risk (currency risk, interest rate risk and aircraft fuel price risk), credit risk, liquidity risk and capital management risk.

Liquidity risk

The Group is exposed to liquidity risk, i.e. the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed financial conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group utilises a detailed budgeting and cash forecasting process to ensure its liquidity is maintained at appropriate level.

The following are the Group’s financial liabilities (excluding derivative financial instruments) as at 31 December 2014 and 31 December 2013 by contractual maturity (based on the remaining period from the reporting date to the contractual settlement date). The amounts in the table are contractual undiscounted cash flows (including future interest payments) as at respective reporting dates:

31 December 2014 Average interest rate 0-12 months 1-2 years 2-5 years Over 5 years Total
Contractual Effective
Loans in foreign currency 5.3% 5.3% 11,798 366 12,164
Loans in roubles 11.8% 11.8% 6,511 194 1,635 8,340
Bonds denominated in roubles 8.3% 8.3% 517 5,102 5,619
Finance lease liabilities 2.9% 3.0% 21,103 21,045 56,193 72,144 170,485
Financial payables 33,039 33,039
Total future payments, including future interest payments 72,968 26,707 57,828 72,144 229,647
31 December 2013 Average interest rate 0-12 months 1-2 years 2-5 years Over 5 years Total
Contractual Effective
Loans in foreign currency 3.5% 3.5% 835 891 1 1,727
Loans in roubles 11.5% 11.5% 4,693 2,703 7,396
Bonds denominated in roubles 8.3% 8.3% 516 415 5,108 6,039
Finance lease liabilities 3.9% 4.1% 11,340 9,860 27,351 37,963 86,514
Financial payables 20,657 20,657
Total future payments, including future interest payments 38,041 13,869 32,460 37,963 122,333

As of 31 December 2014 net short-term liabilities of the Group amounted to RUB 42,923 million (31 December 2013: net short-term assets in the amount of RUB 13,494 million). Loss for 2014 amounted to RUB 17,146 million (2013: profit in the amount of RUB 7,335 million). Financial result for 2014 was materially affected by foreign exchange differences which are related to decrease of exchange rate of Russian rouble to US Dollar and revaluation of derivative financial instruments. In 2014 cash flows from operating activities were positive and amounted to RUB 35,977 million (2013: RUB 28,945 million).

The treasury function of the Group provides flexibility of financing through available credit lines. As at 31 December 2014, the Group was able to attract RUB 21,562 million of cash (31 December 2013: RUB 16,229 million) available under credit lines granted by various lending institutions. Additionally for the improvement of liquidity the management is planning to increase operational effectiveness of the Group and further increase of cash flows from operating activities.

Currency risk

The Group is exposed to currency risk in relation to revenue as well as purchases and borrowings that are denominated in a currency other than rouble. The currencies in which these transactions are primarily denominated are Euro and US Dollar.

The Groups analyses the exchange rate trends on a regular basis. To hedge the risk of negative changes in the exchange rates the Group entered into financial derivative contracts with a number of Russian banks.

The Group uses long-term lease liabilities nominated in US Dollars as hedging instrument for risk of change in US Dollar exchange rate in relation to revenue.

The Group’s exposure to foreign currency risk was as follows based on notional amounts of financial instruments:

In millions of Russian Roubles Note 31 December 2014 31 December 2013
US Dollar Euro Other currency Total US Dollar Euro Other currency Total
Cash and cash equivalents 12 7,626 778 1,350 9,754 4,023 499 1,067 5,589
Financial receivables 21,820 3,618 3,560 28,998 11,094 2,732 2,595 16,421
Aircraft lease security deposits 2,408 2,408 1,473 1,473
Derivative financial instruments 529 36 565 76 192 268
Other non-current assets 66 52 68 186 28 36 41 105
Total assets 32,449 4,484 4,978 41,911 16,694 3,459 3,703 23,856
Financial payables 9,444 4,085 785 14,314 6,480 2,530 480 9,490
Finance lease liabilities 146,436 146,436 69,034 69,034
Short-term loans and borrowings 27 11,563 11,563 792 792
Long-term loans and borrowings 27 360 360 877 877
Derivative financial instruments 17,325 4,839 22,164 852 750 1,602
Total liabilities 185,128 8,924 785 194,837 78,035 3,280 480 81,795
Total (liabilities)/assets, net (152,679) (4,440) 4,193 (152,926) (61,341) 179 3,223 (57,939)

The Group also expects that payments of Euro 2.3 million, Euro 2.3 million and Euro 126.4 million related to the cross-currency interest rate swap with a fixed interest rate disclosed in Note 22, will be made in March and September 2015 and March 2016, respectively.

Strengthening or weakening of listed below currencies against rouble as at 31 December 2014 and 31 December 2013 by 50% and 20%, respectively, would have increased/(decreased) profit after tax by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

31 December 2014 31 December 2013
Percent of change in rate of currency versus rouble Effect on profit after tax (increase/ (decrease)) Percent of change in rate of currency versus rouble Effect on profit after tax (increase/ (decrease))
Increase in the rate of currency versus rouble:
US Dollar 50% (57,803) 20% (10,224)
Euro 50% 151 20% 123
Other currencies 50% 1,747 20% 537
Decrease in the rate of currency versus rouble:
US Dollar 50% 57,803 20% 10,224
Euro 50% (151) 20% (123)
Other currencies 50% (1,747) 20% (537)

As of 31 December 2014 the effect on the Group’s equity would be RUB 63,566 million considering immaterial effect from change in exchange rates of other currencies.

Interest rate risk

The Group is exposed to the effects of fluctuations in the prevailing levels of market interest rates on its financial results and cash flows. Changes in interest rates impact primarily change in cost of borrowings (fixed interest rate borrowings) or future cash flows (variable interest rate borrowings). At the time of raising new borrowings as well as finance lease management uses judgment to decide whether it believes that a fixed or variable interest rate would be more favourable to the Group over the expected period until maturity.

As at 31 December 2014 and 31 December 2013, the interest rate profiles of the Group’s interest-bearing financial instruments were:

Carrying amount
31 December 2014 31 December 2013
Fixed rate financial instruments:
Financial assets 3,582 3,295
Financial liabilities (38,112) (31,435)
Total fixed rate financial instruments (34,530) (28,140)
Variable rate financial instruments:
Variable rate financial liabilities (135,225) (54,006)

During the year some of the Group’s loans bore variable interest rates (Note 27). If the variable part of interest rates on loans in 2014 were 20% higher or lower than the actual variable part of interest rates for the year, with all other variables held constant, interest expense would not have changed significantly (2013: would not have changed significantly).

The interest expense under finance lease agreements primarily accrues at variable interest rates. If in 2014 variable part of those rates were 20% higher or lower than what they actually were, with all other variables held constant, interest expense on finance leases for the year would not have been materially different (2013: would not have been materially different).

Aircraft fuel price risk

The results of the Group’s operations are significantly impacted by changes in the price of aircraft fuel. In 2012, 2013 and 2014 the Group entered into agreements with a number of Russian banks to hedge a portion of its fuel costs from potential future price increases. In accordance with the terms of each agreement the Group will be compensated by the bank for the excess between the actual aircraft fuel price and the ceiling price specified in the agreement, whilst the Group has agreed to compensate the bank the shortfall between the actual prices and the floor price specified in the agreement.

In case as at 31 December 2014 price for Brent crude oil was 50% higher or lower than its actual price, with all other variables remaining constant (including forecast of crude oil price), the effect of change in crude oil price on the Group’s equity and result would not be materially different (2013: would not be materially different).

Capital management risk

The Group manages its capital to ensure its ability to continue as a going concern while maximizing the return to the Company’s shareholders through the optimization of the Group’s debt to equity ratio.

The Group manages its capital in comparison with rivals in the airline industry on the basis of the following ratios:

  • net debt to total capital,
  • total debt to EBITDA, and
  • net debt to EBITDA

Total debt consists of short-term and long-term borrowings (including the current portion), finance lease liabilities, custom duties payable on imported leased aircraft and defined benefit pension obligation.

Net debt is defined as total debt less cash, cash equivalents and short-term financial investments.

Total capital consists of equity attributable to the Company’s shareholders and net debt.

EBITDA is calculated as operating profit before depreciation, amortization and custom duties expenses.

The ratios are as follows:

As at and for the year ended 31 December 2014 As at and for the year ended 31 December 2013
Total debt 174,309 86,585
Cash and cash equivalents and short-term financial investments (27,508) (18,932)
Net debt 146,801 67,653
Equity attributable to shareholders of the Company (3,631) 60,146
Total capital 143,170 127,798
EBITDA 24,840 31,849
Net debt/Total capital 1.0 0.5
Total debt/EBITDA 7.0 2.7
Net debt/EBITDA 5.9 2.1

There were no changes in the Group’s approach to capital management in 2014 and 2013.

Neither the Group nor any of its subsidiaries are subject to externally imposed capital requirements in 2014 and 2013, except for minimal share capital according to the legislation.

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s cash and cash equivalents, financial receivables and investments in securities.

The Group conducts transactions with the following major types of counterparties:

  1. The Group has credit risk associated with travel agents and industry organisations. A significant share of the Group’s sales is made via travel agencies. Due to the fact that receivables from travel agents are diversified the overall credit risk related to travel agencies is assessed by management as low.
  2. Receivables from other airlines are carried out through the IATA clearing house. Regular settlements ensure that the exposure to credit risk is mitigated to the greatest extent possible.
  3. Management actively monitors its investing performance and in accordance to current policy investing only in liquid securities with high credit ratings. Management does not expect any counterparty to fail to meet its obligations.

As at 31 December 2014 the total amount of investments into securities was RUB 6,092 million, major part of financial receivables amounted to RUB 17,314 million relates to receivables regulated by clearing house.

The maximum exposure to the credit risk net of impairment provision is set out in the table below:

31 December 2014 31 December 2013
Cash and cash equivalents (Note 12) 26,547 18,660
Financial receivables (Note 14) 30,270 23,996
Short-term financial investments 961 273
Long-term financial investments (Note 16) 6,115 6,099
Aircraft lease security deposits (Note 13) 2,431 1,493
Other non-current assets 186 104
Total financial assets exposed to credit risk 66,510 50,625

Analysis by credit quality of financial receivables is as follows:

31 December 2014 31 December 2013
Past due but not impaired
  • less than 90 days overdue
58 119
  • 91 days to 2 years overdue
32
Total past due but not impaired receivables 90 119
Credit risk concentration

As at 31 December 2014 a large portion of the cash as well as long-term financial investments of the Group was placed in two banks (as at 31 December 2013: two banks) and invested in one company (as at 31 December 2013: one company), respectively, which causes the credit risk concentration for the Group.

  1. Fair value of financial instruments

Fair value is the amount at which a financial instrument can be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. The best evidence of the fair value is an active quoted market price of a financial instrument.

The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to determine the estimated fair value. Management uses all available market information in estimating the fair value of financial instruments.

Financial instruments carried at fair value. This category includes only derivative financial instruments disclosed in Note 22.

Financial assets carried at amortised cost. The fair value of instruments with a floating interest rate is normally equal to their carrying value. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates effective on debt capital markets for new instruments with similar credit risk and remaining maturity. Discount rates used depend on the credit risk of the counterparty. Carrying amounts of financial receivables, lease security deposits and loans issued approximate their fair values, which belong to Level 2 in the fair value hierarchy. Cash and cash equivalents belong to level 1 and are carried at amortised cost which is approximately equal to their fair value.

Liabilities carried at amortised cost. The fair value of financial instruments is measured based on the current market quotes, if any. The estimated fair value of unquoted fixed interest rate instruments with stated maturity was estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. As at 31 December 2014 and 31 December 2013, the fair values of financial payables (Note 23), finance lease liabilities (Note 26), loans, borrowings and bonds (Note 27) were not materially different from their carrying amounts. The fair values of financial payables, finance lease liabilities and loans and borrowings are categorised as Levels 2, while bonds are categorised as Level 1 in the fair value hierarchy.

  1. Related parties transactions

Parties are generally considered to be related if they are under common control or if one party has the ability to control the other party or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each possible related party relationship attention is directed to the economic substance of the relationship, not merely the legal form.

As at 31 December 2014 and 31 December 2013, the outstanding balances with related parties and income and expense items with related parties for the years ended 31 December 2014 and 31 December 2013 were disclosed below:

Associates

As at 31 December 2014 and 31 December 2013, the outstanding balances with associates and income and expense items with associates for the years ended 31 December 2014 and 31 December 2013 were as follows:

31 December 2014 31 December 2013
Assets
Accounts receivable 1 38
Liabilities
Accounts payable and accrued liabilities 140 75

The amounts outstanding to and from related parties will be settled mainly in cash.

2014 2013
Transactions
Sales to associates 19 17
Purchase from associates 1,372 1,306

Purchases from associates consist primarily of aviation security services.

Government-related entities

As at 31 December 2014 and 31 December 2013, the Government of the RF represented by the Federal Agency for Management of State Property owned 51.17% of the Company. The Group operates in an economic environment where the entities are directly or indirectly controlled by the Government of the RF through its government authorities, agencies, associations and other organizations, collectively referred to as government-related entities.

The Group decided to apply the exemption from disclosure of individually insignificant transactions and balances with the state and its related parties because the Russian government has control, joint control or significant influence over such parties.

The Group has transactions with government-related entities, including but not limited to the following transactions:

  • banking services,
  • transactions with derivative financial instruments,
  • investments in OJSC MASH,
  • purchase of air navigation and airport services, and
  • Government subsidies including those provided for compensating the losses from passenger flights under two government programmes, i.e. flights to and from European Russia for inhabitants of Kaliningrad region and Far East.

Outstanding balances of derivative financial instruments and cash at current rouble and foreign currency accounts in the government-related banks

31 December 2014 31 December 2013
Assets
Cash and cash equivalents 15,781 11,726
Derivative financial instruments
  • OJSC Sberbank of RF
529 1,253
  • PJSC Gazprombank
105
Liabilities
Derivative financial instruments
  • OJSC Sberbank of RF
(9,887) (2,912)
  • PJSC VTB
(4,613) (29)

The amounts of the Group’s finance and operating lease liabilities are disclosed in Notes 26 and 37. The share of liabilities to the government-related entities is approximately 12% for finance lease and 7% for operating lease (31 December 2013: 20% and 8%, respectively).

For the year ended 31 December 2014 the share of the Group’s transactions with government-related entities was less than 12% of operating costs, and less than 3% of revenue (2013: less than 13% and less than 2%, respectively). These expenses primarily include costs of air navigation and aircraft maintenance services in the government-related airports and also supplies of fuel by government-related entities.

As at 31 December 2014 the Group issued guarantees for the amount of RUB 398 million to a government-related entity to secure obligations under tender procedures (31 December 2013: RUB 788 million).

As at 31 December 2014 the government or government-related entities owned non-controlling interest of particular subsidiaries of the Group amounted to RUB 3,862 million (31 December 2013: RUB 2,452 million).

Transactions with the state also include taxes, levies and customs duties settlements and charges which are disclosed in Notes 7, 8, 9, 11, 14, 17, 23 and 28.

Compensation of key management personnel

The remuneration of directors and other members of key management personnel (the members of the Board of Directors and the 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 the Group), including salary and bonuses as well as other compensation, amounted to RUB 953 million (2013: RUB 738 million).

These remunerations are mainly represented by short-term payments. Such amounts are stated before personal income tax but exclude mandatory insurance contributions to non-budgetary funds. According to Russian legislation, the Group makes contributions to the Russian State pension fund as part of compulsory social insurance contributions for all its employees, including key management personnel.

Bonus programmes based on the Company’s capitalisation

In 2013, the Group approved bonus programmes for the Group’s key management personnel and members of the Company’s Board of Directors. These programmes run for three years and are exercised in three tranches of cash payments. The amounts of payments depend both on the absolute increase in the Company’s capitalisation and the Company’s capitalisation growth rates against its peers based on the results of the reporting year. The fair value of the liabilities under the bonus programmes was determined based on consensus forecast for the Company’s capitalisation growth until 2015.

In 2014, expenses related to the bonus programmes were RUB 566 million and were recorded within staff costs in the Group’s consolidated statement of profit or loss (2013: RUB 345 million). As at 31 December 2014, outstanding liability under these plans was RUB 247 million (as at 31 December 2013 it was RUB 345 million).

Share option programme

During 2010 the Group initiated a share option programme for its key management personnel (the “Share option programme”). The Share option programme ran for three years and was exercised in three tranches accrued over the three-year period from 1 January 2011 to 31 December 2014. The vesting requirement of the Share option programme was the continuous employment of participants in the Company during the vesting period of the Share option programme.

The fair value of services received in return for the share option granted was measured by reference to the fair value of the share option granted. The estimate of the fair value of the services received was determined using the Black-Scholes model. The following variables have been used in the model:

Market share price at the grant date, RUB 55.8
Expected volatility, % 40
Risk free interest rate, % 5

During 2013 the Group recorded release of 1,796,300 unused share options for the amount of RUB 33.9 million within staff costs in the Group’s consolidated statement of profit and loss. As at 31 December 2014, there were no outstanding liabilities under the share option programme (the outstanding amount as at 31 December 2013: RUB 207.5 million).

Cross shareholding

As at 31 December 2014 Aeroflot-Finance and Partner, 100%-owned subsidiaries of the Group, owned 53,714,098 ordinary shares and 2,091 ordinary shares of the Company, respectively (31 December 2013: 53,527,652 ordinary shares and 2,091 ordinary shares of the Company, respectively) (Note 30).

  1. Commitments under operating leases

Future minimum lease payments under non-cancellable aircraft and other operating lease agreements with third and related parties (Note 36) are as follows:

31 December 2014 31 December 2013
On demand or within 1 year 42,694 20,132
Later than 1 year and not later than 5 years 179,654 95,086
Later than 5 years 209,804 137,073
Total operating lease commitments 432,152 252,291

The amounts above represent base rentals payable. Maintenance fees payable to the lessor, based on actual flight hours, and other usage variables are not included in the amounts.

The aircraft that the Group has operated under operating lease agreements as at 31 December 2014 are listed in Note 1. The Group received aircraft under operating lease agreements for the term of 2 to 16 years. The agreements are extendable.

The Group entered into a number of agreements with Russian banks under which the banks guarantee the payment of the Group’s liabilities under existing aircraft lease agreements.

  1. Capital commitments

As at 31 December 2014, the Group entered into agreements on acquisition of property, plant and equipment with third parties for the total of RUB 776,579 million (31 December 2013: RUB 289,682 million). These commitments mainly relate to 6 Boeing B-777 (31 December 2013: 12), 22 Boeing B787 (31 December 2013: 22), 22 Airbus A350 (31 December 2013: 22) and 62 Airbus A320/321 (31 December 2013: 0) aircraft. The Group plans to use the mentioned aircraft under operating or finance lease agreements, thus does not expect cash outflow under the corresponding agreements.

  1. Contingencies
Operating Environment of the Group

The recent political and economic volatility observable in the region, including developments in Ukraine, have had and may continue to have a negative impact on the Russian economy, including weakening of the Russian Rouble and making it complex to raise international funding. There is a menace of toughening sanctions against Russia and certain individuals and legal entities at the present day. The financial markets continue to be volatile. These and other events may have an influence on the Group’s operations and financial position. Based on the management estimation, effect of the mentioned sanctions on financial results of the Group is not significant. The Group continues to monitor the situation and implement set of measures to minimize possible risks for the Group’s operations and financial position

The Group’s operations are primarily located in the RF. Consequently, the Group is exposed to the risk of the economic and financial markets of the RF which display characteristics of an emerging market. The legal and tax frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the RF. The consolidated financial statements reflect assessment of the Group’s management of the impact of the Russian business environment on the operations and the financial position of the Group. The future business situation may differ from management’s current expectations. .

Tax contingencies

The taxation system in the RF continues to evolve and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are sometimes fuzzy and contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to audit and investigation by a number of authorities, which have the authority to impose severe fines and penalties charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open longer. Recent events within the RF suggest that the tax authorities are taking a more tough stance in their interpretation and enforcement of tax legislation.

These circumstances may create tax risks in the RF that are substantially more significant than in other countries. The Group’s management believes that it has provided adequately for tax liabilities in these consolidated financial statements based on its interpretations of applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of these provisions by the relevant authorities could differ and the effect on these consolidated financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

Russian revised transfer pricing legislation is effective from 1 January 2012. The new transfer pricing rules appear to be more technically elaborate and, to a certain extent, better aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development. The Group’s management prepared transfer pricing documentation to comply with the new legislation and believes that its pricing policy and implemented internal procedures are adequate to meet the new transfer pricing legal requirements.

Changes in tax legislation or its enforcement in relation to such issues as transfer pricing may lead to an increase in the Group’s effective income tax rate.

In addition to the above matters, as at 31 December 2014 management estimates that the Group has no possible obligations from exposure to other than remote tax risks (31 December 2013: risks in the amount of RUB 7,611 million which were mainly related to VAT accounting treatment for a certain type of transactions specific for a Group’s subsidiary). The risks represent estimates arising from uncertainties in the interpretation of Russian tax legislation and related requirements for documentation. Management will vigorously defend the Group’s positions and interpretations that were applied in calculating taxes recognised in these consolidated financial statements, if these are challenged by the tax authorities.

Insurance

The Group maintains insurance in accordance with the legislation. In addition, the Group insures risks under various voluntary insurance programs, including management’s liability, Group’s liability and risks of loss of aircraft under operating and finance lease.

Litigation

During the reporting period the Group was involved (both as a plaintiff and a defendant) in a number of court proceedings arising in the ordinary course of business. Management believes that there are no current court proceedings or other claims outstanding which could have a material effect on the results of operations and financial position of the Group.

Subsequent events

During the period from January to February 2015, the Group received two Boeing B737, two SSJ100 and one Airbus A319 under operating lease. During the period two Boeing B737 were disposed of.

8
APPENDIXES

8.1 Subsidiaries
and Affiliates

(as of 31 December 2014)

Full and short name Interest,% Objectives Form Size of interest (as of 31.12.2014), roubles Core business as defined in the Charter Revenue in 2014, thousand roubles Profit (loss) in 2014, thousand roubles Dividends in 2014, roubles
Open Joint Stock Company “Rossiya Airlines” (OJSC “Rossiya Airlines”) 75 (minus 1 share) Consolidate aviation assets to create an efficient company, Russia's national carrier built around JSC Aeroflot, by implementing best corporate governance standards Shares 689,173 Domestic and international air transport of passengers, baggage, cargo and mail and provision of aviation services, including services for passengers and baggage 35,843,845 320,249 0.00
Joint Stock Company “Aurora Airlines” (JSC “Aurora Airlines”) 51.0132 Consolidate aviation assets to create an efficient company, Russia's national carrier built around JSC Aeroflot, by implementing best corporate governance standards Shares 24,293 Commercial air passenger and cargo services on domestic and international routes and other aviation services 10,266,727 163,032 0.00
Open Joint Stock Company Vladivostok Air (JSC Vladivostok Air) 52.16 Consolidate aviation assets to create an efficient company, Russia's national carrier built around JSC Aeroflot, by implementing best corporate governance standards Shares 274,122,792 Air transportation of passengers, baggage, cargo and mail on domestic and international routes 84,961 (1,985,859) 0.00
Joint Stock Company “Orenburg Airlines” (JSC ”ORENAIR”) 100 Consolidate aviation assets to create an efficient company, Russia's national carrier built around JSC Aeroflot, by implementing best corporate governance standards Shares 665,503,000 Domestic and international commercial air services 21,772,166 (4,452,468) 0.00
Joint Stock Company ”DONAVIA” (JSC “DONAVIA”) 100 Consolidate aviation assets to create an efficient company, Russia's national carrier built around JSC Aeroflot, by implementing best corporate governance standards Shares 328,863,260 Domestic and international commercial air services 9,964,164 58,352 0.00
Limited Liability Company Dobrolet (LLC Dobrolet) 100 Consolidate aviation assets to create an efficient company, Russia's national carrier built around JSC Aeroflot, by implementing best corporate governance standards Stake in Charter Capital 1,414,400,000 Air transportation of passengers, baggage, cargo and mail on international and domestic routes on a commercial basis in accordance with the requirements of the Air Code and other civil aviation laws and regulations of the Russian Federation, Company regulations and duly issued licenses for air routes 277,233 (321,935) 0.00
Limited Liability Company Low Cost Carrier (LLC Low Cost Carrier) 100 Consolidate aviation assets to create an efficient company, Russia's national carrier built around JSC Aeroflot, by implementing best corporate governance standards Stake in Charter Capital 1,200,000,000 Air transportation of passengers, baggage, cargo and mail on international and domestic routes on a commercial basis in accordance with the requirements of the Air Code and other civil aviation laws and regulations of the Russian Federation, Company regulations and duly issued licenses for air routes 112,350 (272,309) 0.00
Closed Joint Stock Company Sherotel (JSC Sherotel) 100 Provide hotel accommodations at the lowest regulated rates for JSC Aeroflot crews and passengers in case of service disruptions and for crews and passengers of JSC Aeroflot subsidiaries and affiliates Shares 882,812,538.63 Building, equipping and renovating hotel facilities, office & hotel complexes, offices and ancillary buildings; hydrocarbon processing; operation of hotel facilities, office & hotel complexes and offices 1,405,382 480,080 16,000
Limited Liability Company ALT Reiseburo A/C 100 Travel and related services (sale of air tickets, visa support) Shares 452,915 Travel arrangements, including arrangements for group travel, on a travel agency basis, and related retail services 111,173 (11,408) 0.00
Limited Liability Company Aeroflot-Finance (LLC Aeroflot-Finance) 99.9999 Implement investment projects for JSC Aeroflot (examples include acquisition of shares in JSC Aeroflot from National Reserve Bank and acquisition of shares from Rosavia). Stake in Charter Capital 5,729,228,886.27 Information and advisory services concerning the issuance and circulation of securities; collecting and providing information about the state of the securities market and financial market for interested individuals and entities 1,615 (2,636,738) 0.00
Closed Joint Stock Company Aeromar (JSC Aeromar) 51 Supply in-flight meals, cleaning services, cabin preparation onboard aircraft operated by JSC Aeroflot and its subsidiary and affiliate airlines at the lowest regulated rates. Shares 28,050 Production and supply of food and beverages for service on board aircraft; supply of various other services to Russian and foreign airlines, including other catering services, such as preparing and delivering food orders to businesses and organizations 11,324,767 742,139 162,386.55
Limited Liability Company Transnautic Aero GmbH 49 Cargo sales agent in Germany. Stake in Charter Capital 105,154 Marketing and taking orders for air freight delivery worldwide using the capacities of Aeroflot and other airlines providing air cargo services, as well as assisting in building structures for air cargo operations in Russia and other CIS countries and all related operations Undergoing bankruptcy
Closed Joint Stock Company AeroMASh-Aviation Security (JSC AeroMASh AB) 45 Aviation security at airports, particularly at JSC Aeroflot’s base airport (Sheremetyevo). shares 45,000 Pre-flight screening of passengers, crew members, service personnel, carry-on items, baggage, freight, mail and catering supplies 2,420,175.00 53,826.00 14,209.65
Open Joint Stock Company Sheremetyevo International Airport (JSC Sheremetyevo International Airport) 8.96 Base airport for JSC Aeroflot shares 2,259,687,350 Aircraft, passenger and cargo handling 19,150,545.00 (15,918,467.00) 0.00
Public Joint Stock Company Transport Clearing House (JSC TCH) 3.85 Provide professional services for settlements between airlines and agents shares 50,000 Organizing, conducting and improving revenue settlements for the carriage of passengers, baggage, mail and cargo, their insurance and other services between settlement system participants 1,969,123.00 819,387.00 27,530.23
Non-State Vocational Private Education Institution Aeroflot Aviation School (Aeroflot Aviation School) Provide training for flight personnel and aviation specialists. A strategic asset, set up to meet the needs of Aeroflot and other airlines for qualified specialists Founder’s contribution 1,339.33 Professional training, advanced training and retraining of civil aviation and travel industry specialists to meet the specific needs of national and regional bodies and organizations (institutions, businesses), as well as entities with other forms of ownership and individuals 254,348.00 45.00 0.00

* JSC Aeroflotholds a stake in JSC Vladivostok Air through JSC Aurora Airlines.

8.2 MATERIAL AND RELATED
Party Transactions

No. Counterparty Subject matter of transaction >Price, roubles Period Interested persons Basis of interest Governing body that adopted the resolution
Q1 2014
1 JSC DONAVIA Services to enable the acceptance of cash payments at Aeroflot sales offices for the transportation of correspondence on Donavia’s scheduled flights and the issuance of related traffic document 717,895 15.02.2014 — 15.02.2015 D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC DONAVIA» The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 15 dated February 27, 2014
Q2 2014
2 JSC Vladivostok Air Lease of non-residential premises Monthly rent: RUB 68,794, but not to exceed RUB 4,127,640, including VAT, for the entire transaction period 26.02.2013 — 25.01.2018 D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Vladivostok Air An affiliate of the Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.
Q3 2014
3 JSC Aurora Airlines Purchase and sale of ordinary registered book-entry shares of JSC Aurora Airlines placed as part of an additional issue 123,970,000 Until the parties have fully performed their respective obligations under the shares purchase and sale agreement, but not exceed 1 year from the date of signing D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aurora Airlines; V.N. Antonov, a member of the Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aurora Airlines. The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 1 dated July 17, 2014
4 JSC Aeromar In-flight retail services 534,468.84 01.04.2014 — 31.03.2017 D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aeromar; V.Ya. Zingman, a member of the Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aeromar The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 20 dated July 11, 2014
Q4 2014
5 Aeroflot Aviation School Lease of premises 883,094.38 I.P. Chalik, a member of the Board of Trustees of Aeroflot Aviation School, is an Executive Board member at JSC Aeroflot The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction.
6 JSC Aeromar Sale of a laundry as a property complex 8,243,600 31.12.2014 D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aeromar; V.Ya. Zingman, a member of the Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aeromar The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 4 dated September 18, 2014
7 JSC Aeromar Sale of a laundry as a property complex 3,424,000 31.12.2014 D. P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aeromar; V.Ya. Zingman, a member of the Executive Board of JSC Aeroflot, is a Board of Directors member at JSC Aeromar The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction Board of Directors Minutes No. 4 dated September 18, 2014
8 OJSC Rossiya Airlines Real property lease 54,161.21 01.04.2014 — 31.03.2017 D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at OJSC Rossiya Airlines; P.V. Pakhomov, a member of the Board of Directors of JSC Aeroflot, is a Board of Directors member at JSC Rossiya Airlines The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 20 dated June 11, 2014
9 JSC ORENAIR Loan agreement 705,000,000 09.12.2014 D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC ORENAIR The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 8 dated December 2, 2014
10 JSC ORENAIR Loan agreement 866,246.58 Not to exceed 1 year from disbursement D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC ORENAIR The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 5 dated September 25, 2014
11 JSC ORENAIR Loan agreement 26,664,246.57 Not to exceed 1 year from disbursement D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC ORENAIR The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 5 dated September 25, 2014
12 JSC ORENAIR Technical support for aircraft operations in Samara, Omsk and Yekaterinburg 229,900 01.04.2014 — 01.04.2019 D.P. Saprykin, a member of the Board of Directors and Executive Board of JSC Aeroflot, is a Board of Directors member at JSC ORENAIR The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 15 dated February 27, 2014
13 LLC Low Cost Carrier Technical support for aircraft operations of LLC Low Cost Carrier 354,126.11 01.10.2014 — 31.12.2015 Most of the Executive Board members of JSC Aeroflot serve on the Board of Directors of LLC Low Cost Carrier The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 6 dated October 28, 2014
14 LLC Low Cost Carrier Provision of AIRCOM air-to-ground telecommunications services to LLC Low Cost Carrier 62,765.68 28.10.2014 — 28.10.2019 Most of the Executive Board members of JSC Aeroflot serve on the Board of Directors of LLC Low Cost Carrier The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors Minutes No. 6 dated October 28, 2014
15 LLC Low Cost Carrier Cash contribution to the Charter Capital of LLC Low Cost Carrier 1,200,000,000 Most of the Executive Board members of JSC Aeroflot serve on the Board of Directors of LLC Low Cost Carrier The Company owns 20 or more percent of the shares (interests, participatory units) in the legal entity which is a party, beneficiary, agent or representative in the transaction.The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors of JSC Aeroflot Minutes No. 3 dated September 11, 2014
16 JSC Nordea Bank Addendum to Credit Line Agreement 2,558,000,000 I.V. Kogan, a member of the Board of Directors of JSC Aeroflot, is a Board of Directors member at JSC Nordea Bank The person holds a position in governing bodies of the legal entity which is a party, beneficiary, agent or representative in the transaction. Board of Directors of JSC Aeroflot Minutes No. 8 dated December 2, 2014

8.3 TRANSACTIONS BY EXECUTIVE
BODIES’ MEMBERS of JSC Aeroflot

Name Position Transaction type (purchase/sale) Date Quantity % of share capital
1 Vitaly Saveliev CEO, Board of Directors member, Chairman of Executive Board Purchase 09.12.2014 36,400 0.003%
2 Vitaly Saveliev CEO, Board of Directors member, Chairman of Executive Board Purchase 11.12.2014 893,100 0.083%
3 Vitaly Saveliev CEO, Board of Directors member, Chairman of Executive Board Purchase 12.12.2014 163,500 0.098%
4 Vitaly Saveliev CEO, Board of Directors member, Chairman of Executive Board Purchase 15.12.2014 258,700 0.121%

8.4 PRESIDENTIAL AND GOVERNMENTAL
INSTRUCTIONS AND DIRECTIVES
EXECUTION RESULTS

No. Document type, date, number Brief description of assignment Execution
1 Ensure the transparency of financial and business activities(Federal Law No. 273-FZ dated December 25, 2008 “On Combating Corruption”, Russian Presidential Decree No. 309 dated April 2, 2013 “On measures to implement certain provisions of the Federal Law “On Combating Corruption”, 2014-2015 National Anticorruption Plan approved by Russian Presidential Decree No. 226 dated April 11, 2014)
1.1 Instruction of Director of the Public Service and Personnel Department of the Government of the Russian Federation A.A. Soroko No. P17-5003 dated February 5, 2014 (Incoming Ref. No. 921 dated February 10, 2014) Submit information about own income, expenses, property and liabilities and those of the spouse and minor children for 2013 to the Public Service and Personnel Department of the Government of the Russian Federation by April 30, 2014 Information was submitted within the prescribed time limit
1.2 Minutes of a meeting held by Secretary of State — Deputy Minister of Economic Development of the Russian Federation O.V. Fomichev No. 56-OF dated August 12, 2014 (Incoming Ref. No. 6473 dated 25 August 2014) Paragraph 3. Recommend to the Companies that have not yet joined the Russian Business Anticorruption Charter (the «Charter») that they:
  • consider joining the Charter to fulfill their obligations to take anticorruption measures stipulated by Article 13.3 of the Federal Law “On Combating Corruption”;
  • upon deciding to join the Charter, send the necessary documents for registration in the Register of Charter Members to one of the business associations — initiators of the Charter as soon as possible
A decision to join the Russian Business Anticorruption Charter was adopted by the Executive Board of JSC Aeroflot on September 15, 2014 (minutes No. 14);an application for joining the Russian Business Anticorruption Charter was sent to the Chamber of Commerce and Industry of the Russian Federation (Ref. No. GD-1445 dated October 20, 2014);A certificate of joining the Russian Business Anticorruption Charter, No. 0514 dated November 5, 2014, has been received
1.3 Russian Government Resolution No. 10 dated January 9, 2014 (Incoming Ref. No. 158 dated January 13, 2014) The procedure for notification by certain categories of persons of receipt of a gift related to their official position or official duties, valuation, surrender, sale (redemption) of the gift and crediting of proceeds from the sale Is being executed.
Supplementary agreements imposing an obligation to comply with the prohibitions and restrictions and perform the duties prescribed by the laws and regulations of the Russian Federation to combat corruption have been concluded with JSC Aeroflot officials.On November 15, 2013, the Executive Board of JSC Aeroflot approved the Code of Corporate Conduct of JSC Aeroflot, which contains provisions on combating corruption and preventing and resolving conflicts of interest in Sections 10 and 11Order of the CEO of JSC Aeroflot No. 54 dated February 11, 2015 approved the 2015 Anticorruption Plan of JSC Aeroflot, which provides for the development and approval of local regulations of JSC Aeroflot and for certain anticorruption measures
1.4 Instruction of the Prime Minister of the Russian Federation No. DM-P17-3229 dated May 5, 2014 (Incoming Ref. No. 3465 dated May 8, 2014) A request to ensure the implementation of the 2014-2015 National Anticorruption Plan approved by Russian Presidential Decree No. 226 dated April 11, 2014
1.5 Instruction of the Deputy Prime Minister of the Russian Federation No. RD-P17-7398 dated October 1, 2014 (Incoming Ref. No. 7589 dated October 6, 2014) In pursuance of paragraph 2 item “c” of the 2014-2015 National Anticorruption Plan, by August 1, 2015:2. The organizations set up to accomplish tasks specified by the Russian Government (according to the list) shall ensure that regulations pursuant to section III of the attached list are developed and adopted and shall send information to the Government of the Russian Federation
1.6 Resolution of the Prime Minister of the Russian Federation D.A. Medvedev No. 1405 dated December 18, 2014 “On certain anti-corruption issues” (Incoming Ref. No. 9775 dated December 25, 2014) Paragraph 2. … information about income, expenses, property and related liabilities shall be published through the Internet on the official websites of organizations. Is being executed. Information will be published on the official website of JSC Aeroflot within the time limits set forth by the laws and regulations of the Russian Federation
1.7 Article 92 of Federal Law No. 208-FZ dated December 26, 1995 “On Joint-Stock Companies”, Chapter VIII of Order of the Federal Service for Financial Markets of Russia No. 11-46/pz-n dated October 4, 2011 “On approval of disclosure policy by issuers of equity securities”Order of the Russian Ministry of Economic Development No. 208 dated May 11, 2011 “On approval of information disclosure by state-owned joint-stock companies and state (municipal) unitary enterprises” Obligation to disclose information to the extent and in accordance with the procedure set forth by the federal executive body for the securities market.Information disclosure requirements for joint-stock companies included in the forecast privatization plan. Is being executed.The regulations on information interaction via the interdepartmental portal for state property management have been approved by the Board of Directors of JSC Aeroflot (minutes No. 11 dated April 4, 2012).Reports on communications with shareholders and the investment community are presented to the Board of Directors of JSC Aeroflot on a quarterly basis.JSC Aeroflot fully complies with disclosure requirements set by Russian legislation. In particular, all information is disclosed on the webpage and in news bulletins of JSC Aeroflot
1.8 Paragraph 2 subparagraph 7 of minutes of a meeting held by First Deputy Prime Minister of the Russian Federation I.I. Shuvalov No. ISH-P13-98pr dated October 3, 2013 Publish resolution of the board of directors not treated as a trade secret Is being executed in accordance with disclosure requirements of legislation in force in the Russian Federation
2 Russian Government Decree No. 867-r dated May 29, 2013 “On approval of the action plan (“road map”) titled “Expanding access for small and medium-sized businesses to procurement conducted by infrastructure monopolies and companies with state participation” (the “Plan”), Order of the Russian Ministry of Economic Development No. 3552 dated June 21, 2013 “On the organization of work to implement the action plan (“road map”) titled “Expanding access for small and medium-sized businesses to procurement conducted by infrastructure monopolies and companies with state participation”
2.1 Directives of the Government of the Russian Federation No. 6362p-P13 dated October 24, 2013 (Incoming Ref. No. 9085 dated December 9, 2013) Ensure the efficiency of the customer’s interaction with small and medium-sized businesses (“SMBs”), including as regards procurement of innovative products:
create a consultative body responsible for public audit of procurement effectiveness;
A consultative body has been set up (Order No. 188 dated June 19, 2014), its members have been approved by Directive No. 242/U dated December 18, 2014.
develop Regulations on the Consultative Body, ensure the transparency of its activities; Regulations on the Consultative Body have been developed (RI-GD-227, annex to Order No. 188 dated June 19, 2014).
ensure control over the efficiency of the customer’s “single window” system to implement innovative products and results of research, development and technological work carried out by SMBs and ensure mutual technology transfer; In progress. Planned to be completed in Q2 2015.
ensure maximum transparency of the activities of the consultative body responsible for public audit of procurement effectiveness; Is being executed. Publications are posted on the official website of JSC Aeroflot (in the news section at https://www.aeroflot.ru).
form a special section in the Annual Report of the joint-stock company; A special section in the Annual Report has been formed.
develop, with the participation of the consultative body’s representatives, approve and put into effect regulations on procedures and rules for implementing innovative solutions in the customer’s activities; Draft regulations on the procedure for implementing innovative solutions have been developed and sent to the members of the consultative body responsible for public audit of procurement effectiveness. Deadline for approval: June 2015.
make amendments to the customer’s procurement regulations or other administrative documents with respect to procurement limited to SMBs, stipulating: Executed.
  • the right of SMBs to select the terms of the bid security;
  • that the bid security provided by SMBs shall be returned to them within 7 business days;
  • the customer’s obligations relating to the time limit for entering into a contract with SMBs (20 business days maximum);
  • the customer’s obligations relating to the time limit for payment for work done (10 business days maximum);
  • that the claims under contracts with SMBs may be assigned to financial institutions;
  • develop and introduce a KPI for customer’s management measuring the share of procurement from SMBs, including innovative products;
Executed.
  • include in the KPI system for management a labour productivity indicator, which should grow by at least 5 percent per annum until the industry average for foreign peers is achieved in 2018;
Executed.
  • amend the customer’s documents relating to the generation of relevant statistics and include in the KPI system for management an energy savings indicator with a target to achieve at least 5 percent energy savings annually until the industry average for foreign peers is achieved in 2018;
Executed.
  • include in the KPI system for management an indicator of environmental friendliness of products made and work performed to be set at a level not lower than that of foreign peers
Executed.
2.2 Directives of the Government of the Russian Federation No. 7377p-P13 dated December 27, 2013(Incoming Ref. No. 486 dated January 27, 2014) Ensure the efficiency of the customer’s interaction with small and medium-sized businesses (“SMBs”), including as regards procurement of innovative products.
Increase the share of e-procurement and open competitive procurement processes in relation to the total annual volume to the extent and by the time provided for in item 7 of the Road Map: Being executed taking into account Aeroflot’s business specifics
  • the share of e-procurement and open competitive procurement processes in 2015 should be at least 45 percent;
Established by the KPI achievement target for 2015
  • the share of e-procurement and open competitive procurement processes in 2016 should be at least 50 percent;
Planned to be achieved in 2016
  • the share of e-procurement and open competitive procurement processes in 2017 should be at least 60 percent;
Planned to be achieved in 2017
  • the share of e-procurement and open competitive procurement processes in 2018 should be at least 70 percent.
Planned to be achieved in 2018
The customer’s procurement regulations or other administrative documents shall be amended (when approving specifics of procurement from SMBs) by separate documents stipulating that at least 20 percent of the annual procurement of standard products that can be replaced with innovative products developed by SMBs should be allocated annually to innovative products. In process. The relevant amendments to the Procurement Regulations will be submitted for approval to the Board of Directors of JSC Aeroflot. Execution deadline: June 2015.
Develop a pilot program of partnership with SMB associations In process. The pilot program of partnership is developed taking into account the requirements of Russian Government Resolution No. 1352 dated December 11, 2014 “On specifics of participation of small and medium-sized businesses in procurement of goods, works and services by certain groups of legal entities” and will be submitted for approval to the Board of Directors of JSC Aeroflot following internal approval. Execution deadline: June 2015.
Prepare proposals for simplifying the procurement procedure for SMBs. Is being executed
Develop a methodology for determining the life cycle of products, works and services to be procured (the “Methodology”). In process. Planned to be approved according to the results of the audit by the Higher School of Economics
Develop and introduce criteria for evaluating and comparing bids based on the “life cycle cost of a product or work” for innovative, high-tech or technically sophisticated products in the procurement processes. Work will be organized upon approval of the Methodology
Ensure that annual procurement of innovative, hi-tech or technically sophisticated products is conducted using the criterion “life cycle cost of a product or work” Work will be organized upon approval of the Methodology based on the 2015 results.Note: JSC Aeroflot does not produce products with a life cycle. The company provides air transportation services as one of its core business areas. For this reason, JSC Aeroflot uses the total cost of ownership as a selection criterion in the procurement process
3 Strategy development and updating, efficiency, long-term planning
3.1 List of instructions of the President of the Russian Federation No. Pr-3086 dated December 27, 2013Statement on materials of the meeting of the Government of the Russian Federation dated January 30, 2014, minutes No. 3 Develop and approve an Investment Program and a Long-Term Development ProgramThe time for submitting the Programs to the Government of the Russian Federation: within the first six months of 2014 for the Investment Program and by October 1, 2014for the Long-Term Development Program A Long-Term Development Program and an Investment Program have been developed, heard by the Expert Council at the Government of the Russian Federation, modified to reflect observations and suggestions made, approved by the Board of Directors (minutes No. 8 dated December 2, 2014), and approved by the Government Committee for Transport on December 4, 2014
3.2 Paragraph 2 subparagraph 2 of minutes of a meeting held by First Deputy Prime Minister of the Russian Federation I.I. Shuvalov No. ISH-P13-98pr dated October 3, 2013 Approve the Strategy by the end of 2014
3.3 Instruction of Deputy Prime Minister of the Russian Federation A.V. Dvorkovich No. AD-P9-882 dated February 7, 2014 (Incoming Ref. No. 954 dated February 10, 2014) A request to submit a timeline for considering investment programsDeadline: February 25, 2014
3.4 Instruction of Deputy Prime Minister of the Russian Federation A.V. Dvorkovich No. AD-P9-1810 dated March 17, 2014 (Incoming Ref. No. 2106 dated March 24, 2014) A request to ensure, together with the Russian Ministry of Economic Development and the Expert Council at the Government of the Russian Federation, that draft investment programs of joint-stock companies and federal state unitary enterprises are prepared and submitted for consideration, taking into account previous assignments given by the Russian Government, within the time limits specified in the appendix
3.5 Letter from acting Director of the Open Government Department of the Government of the Russian Federation M. German stating that information on project charters for investment projects included in the 2014 investment program and an air service investment program should be sent by May 16, 2014 in connection with Instruction of the Government of the Russian Federation No. AD-P9-1810 dated March 17, 2014 (Incoming Ref. No. 3593 of May 14, 2014) As part of work on implementing Instruction of the Government of the Russian Federation No. Ad-P9-1810 dated March 17, 2014, the Expert Council at the Government of the Russian Federation has received for consideration a draft of the investment program of JSC Aeroflot.The following needs to be additionally provided for preparing an expert opinion on the above draft investment program:project charters for investment projects included in the 2014 investment program
3.6 Instruction of Deputy Prime Minister of the Russian Federation A.V. Dvorkovich No. AD-P9-6701 dated September 1, 2014(Incoming Ref. No. 6832 dated September 8, 2014) M.Yu.Sokolov shall accelerate the execution of the assignment given by the Government of the Russian Federation and ensure that draft investment programs of JSCs (Instruction No. AD-P9-1810 dated March 17, 2014) are submitted and, together with the Expert Council, ensure that draft long-term development programs of joint-stock companies are prepared and submitted for consideration to the RF Government (according to the timeline).
3.7 Instruction of Deputy Prime Minister of the Russian Federation A.V. Dvorkovich No. AD-P9-8128 dated October 30, 2014 (Incoming Ref. No. 8301 dated October 31, 2014)Instruction of Director of the Industry and Infrastructure Department of the Government of the Russian Federation E. Ditrikh No. P9-55899 dated November 18, 2014 (Incoming Ref. Nos. 8711, 8713, 8715 of November 19, 2014) Finalize and submit the approved draft long-term development program and investment program to the RF Government for consideration at the meeting of the Government Committee for Transport on November 17, 2014
3.8 Instruction of the President of the Russian Federation No. Pr-3086 dated December 27, 2013;Instruction of the Government of the Russian Federation No. DM-P13-9589 dated December 30, 2013;Directives of the Government of the Russian Federation No. 4955p-P13 dated July 17, 2014 Ensure that a long-term development program is approved, develop a program audit procedure:
  • ensure that a long-term development program be developed and approved;
  • ensure that implementation of the LTDP is audited and a related audit standard approved;
  • ensure that amendments are made to the regulations on the remuneration of the joint-stock company’s sole executive body
The Board of Directors of JSC Aeroflot (minutes No. 10 dated January 29, 2015) has approved:
a standard for auditing implementation of the Aeroflot Group LTDP;
Statement of Work for audit of implementation of the Aeroflot Group LTDP
3.9 Section 2 paragraph 6 subparagraphs 6.2, 6.3, 6.4 of the Action Plan for managing performance, creating highly productive workplaces and further upgrading them, approved by the Russian Government Order No. 91-r dated January 23, 2003Directives of the Government of the Russian Federation No. 7389p-P13 dated October 31, 2014 Consideration of an item entitled “Labour productivity improvement” at meetings of the board of directors of joint-stock companies by December 2014 and adopting of decisions intended to ensure that: The item was considered at the meeting of the Board of Directors of JSC Aeroflot on December 2, 2014 (minutes No. 8, item 4)
  • a set of labour productivity improvement measures (list of activities) in the company (the “list of activities”) is developed and target indicators for these activities are determined;
A list of labour productivity improvement activities in JSC Aeroflot was prepared and approved on February 19, 2015 (No. 14/Pl)
  • the list of activities, indicators of their implementation, and values of the labour productivity indicator (the “LPI”) calculated under the methodology provided in the Order of Rosstat No. 576 dated September 23, 2014 are included in the company’s long-term development program, taking into account provisions of the Guidelines on development of long-term development programs approved by Instruction of the Government of the Russian Federation No. ISH-P13-2583 dated April 15, 2014;
Work will be organized in the first half of 2015
  • the target LPI is included in the list of management’s key performance indicators that have to be considered in making employee compensation and personnel decisions, and the company’s management remuneration is linked to the achievement of the LPI;
  • amendments are made to the employment agreement (contract) with the company’s sole executive body to include an obligation to achieve the LPI values determined in the company’s long-term development program;
The list of management’s KPIs includes a labor productivity indicator providing for a 5 percent growth in labor productivity in the company in 2015
  • the annual federal statistical monitoring form “Labour productivity in non-financial corporations with state participation” is completed via the company’s account on the interdepartmental state property management portal, taking into account provisions of the Order of Rosstat No. 576 dated September 23, 2014
3.10 Minutes of the meeting of the Government Committee for Transport No. 6 dated December 4, 2014 (Incoming Ref. No. 9510 dated December 17, 2014) 1. The long-term development program and investment program of JSC Aeroflot
Paragraph 3. JSC Aeroflot (V.G. Saveliev) shall analyze the achievement of the parameters of the long-term development program of JSC Aeroflot in the first half of 2015, based on Aeroflot’s performance and the situation on the airline market, and, if necessary, update the program parameters. Work will be organized in the first half of 2015
The results shall be reported by July 20, 2015.
Paragraph 4. The Russian Ministry of Industry and Trade, Minister of the Russian Federation M.A. Abyzov shall, together with JSC Aeroflot and JSC UAC, ensure that a manufacturing schedule for “Superjet” and MC-21 aircraft and a schedule for their delivery to Aeroflot are prepared and agreed upon. Schedules have been prepared
Paragraph 5. The Russian Ministry of Economic Development, the Russian Ministry of Transport, the Federal Agency for State Property Management shall, together with JSC Aeroflot and SC Rostech, determine the timing and the terms and conditions of sale of the minority interest in JSC Aeroflot held by the Russian Federation, considering the changed socio-economic situation, according to the previously made decisions and submit a draft directive to the Government of the Russian Federation in accordance with the established procedure Work has been organized in collaboration with the Russian Ministry of Economic Development, the Russian Ministry of Transport and the Federal Agency for State Property Management
3.11 Instruction of the President of the Russian Federation No. Pr-1032 dated May 7, 2014Instruction of the Government of the Russian Federation No. ISH-P13-3464 dated May 13, 2014 Ensure the operation of the unified treasury of the company, its subsidiaries and affiliates providing the centralized management of financial flows of the group of companies, minimization of financial risks and operating expenses, and maximization of the return on investment of available resources.
The company’s board of directors shall ensure that:
  • the structure of the unified treasury of the company, its subsidiaries and affiliates (the “group”) providing the centralized management of financial flows of the group, minimization of financial risks and operating expenses, and maximization of the return on investment of available resources;
  • internal documents of the group regulating operation of the Treasury and a financial flow management system are developed and approved
The matter was considered at the meeting of the Board of Directors of JSC Aeroflot (minutes No. 5 dated September 25, 2014, item 8)
The Executive Board of JSC Aeroflot was tasked with:
  1. Analyzing the existing system for managing financial flows of the company, its subsidiaries and affiliates and sending the analysis results to the Russian Ministry of Finance
    Deadline: October 31, 2014
    An analysis of the existing system for managing financial flows of JSC Aeroflot, its subsidiaries and affiliates has been conducted, considered at a meeting of the Executive Board of JSC Aeroflot (minutes No. 19 dated October 29, 2014) and sent to the Russian Ministry of Finance (Ref. No. 403-3298 dated November 5, 2014)
  2. Developing and approving the structure of the unified treasury, taking into account the analysis results.
    Deadline: by March 30, 2015
  3. Developing and approving internal documents of Aeroflot Group regulating operation of the unified treasury.
    Deadline: June 30, 2015
  4. Ensuring the operation of the unified treasury.
    Deadline: June 30, 2015
3.12 Minutes of a meeting between the Prime Minister of the Russian Federation D.A. Medvedev and members of the Expert Council at the Government of the Russian Federation No. DMP36-46pr dated May 28, 2014
(Incoming Ref. No. 4370 dated June 6, 2014)
Improvement of corporate governance in companies with state participation and state property management The Board of Directors of JSC Aeroflot preliminarily approved the Action Plan for implementing the key recommendations of the Code of Corporate Conduct at JSC Aeroflot on December 2, 2014. The Board of Directors suggested that the Executive Board of JSC Aeroflot proceed to scheduled activities upon preparation of a month-by-month schedule (the matter was considered by the Executive Board JSC Aeroflot on January 16, 2015). The activities are scheduled to be implemented beginning in February 2015
4 Increase procurement of products from Russian manufacturers
4.1 Directives of the Government of the Russian Federation No. 4537p-P13 dated July 14, 2014 Supplement the regulations on the procurement of goods, works and services to provide that oil, gas and chemical products shall be procured primarily from Russian manufacturers. Executed. Amendments were approved by the resolution of the Board of Directors of JSC Aeroflot dated September 25, 2014 (minutes No. 5). In 2014, the share of procurement of aviation fuel from Russian manufacturers in total procurement was 69 percent
4.2 Directives of the Government of the Russian Federation No. 7850p-P13 dated November 24, 2014 Supplement the regulations on the procurement of goods, works and services to provide that automotive, agricultural, road-building and municipal equipment, transport machine building products for the food and processing industry, metal products, including large diameter pipes, shall be procured primarily from Russian manufacturers, unless such goods or equivalent goods are not manufactured in the Russian Federation. Executed. Amendments were approved by the resolution of the Board of Directors of JSC Aeroflot dated January 19, 2015 (minutes No 9)
4.3 Instruction of Deputy Prime Minister of the Russian Federation D.O. Rogozin RD-P7-6038 dated August 7, 2014 (Incoming Ref. No. 6124 dated August 13, 2014) To the Russian Ministry of Transport (M.Yu. Sokolov)the Russian Ministry of Industry and Trade (D.V. Manturov)the Russian Ministry of Finance (A.G. Siluanov):
Explain how plans for acquisition of Boeing-737-800 aircraft by Dobrolet will be implemented amid severe sanctions imposed against it by several foreign companies.
Given the imposed sanctions aimed at stopping operation of some of the Boeing aircraft in the Russian Federation, submit, together with JSC Aeroflot and JSC UAC, agreed proposals on measures to prevent the position held by of Russian airlines in the airline market from being weakened and to reduce their critical dependence on foreign equipment and services.
Report to the Government of the Russian Federation on the time and funds they are ready to allocate to ensure the availability of state-of-the-art products of the Russian aviation industry to Russian airlines.
Information concerning reduction of dependence of Russian air carriers on foreign equipment and services has been sent to the Russian Ministry of Transport (Ref. No. 04-1224 dated August 27, 2014).
Information on the development of the Dobrolet fleet has been sent to the Russian Ministry of Transport (Ref. No. 04-1223 dated August 27, 2014)
4.4 Executive Office of the Government of the Russian Federation, D.O. Rogozin, No. RD-P7-2037 dated March 27, 2014(Incoming Ref. No. 2371 dated April 1, 2014) Consider the questions raised together with interested aviation industry organizations and airlines. Report on the results at the next meeting of the interdepartmental working group The questions were considered at the meeting of the interdepartmental working group at the Government of the Russian Federation, which is tasked with developing government measures to support the manufacture and sales of civil aircraft, on October 21, 2014 with the participation of representatives from JSC Aeroflot
5 Program for disposal of non-core assets (NCAs)
5.1 Paragraph 1 item “k” of Instruction of the President of the Russian Federation No. Pr-3668 dated December 6, 2011. The boards of directors need to:
analyze assets of joint-stock companies for separating non-core assets, where appropriate;
ensure that a program for disposal of NCAs is considered and decided on (approved).
In addition: NCAs have to be not only disposed of, but also removed from the sphere of influence of joint-stock companies.
NCAs can also include interests in subsidiaries and affiliates not used in core business
The program for disposal of NCAs of JSC Aeroflot was approved by the Board of Directors on July 26, 2012 (minutes No. 1).
Information was posted in the company’s account on the ID portal (Ref. No. 09-1785 dated July 30, 2012).
Progress report on disposal of non-core assets is provided within the time limits set by the Government of the Russian Federation
5.2 Paragraph 2 subparagraph “c” of Russian Presidential Decree No. 596 dated May 7, 2012 “On long-term government economic policy”.
6 Ensure energy efficiency of companies
6.1 Instruction of the Government of the Russian Federation dated June 19, 2008 To provide the development of energy saving programs The energy saving and efficiency improvement program of JSC Aeroflot until 2020 was approved by the Board of Directors of JSC Aeroflot on August 18, 2008 (minutes No. 2).
The implementation results are reported to the Board of Directors on a regular basis during consideration of the Aeroflot Strategy implementation matters.
Program implementation progress report was sent to the Russian Ministry of Economic Development on August 5, 2014 (Ref. No. 150-611)
6.2 Federal Law No. 261-FZ dated November 23, 2009 “On Energy Saving and Efficiency Improvement …”:
Chapter 4, Article 15, part 2; Chapter 7, Article 25
Order of the Russian Ministry of Energy No. 182 dated April 19, 2010
Prepare the organization’s energy performance certificate;Approve an energy saving and efficiency improvement program
7 Interaction with JSC MASH and prospects for development of Sheremetyevo Airport
7.1 Instruction of First Deputy Prime Minister of the Russian Federation I.I. Shuvalov ISH-P9-2003 issued in response to inquiry from JSC Aeroflot No. GD-378 dated March 13, 2014 with a request to consider amending the Federal Target Program “Russian Transport System Development (2010-2015) ” and allocating necessary funds for designing and building an apron in the southern terminal complex of Sheremetyevo Airport (Incoming Ref. No. 2337 dated March 31, 2014) A request to consider the inquiry, taking into account the concept of development of the Moscow Air Hub airports, and report back. The matter of building an apron in Sheremetyevo Airport based on the public private partnership principles has been considered by the Russian Ministry of Transport (minutes No. VO-34 dated April 16, 2014).JSC Aeroflot was tasked with submitting at its own cost proposals on project implementation options agreed upon with JSC MASH to the Federal Air Transport Agency, including:technical, economic, financial calculations for the project;a mechanism for compensation by JSC MASH of all or part of expenses incurred by JSC Aeroflot;legal scheme of the project
7.2 Minutes of a meeting held by Deputy Prime Minister of the Russian Federation A.V. Dvorkovich No. AD-P9-192pr dated November 27, 2014 (Incoming Ref. No. 9192 dated December 5, 2014) Paragraph 3. Recommend that JSC MASH and JSC Aeroflot take steps to harmonize their long-term development programs. The long-term programs of JSC MASH and JSC Aeroflot have been considered at a meeting of the Interdepartmental Committee for Transport (minutes No. 6 dated December 4, 2014); specific assignments have been given (Incoming Ref. No. 9510 dated December 17, 2014).
7.3 Minutes of a meeting of the Government Committee for Transport No. 6 dated December 4, 2014 (Incoming Ref. No. 9510 dated December 17, 2014) Key parameters of the long-term development program and investment program of JSC MASHParagraph 3. The Russian Ministry of Transport (M.Yu. Sokolov) shall, together with JSC Aeroflot and JSC MASH, prepare and agree a construction and reconstruction schedule for terminal facilities at Sheremetyevo Airport, taking into account the passenger traffic forecast and modelling results. Work has been organized within the joint working group. A work plan encompassing all design stages has been prepared and approved. A contractor has been selected and an agreement with the contractor has been signed. Work is scheduled to be completed in May 2015.
Information has been sent to the Russian Ministry of Transport (Ref. No. 01-106 dated January 29, 2015)
8 Operation of SSJ-100 aircraft
8.1 Instruction of First Deputy Prime Minister of the Russian Federation I.I. Shuvalov, Deputy Prime Minister of the Russian Federation A. V. Dvorkovich, No. ISH-P9-7267 dated September 26, 2014(Incoming Ref. No. 7389 dated September 29, 2014) The Russian Ministry of Transport (M. Yu. Sokolov) and JSC Aeroflot (K. G. Androsov) shall consider expanding the Aeroflot’s fleet through the transfer of various regional aircraft into operational managementRelevant proposals shall be submitted to the Government of the Russian Federation by September 29, 2014. A reply on the possibility to expand the Aeroflot fleet through the transfer of various regional aircraft into operational management was sent to the Russian Ministry of Transport (Ref. No. 11-1365 dated September 29, 2014).
8.2 Instruction of the President of the Russian Federation V. V. Putin No. Pr-2316 dated October 1, 2014 in response to the report by the CEO of JSC Aeroflot on use of domestic equipment dated September 9, 2014(Incoming Ref. No. 7492 dated October 2, 2014) A request from the President to organize a meeting with his participation and invite the carrier and manufacturers. Minutes of the meeting held by aide to the President of the Russian Federation A. Belousov on October 4, 2014
8.3 Minutes of the meeting held by aide to the President of the Russian Federation A. Belousov on October 4, 2014 Assignments:
Item 1, paragraph 2. Recommend that JSC Aeroflot and JSC UAC arrange for the delivery terms, including financing terms, of twenty Sukhoi Superjet 100 aircraft to be agreed upon in accordance with the established procedure.
A memorandum of intent to enter into an agreement for delivery of 20 latest Russian aircraft Sukhoi Superjet 100 was signed on January 15, 2015 by the CEO of JSC Aeroflot and the Chairman of the Board of Directors of JSC SCA.
Item 2.
Paragraph 1. Create a working group consisting of representatives from JSC SCA, JSC UAC and JSC Aeroflot.
Paragraph 2. The working group shall:conduct a comparative analysis of the time spent on repairs and maintenance of Sukhoi Superjet 100 aircraft at JSC Aeroflot as compared to foreign operators of this aircraft as well as in comparison with other aircraft types operated by JSC Aeroflot;
analyze the factors affecting the time spent on repairs and maintenance of Sukhoi Superjet 100 aircraft during their operation by JSC Aeroflot and agree on measures to eliminate them;analyze the reasons for the low number of hours flown by Sukhoi Superjet 100 aircraft and agree on measures to increase flying time.The agreed results shall be submitted to the Administration of the President of the Russian Federation.
The working group has been set up; a Joint Action plan to improve the operational efficiency of Sukhoi Superjet 100 aircraft was developed and approved on October 17, 2014.
9 Transport accessibility of the Republic of Crimea and Sevastopol
9.1 Minutes of a meeting held by the Prime Minister of the Russian Federation D.A. Medvedev No. DM-P16-19pr dated March 24, 2014(Incoming Ref. No. 2259 dated March 27, 2014) Paragraph. 28. The Russian Ministry of Transport (M. Yu. Sokolov), the Russian Ministry of Economic Development (A.V. Uliukaev), the Russian Ministry of Finance (A. G. Siluanov) and the FAS of Russia (I.Yu. Artemiev), with the participation of JSC RZD and JSC Aeroflot, shall submit proposals for providing reliable operation of the infrastructure ensuring transport accessibility of the Republic of Crimea and the federal city of Sevastopol to the Government of the Russian Federation within one week in accordance with the established procedure, including the following:
increasing the number of flights to the Republic of Crimea and the federal city of Sevastopol, in particular, by using a low cost carrier and subsidizing these flights from the federal budget, as well as ensuring aviation fuel supply in the required quantities;
developing ground infrastructure at the airports located in the Crimean Federal District and their certification, including certification to ICAO standards.
Proposals for ensuring transport accessibility of the Republic of Crimea were sent to M.Yu. Sokolov at the Russian Ministry of Transport.
9.2 Instruction of Director of the Industry and Infrastructure Department of the Government of the Russian Federation A.K. Uvarov (Incoming Ref. No. 2258 dated March 27, 2014) Ensure that proposals for providing reliable operation of the infrastructure ensuring transport accessibility of the Republic of Crimea and the federal city of Sevastopol are submitted to the Government of the Russian Federation by March 28, 2014.
9.3 Instruction of the President of the Russian Federation V.V. Putin following a meeting dedicated to transport development No. Pr-866 dated April 10, 2014
(Incoming Ref. No. 2996 dated April 21, 2014)
Paragraph 2. The Russian Ministry of Transport shall, together with the Russian Ministry of Economic Development, make sure that JSC Aeroflot sets a special fare for the 2014 summer tourist season per passenger and baggage on the route between Moscow and Simferopol for all economy class seats.
The total fare on this route should not exceed 7,500 roubles, including all taxes and charges.
A single level of economy class fares on the route between Moscow and Simferopol has been established (4,000 roubles for one-way ticket; 7,500 roubles for round tip ticket) (Ref. Nos. 407.05-153 dated April 28, 2014, 407-165 dated May 5, 2014).
9.4 Minutes of a meeting held by Deputy Prime Minister of the Russian Federation O.Yu. Golodets No. OG-P12-98pr dated April 18, 2014 Section 1 paragraph 6 “On the operation of children’s health facilities located in the Republic of Crimea and Sevastopol during the 2014 health promotion campaign”:
The Russian Ministry of Transport shall, along with JSC Aeroflot and other airlines, ensure that the above-mentioned air services are offered at discount fares (7.5 thousand roubles).
9.5 Inquiry from the Russian Ministry of Transport regarding execution of paragraph 2 of the instructions given by the President of the Russian Federation following the meeting dedicated to transport development No. 01-01-02/1487 dated April 23, 2014 (Incoming Ref. No. 3141 dated April 23, 2014) Submission by JSC Aeroflot of its position on setting a special fare for the 2014 summer season per passenger and baggage on the route between Moscow and Simferopol for all economy class seats.
9.6 Administration of the President of the Russian Federation, V. Letunovsky, No. A8VP-185-5 dated June 3, 2015
Minutes of the working meeting in the Control Directorate of the President of the Russian Federation dedicated to execution of Instructions of the President of the Russian Federation No. Pr-866 dated April 18, 2014 and No. Pr-1145 dated May 21, 2014 dated June 3, 2014 as regards ensuring affordability of flights to and from the Crimean Federal District (Incoming Ref. No. 4444 dated June 10, 2014).
Submit:information on concluded agreements and granted subsidies;an analysis of air route load factors:
number of flights, technical capabilities, use of additional aircraft, maximum available passenger capacity and proposals on how to reach it.
Calculations, analysis, economic justification of ticket price (seat/passenger), cost, profitability; proposals on reducing airline ticket prices towards the maximum fare for flights to and from Simferopol set by the President of the Russian Federation;
official forecast for passenger traffic for the period from June to October of this year;
consider the possibility of making arrangements with transfer companies and travel operators to provide passenger transportation services within the Crimean Federal District timed to flights.
Information shall be provided within three days.
Information that JSC Aeroflot is ready to participate in the program of subsidized flights on the Moscow — Simferopol and Saint Petersburg — Simferopol routes in the 2014 holiday season, provided that the Government of the Russian Federation issues a relevant resolution, has been sent to the Federal Air Transport Agency (Ref. No. 407.05-261 dated July 4, 2014)
10 Federal program “Training and retraining of the management succession pool (2010-2015)”
10.1 Instruction of Deputy Chief of Staff of the Government of the Russian Federation I.V. Lobanov No. 159p-P17 dated January 18, 2014(Incoming Ref. No. 302 dated January 20, 2014) Submit information about graduates of the federal program “Training and retraining of the management succession pool (2010-2015)” to the Public Service and Personnel Department of the Government of the Russian Federation to evaluate program implementation efficiency. Information has been sent (Ref. No. 12-150 dated January 31, 2014)
10.2 Letter from Deputy Chief of Staff of the Government of the Russian Federation I.V. Lobanov (Incoming Ref. No. 1871 dated March 13, 2014) By April 1, 2014, submit proposals on candidates from among the persons included in the basic and prospective tiers of the federal management succession pool (Instruction of the Government of the Russian Federation No. M Ad-P17-4145 dated July 20, 2012) for training under the federal program “Training and retraining of the management succession pool (2010-2015)”. Information has been sent.
10.3 Telegram from the Executive Office of the Government of the Russian Federation, I. Lobanov, No. 2141P-P17 dated April 11, 2014 (Incoming Ref. No. 2749 dated April 14, 2014) Provide information on graduates of the federal program “Training and retraining of the management succession pool (2010-2015)” (the “Federal Program”) and, in this connection, arrange for participation of the succession pool members:
in activities to create individual professional development plans remotely using the Federal Program’s resource centre from April 23, 2014.
JSC Aeroflot employees have taken part in the activities (No. 12-585 dated April 21, 2014, Ref. No. 12-1267 dated September 8, 2014)
10.4 Telegram from Deputy Chief of Staff of the Government of the Russian Federation I. Lobanov No. NR 5488P-P17 dated August 28, 2014 (Incoming Ref. No. 6601 dated August 29, 2014) A request to arrange for participation of the succession pool members of the basic and prospective tiers in the specified activities under the federal program “Training and retraining of the management succession pool (2010-2015)” at the Lomonosov Moscow State University during the period from September 15, 2014 to October 11, 2014.
11 Certain assignments given by the Government of the Russian Federation
11.1 Instruction of Deputy Prime Minister of the Russian Federation D. N. Kozak No. DK-P12-9506 dated December 30, 2013(Incoming Ref. No. 1 dated January 9, 2014) Paragraph 5. Ensure that the necessary resources and funds are allocated to cater to 2,500 players participating in the exercises at Sochi Airport on January 10, 2014 to simulate an emergency situation during the 22nd Winter Olympics and the 11th Winter Paralympics in 2014. JSC Aeroflot participated in the interdepartmental exercises conducted to test the response to an emergency closure of Sochi International Airport during the 2014 Sochi Winter Olympics under the direction of Deputy Prime Minister of the Russian Federation D. N. Kozak.
Following the exercises, actions by crisis centres at Sochi Airport and air carriers in an irregularity situation received a positive assessment.
Instruction of Deputy Prime Minister of the Russian Federation D. N. Kozak No. DK-P12-189 dated January 16, 2014 (Incoming Ref. No. 258 dated January 16, 2014) Paragraph 4. Ensure that resources and funds are allocated according to the exercise operational plan and the scheduled arrival and departure times of the flights involved in the interdepartmental exercises to be conducted at Sochi International Airport to test the response to an emergency closure of Sochi International Airport during the 22nd Winter Olympics and the 11th Winter Paralympics in Sochi in 2014
11.2 Minutes of the meeting held by Deputy Prime Minister of the Russian Federation D. N. Kozak on March 25, 2014 (Incoming Ref. No. 2335 dated March 31, 2014) Paragraph 6. By April 15, 2014, the Russian Ministry of Transport (M. Yu. Sokolov), the Russian Ministry of Finance (A. G. Siluanov) and JSC Aeroflot shall agree and make decisions for improving the availability of flights to/from Sochi as part of implementing Instruction of the Government of the Russian Federation No. DM-P16-19pr dated March 24, 2014 (paragraph 28). During the 2014 summer schedule period, JSC Aeroflot operated 7 daily flights between Moscow and Sochi on the high capacity B737, A321 and A330 aircraft. Other air carriers of the Aeroflot Group operated direct flights between Sochi and Saint Petersburg, Yekaterinburg, Omsk and Krasnodar.
11.3 Minutes of a meeting held by First Deputy Prime Minister of the Russian Federation I.I. Shuvalov No. ISH-P9-54pr dated May 27, 2014
Regarding fare pricing system (Incoming Ref. No. 4393 dated June 9, 2014)
Paragraph 3. The Russian Ministry of Transport, the FAS of Russia and the Federal Tariff Service of Russia shall, together with interested federal executive authorities and leading Russian airlines, analyze the actual expenses of airlines associated with flight operations (aviation fuel, airport services, air navigation and other charges, services of credit institutions, taxes, cost of aviation equipment, and other costs), the cost of flight operations, pricing, government support measures, as compared to US and EU airlines, and consider economic consequences for airlines due to changes in passenger air transport pricing. Results shall be reported to the Government of the Russian Federation by July 25, 2014. Several meetings have been held at the Russian Ministry of Finance with the participation of representatives from airlines, the FAS, Agency for Strategic Initiatives to Promote New Projects, the RUIE, the Public Council at the Ministry of Finance and Pulkovo Airport. An analysis of the actual expenses for flight operations, their cost and pricing was sent to the Department of State Civil Aviation Policy (No. 401-28 dated July 18, 2014).
11.5 Instruction of Deputy Prime Minister of the Russian Federation O. Yu. Golodets No. OG-P8-5496 dated July 22, 2014In pursuance of the instructions issued by the President of the Russian Federation following a meeting of the Council for Science and Education under the President of the Russian Federation, No. Pr-1627 dated June 23, 2014 (Incoming Ref. No. 5667 dated July 28, 2014) Paragraph 2. The Government of the Russian Federation shall, with the participation of executive authorities of constituent entities of the Russian Federation, Russian associations of employers, state corporations and joint-stock companies in which the Russian Federation holds a majority stake, develop and duly submit proposals on:
promoting targeted training at educational institutions under higher education programs in engineering, technology and technical sciences; developing a methodology for calculating medium and long-term requirements of constituent entities of the Russian Federation territories, economy sectors and largest employers for engineering and technical staff.
Information about participation of JSC Aeroflot in a targeted selection of candidates for training under the program “Summer operation of aircraft” was sent to the Russian Ministry of Science and Education (Ref. No. 12-1342 dated September 23, 2014).
11.6 Instruction of Deputy Prime Minister of the Russian Federation A.V. Dvorkovich No. AD-P9-6062 dated August 11, 2014 issued in response to the letter from JSC Aeroflot about measures for protection from penalty sanctions imposed by the State Air Service of Ukraine in connection with operation of flights to Simferopol (Incoming Ref. No. 6162 dated August 13, 2014). For the Russian Ministry of Transport (M. Yu. Sokolov):
Consider the inquiry with the participation of interested federal executive authorities and report on proposals as soon as possible.
The matter is under discussion. The Russian Ministry of Transport conducts meetings attended by representatives from airlines.
11.7 Instruction of the President of the Russian Federation V.V. Putin No. PR-2169 dated September 10, 2014 (Incoming Ref. No. 9549 dated December 18, 2014) Paragraph 2. Assist the Far-Eastern and North-Eastern Federal Universities in forming and replenishing earmarked capital funds, organize interaction in personnel training and putting viable R&D results to use. A decision to allocate RUB 50 million to form an earmarked capital fund of the Far-Eastern Federal University was passed at the meeting of the Executive Board of JSC Aeroflot on December 19, 2014 (minutes No. 23).An agreement has been duly approved and signed. Under the agreement, funds are scheduled to be transferred in April 2015.
11.8 Minutes of a meeting held by Deputy Prime Minister of the Russian Federation D.N. Kozak No. DK-P12-239-pr dated December 15, 2014 (Incoming Ref. No. 9542 dated December 18, 2014) Paragraph 7. By December 26, 2014, the Russian Olympic Committee (A.D. Zhukov), JSC Aeroflot (V.G. Saveliev) shall, together with the Russian Ministry of Transport, decide on arranging flights for participants between Moscow and Sochi within the quotas under the partnership agreement between the Sochi 2014 Organizing Committee and JSC Aeroflot. Addenda to the partnership agreement have been executed.Information about the issuance of Moscow — Sochi — Moscow tickets was sent to the Social Development Department of the Government of the Russian Federation (Ref. No. 506-12 dated January 26, 2015).

8.5 OBSERVANCE OF THE RUSSIAN
CORPORATE GOVERNANCE CODE

No. Principle(s) of corporate governance or key criterion (recommendation) Brief description of the extent to which the principle or key criterion is not observed Explanation of the key reasons, factors and circumstances due to which the principle or key criterion is not observed or partially observed, description of alternative corporate governance mechanisms and tools used
I. Shareholder rights and equality of conditions for shareholders exercising their rights
1.1. The company should ensure equal and fair treatment of all its shareholders in the course of exercise by them of their right to participate in the management of the company. The corporate governance system and practices should ensure equal terms and conditions for all shareholders owning shares of the same class (category), including minority and foreign shareholders, as well as their equal treatment by the company.
1.1.1. The company should approve an internal document setting forth the main procedures for preparing for, calling and holding general meetings of shareholders in conformity with the recommendations of the Code of Corporate Governance and including the company’s obligation to:
  • notify shareholders of a general meeting and provide access to materials, including posting a notice and materials on the company’s website, at least 30 days before the meeting (unless the legislation of the Russian Federation provides for a longer period);
  • disclose information about the record date for the general meeting of shareholders at least 7 days before the meeting;
  • provide additional information and materials related to agenda items before the general meeting of shareholders as recommended by the Code of Corporate Governance.
Observed
1.1.2. The company should assume an obligation to provide its shareholders with the opportunity to put questions about the company’s activities to members of the governing and supervisory bodies, members of the audit committee, the chief accountant, the company’s auditors, and candidates to governing and supervisory bodies in the course of preparing for and holding general meetings of shareholders. This obligation should be laid down in the company’s charter or internal documents. Not observed Is fully realized in practice.
The relevant right is fixed during a general meeting of shareholders held in the form of joint presence through approval of the meeting’s agenda by shareholders.
1.1.3. The company should assume an obligation to adhere to the principle of inadmissibility of actions resulting in artificial redistribution of corporate control (for example, voting with quasi-treasury shares, deciding to pay dividends on preferred shares where the company’s financial means are limited, deciding not to pay dividends on preferred shares, as set out in the charter, where there exist sufficient sources for their payment). This obligation should be laid down in the company’s charter or internal documents. Not observed The relevant provision is not laid down in internal documents of JSC Aeroflot.
1.1.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
1.2 Shareholders should have equal and fair opportunities to participate in the profits of the company through dividends
1.2.1. The company should approve an internal document defining the company’s dividend policy as recommended by the Code of Corporate Governance and setting forth, in particular:
  • the procedure for determining a portion of the company’s net profit (for companies preparing consolidated financial statements, minimum percentage (portion) of consolidated net profit) that will be allocated to pay dividends and the conditions under which dividends are declared;
  • minimum amount of dividends on different classes ( categories) of the company’s shares;
  • an obligation to disclose the company’s dividend policy document on the company’s website.
Observed
1.2.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
2. Board of Directors
2.1 The board of directors should establish basic long-term targets of the company’s activity, its key performance indicators, be in charge of strategic management of the company, determine major principles of and approaches to creation of a risk management and internal control system within the company, monitor the activity of the company’s executive bodies, establish the company’s remuneration policy for members of the board of directors and executive bodies, and carry out other key functions.
2.1.1. The company should have a board of directors, which:
  • establishes basic long-term targets of the company’s activity and its key performance indicators;
  • monitors the activity of the company’s executive bodies;
  • determines major principles of and approaches to creation of a risk management and internal control system within the company,
  • establishes the company’s remuneration policy for members of the board of directors, executive bodies and other key managers of the company.
Observed
2.1.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
2.2. The board of directors should be an efficient and professional governing body of the company which is able to make objective and independent judgments and pass resolutions in the best interests of the company and its shareholders. The chairman of the board of directors should help it to carry out the functions assigned thereto in a most efficient manner. Meetings of the board of directors, preparation for them, and participation of board members therein should ensure efficient work of the board.
2.2.1. The chairman of the board of directors should be an independent director, or the senior independent director among the company’s independent directors should be identified who would coordinate work of the independent directors and liaise with the chairman of the board of directors. Not observed Given a balanced composition of the board of directors, the quality of preliminary consideration of matters submitted to the board of directors (including at the level of committees with the participation of independent directors) and high activity of independent directors, it appears that this recommendation does not need to be implemented.
2.2.2. Internal documents of the company should set forth a procedure for preparing for and holding meetings of the board of directors, which enables its members to get prepared properly for such meetings and stipulates, in particular:
  • the time limits for notifying the board members of a forthcoming meeting;
  • the time limits for sending documents (ballots) for voting and receiving completed documents (ballots) for meetings held in absentia;
  • a possibility for the board of directors members not present at a meeting held in presentia to send their respective written opinions, and for such opinions to be taken into account;
  • a possibility of discussing and voting via conference and video conference calls.
Observed
2.2.3. The most important issues should be decided at the meetings of the board of directors held in presentia. The list of such issues should meet recommendations of the Code of Corporate Governance* Observed
2.2.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
2.3. The board of directors should include a sufficient number of independent directors.
2.3.1. Independent directors should account for at least one-third of all directors elected to the board of directors. Observed
2.3.2. Independent directors should fully meet the independence criteria recommended by the Code of Corporate Governance. Observed
2.3.3. The board of directors (nominating (personnel, appointments) committee) should evaluate whether candidates nominated to the board of directors meet independence criteria. Observed
2.3.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
2.4. The board of directors should set up committees for preliminary consideration of most important issues of the company’s business
2.4.1. The company’s board of directors should set up an audit committee consisting of independent directors, whose functions are set forth in internal documents and conform to the recommendations of the Code of Corporate Governance** Partially observed The Audit Committee is headed by an independent director. Most members of the Committee are independent directors. Given the balanced composition of the Committee, the quality of preliminary consideration of matters and high activity of independent directors, it appears that this recommendation does not need to be implemented.
2.4.2. The company’s board of directors should set up a remuneration committee (which may be combined with the nominating (personnel, appointments) committee) consisting of independent directors, whose functions conform to the recommendations of the Code of Corporate Governance* Partially observed JSC Aeroflot has set up a Personnel and Remuneration Committee headed by an independent director. Most members of the Committee are independent directors. Given the balanced composition of the Committee, the quality of preliminary consideration of matters and high activity of independent directors, it appears that this recommendation does not need to be implemented.The Committee’s functions are also balanced
2.4.3. The company’s board of directors should set up a nominating (personnel, appointments) committee (which may be combined with the remuneration committee) with most members being independent directors, whose functions conform to the recommendations of the Code of Corporate Governance** Partially observed
2.4.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key
2.5. The board of directors should ensure that the performance of the board of directors, its committees and members is evaluated
2.5.1. The performance of the board of directors should be evaluated on a regular basis, at least once a year. At least once every three years such evaluation should be carried out by a third party entity (consultant) Not observed The introduction of such practice is under consideration.
2.5.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
3. Corporate Secretary of the Company
3.1 The corporate secretary (a special structural division headed by the corporate secretary) shall be responsible for efficient interaction with shareholders, coordination of the company’s actions designed to protect the rights and interests of its shareholders, and support efficient work of its board of directors.
3.1.1. The corporate secretary shall report to the board of directors and may be removed by resolution or with the consent of the board of directors. Observed
3.1.2. The company should approve an internal document determining the rights and duties of the corporate secretary (Regulations on the Corporate Secretary) with contents conforming to the recommendations of the Code of Corporate Governance*** Observed The functions of the company’s corporate secretary are performed by the Corporate Governance Department and Executive Secretary of the Board of Directors.The office of the Executive Secretary of the Board of Directors of JSC Aeroflot operates according to the Regulations on the Board of Directors of JSC Aeroflot approved by the annual general meeting of its shareholders on June 27, 2014, minutes No. 36 dated June 30, 2014.
The activities of the Corporate Governance Department are governed by the Regulations on the Corporate Governance Department of JSC Aeroflot approved by Order No. 7 dated November 20, 2013
3.1.3. The position of corporate secretary should not be combined with other functions in the company. The corporate secretary should perform the functions recommended by the Code of Corporate Governance****. The corporate secretary should be vested with sufficient resources to perform his/her functions Observed
3.1.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key
4. System of remuneration for members of the board of directors, the executive bodies, and other key managers of the company
4.1. The level of remuneration paid by the company should be sufficient to enable it to attract, motivate, and retain persons having the skills and qualifications needed by the company. Remuneration for members of the board of directors, the executive bodies, and other key managers of the company should be paid in accordance with a remuneration policy approved by the company
4.1.1. The company should regulate all payments, benefits and privileges provided to members of the board of directors, the executive bodies, and other key managers of the company Observed
4.1.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
4.2. The system of remuneration for members of the board of directors should ensure harmonization of interests of directors with long-term financial interests of the shareholders.
4.2.1. The company should not use any forms of monetary remuneration for members of the board of directors other than a fixed annual fee. Not observed Remuneration for members of the Board of Directors of JSC Aeroflot consists of fixed and variable components.
The variable (bonus) component depends on whether a change in the Company’s capitalization level comparable to the change in the MICEX index has been achieved. Calculation and comparison of the changes in the Company’s capitalization and the MICEX index for the 52 weeks preceding the comparison date are performed once a year. The general meeting of shareholders has decided to approve the current remuneration policy for members of the Board of Directors of JSC Aeroflot.
4.2.2. Members of the company’s board of directors should not take part in its option plans, and their right to dispose of the company’s shares held by them should not be made dependent on the achievement of certain performance indicators. Observed
4.2.3. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
4.3. The system of remuneration for the executive bodies and other key managers of the company should provide that their remuneration is dependent on the company’s performance results and their personal contributions to the achievement thereof
4.3.1. The company should have in place a long-term incentive program for members of the executive bodies and other key managers of the company Observed
4.3.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
5. Risk management and internal control system
5.1. The company should have in place an efficient risk management and internal control system designed to provide reasonable assurance that the company’s objectives will be achieved.
5.1.1. The board of directors should determine the principles of and approaches to creation of a risk management and internal control system in the company Observed Improvement work is underway
5.1.2. The company should create a separate structural division responsible for risk management and internal control. Partially observed Improvement work is underway
5.1.3. The company should have developed and implemented the company’s anticorruption policy defining measures to create an anti-corruption corporate culture, organizational structure, rules and procedures. Partially observed Improvement work is underway
5.1.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
5.2. To independently evaluate, on a regular basis, reliability and efficiency of the risk management and internal control system and corporate governance practices, the company should arrange for internal audits
5.2.1. The company should create a separate structural division performing internal audit functions and functionally reporting to the company’s board of directors. The functions of such subdivision should conform to the recommendations of the Code of Corporate Governance and include, in particular:
  • evaluating the efficiency of the internal control system;
  • evaluating the efficiency of the risk management system;
  • evaluating corporate governance (if the company does not have a corporate governance committee).
Observed
5.2.2. The head of the internal audit division shall report to the company’s board of directors and shall be appointed and removed by resolution of the company’s board of directors. Observed
5.2.3. The company should approve an internal audit policy (Internal Audit Regulations) determining the internal audit objectives, tasks, and functions. Observed
5.2.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.
6. Disclosure of information about the company, company’s information policy
6.1. The company and its activities should be transparent for its shareholders, investors, and other stakeholders.
6.1.1. The company should approve an internal document defining the company’s information policy as recommended by the Code of Corporate Governance. The company’s information policy should include the following methods of interaction with investors and other stakeholders:
  • setting up the company’s website where it would post answers to frequently asked questions from shareholders and investors, a regularly updated calendar of its corporate events, and other information that may be useful for its shareholders and investors;
  • regular meetings between members of the company’s executive bodies and other key managers, on the one hand, and analysts, on the other hand;
  • regular presentations (including teleconferences, webcasts) and meetings with members of the company’s governing bodies and other key managers, in particular, in connection with publication of the company’s accounting (financial) statements or in relation to major investment projects or strategic development plans of the company
Observed Improvement work is done
6.1.2. The company’s information policy shall be implemented by its executive bodies. The company’s board of directors shall exercise control over proper disclosure of information and compliance with the information policy Observed
6.1.3. The company should establish procedures ensuring coordination of work of all its structural units and departments which are involved in disclosure of information or whose activities may lead to the need to disclose information Observed
6.1.4. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key
6.2. The company should disclose, on a timely basis, full, updated, and accurate information about the company so as to enable its shareholders and investors to make informed decisions
6.2.1. If a material stake in the company is held by foreign investors, along with disclosure of information in Russian, the most significant information about the company (including notices of general meetings of shareholders, company’s annual report) should be provided in a foreign language that is commonly used in the financial market Observed
6.2.2. The company should disclose information not only about itself but also about any legal entities which are controlled by and are material to the company Observed
6.2.3. The company should disclose its annual and interim (semi-annual) consolidated or standalone financial statements prepared under International Financial Reporting Standards (IFRS). Its annual consolidated or standalone financial statements should be disclosed together with an auditor’s report thereon, while its interim (semi-annual) consolidated or standalone financial statements should be disclosed together with a report on the results of an auditor's review or an auditor’s report Observed
6.2.4. The company should disclose a special memorandum containing plans of the person that controls the company in respect of the company. The memorandum should be prepared according to the recommendations of the Code of Corporate Governance***** Not observed This provision is not applicable to the Company
6.2.5. The company should disclose biographical details of the members of its board of directors, including information about whether they are independent directors, and should promptly disclose information about a board member’s loss of his/her status of an independent director Observed
6.2.6. The company should disclose information about its capital structure as recommended by the Code of Corporate Governance Observed
6.2.7. The company’s annual report should contain additional information recommended by the Code of Corporate Governance:
  • a summary of most significant transactions, including related transactions, entered into by the company and legal entities controlled thereby during the past year;
  • report on the activities of the board of directors (including its committees) for the year, containing, in particular, information about the number of meetings held in presentia (absentia), the presence of each board member at such meetings, a description of the most important issues and most difficult problems considered at meetings of the board of directors and its committees, main recommendations given by committees to the board of directors;
  • information about any shares in the company which are owned, directly or indirectly, by members of the board of directors and executive bodies of the company;
  • information on whether members of the board of directors and executive bodies have conflicts of interest (including those associated with their participation in the governing bodies of any competitors of the company)
  • a description of the system of remuneration for members of the board of directors, including the amount of individual remuneration payable upon the results of the year to each board member (with a breakdown between the basic fee and additional remuneration for the chairmanship in the board of directors, for the chairmanship (membership) in committees of the board of directors, the amount of participation in the long-term incentive program, the amount of participation of each board member in an option plan, if any), reimbursement of expenses associated with their participation in the board of directors, and costs incurred by the company in connection with liability insurance for its directors in their capacities of members of the governing bodies;
information on the total remuneration for the year:
a) in respect of a group of at least five members of the executive bodies and other key managers of the company who receive the largest amounts of remuneration, broken down by type of remuneration;
b) in respect of all members of the executive bodies and other key managers of the company who are subject to the company’s remuneration policy, broken down by type of remuneration;
information on the remuneration of the sole executive body for the year, received or to be received from the company (or a legal entity forming part of a group of entities which includes the company), with a breakdown by type of remuneration, both for carrying out his/her duties as the sole executive body and otherwise
Observed
6.2.8. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key
6.3. The company should provide information and documents requested by shareholders according to the principle of equal access and in a straightforward manner
6.3.1. According to the company’s information policy, its shareholders holding an equal number of voting shares in the company should have equal access to the company’s information and documents Observed
6.3.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key
7. Material corporate actions
7.1. Actions which will or may materially affect the company’s share capital structure and its financial position and, accordingly, the position of its shareholders (material corporate actions) should be taken on fair terms and conditions ensuring that the rights and interests of the shareholders and other stakeholders are observed
7.1.1. The company’s charter should determine a list (criteria) of transactions and other actions that are material corporate actions and are subject to consideration by the company’s board of directors, including:
  • reorganization of the company, acquisition of 30 and more percent of its voting shares (takeover), increasing or decreasing its authorized capital, listing and delisting of its shares;
  • any sale of shares (interests) in any legal entity controlled by and material to the company, where as a result of such transaction the company would lose control over such legal entity;
  • transactions, including related transactions, involving property of the company or legal entities controlled thereby, whose value exceeds a threshold amount specified in the company’s charter or which is material to the company’s business operations;
  • establishment of a legal entity controlled by the company and having material significance for its business;
  • disposal of treasury and quasi-treasury shares by the company
Observed
7.1.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key
7.2. The company should have in place such a procedure for taking any material corporate actions that would enable its shareholders to receive full information about such actions in due time and influence them, and that would also guarantee that the shareholder rights are observed and duly protected in the course of taking such actions
7.2.1. The company’s internal documents should set forth the principle of ensuring equal terms and conditions for all its shareholders when taking any material corporate actions which would affect rights and legitimate interests of its shareholders, as well as additional measures to protect the rights and legitimate interests of the company’s shareholders as stipulated by the Code of Corporate Governance, including:
  • retaining an independent appraiser with an established impeccable reputation in the market and appraisal experience in the respective area (or providing a reason for not doing so) to determine the value of property to be acquired or disposed of pursuant to a major transaction or an interested party transaction;
  • determining the price of the company’s shares to be purchased or redeemed by an independent appraiser with an established impeccable reputation in the market and appraisal experience in the respective area, with the account of the weighted average price of the shares over a reasonable period of time, without accounting for the effect of a respective transaction to be entered into by the company (including without accounting for changes in the price of the shares due to distribution of information on the company’s entering into the transaction) and for a non-controlling interest discount;
  • expanding a list of grounds on which members of the company’s board of directors and other persons defined by law are deemed to be interested in the company’s transactions in order to evaluate actual affiliation relations between respective persons.
Observed
7.2.2. Other criteria (recommendations) relating to the said principle(s) of corporate governance, as set forth in Code of Corporate Governance, which the company considers to be key.

* Specified in Section B Clause 180 of the Code of Corporate Governance.
** Specified in Section B Clause 186 of the Code of Corporate Governance.
*** Specified in Section B Clause 217 of the Code of Corporate Governance.
**** Specified in Section B Clause 218 of the Code of Corporate Governance.
***** Specified in Section B Clause 279 of the Code of Corporate Governance.

8.6 DISPOSAL OF NON-CORE ASSETS
DURING THE YEAR

No. Asset Asset number Line on the balance sheet which included the asset as of the reporting date preceding the sale Bookkeeping accounts (taking into account analytics) showing income and expenses from the sale Asset's book value, RUB’000 Actual sale value, RUB’000 Difference between the actual sale value of the asset and its book value, RUB’000 Reason for difference between the actual sale value of the asset and its book value
1 LLC AM-Terminal Not applicable 1150 9121400030 (expense) 24.2 0.0 (24.2) Withdrawal from membership upon request, market value of the interest is equal to RUB 0.0, the company did not conduct any business operations
2 LLC Aeroflot Riga Not applicable 1150 9121300040 (expense) 17.1 0.0 (17.1) Company liquidation by decision of JSC Aeroflot
3 Real property located at 112 Saksaganskogo Str., apt. 1, Kiev, Ukraine 13740 1130 9111200010 (income); 9121200011 (expense) 392.5 8,315.6 7,923.1 The property's market value (sale value) is higher than its book value
TOTAL 433.8 8,315.6 7,881.8

8.7 Aeroflot Group
Operating Data

Aeroflot airline

Indicator Unit 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Passenger Traffic th PAX 6,666.5 7,290.4 8,166.2 9,271.4 8,755.5 11,285.8 14,173.8 17,656.1 20,902.4 23,610.0
International routes th PAX 4,649.7 4,939.5 5,356.3 5,696.3 5,412.6 7,122.0 8,679.1 10,707.2 12,294.5 12,468.2
Domestic Routes th PAX 2,016.8 2,350.9 2,809.9 3,575.1 3,342.9 4,163.8 5,494.7 6,948.9 8,607.9 11,141.8
Passenger Turnover m pkm 20,694.8 22,406.5 24,675.3 27,247.5 25,986.2 34,777.1 42,020.9 50,532.5 60,226.3 67,121.7
International routes m pkm 15,897.7 16,753.7 18,033.0 18,745.5 17,345.9 23,632.3 28,645.9 34,953.9 40,614.4 42,676.5
Domestic Routes m pkm 4,797.1 5,652.8 6,672.3 8,502.0 8,640.3 11,144.8 13,375.0 15,578.6 19,611.9 24,445.2
Passenger Capacity m ASK 29,977.3 31,945.8 35,119.4 38,412.0 37,399.7 45,020.9 54,195.3 64,880.0 76,444.8 85,822.1
International routes m ASK 23,255.7 24,257.6 26,041.8 26,889.3 25,770.2 31,060.8 37,510.1 45,585.5 52,392.4 56,206.9
Domestic Routes m ASK 6,721.6 7,688.2 9,077.6 11,522.7 11,629.5 13,960.1 16,685.2 19,294.5 24,052.4 29,615.2
Seat Load Factor % 69.0% 70.1% 70.3% 70.9% 69.5% 77.2% 77.5% 77.9% 78.8% 78.2%
International routes % 68.4% 69.1% 69.1% 69.7% 67.3% 76.1% 76.4% 76.7% 77.5% 75.9%
Domestic Routes % 71.4% 73.5% 73.5% 73.8% 74.3% 79.8% 80.2% 80.7% 81.5% 82.5%
Cargo and mail Carried th tonnes 145.4 145.3 95.9 87.9 86.8 163.4 160.6 193.9  176.5 145.3
International routes th tonnes 121.8 118.8 67.4 57.5 51.3 121.1 120.3 147.7 118.0 81.5
Domestic Routes th tonnes 23.6 26.5 28.5 30.4 35.5 42.3 40.3 46.2 58.5 63.8
Tonne-Kilometres m tkm 2,731.1 2,884.7 2,690.9 2,843.3 2,738.6 4,082.1 4,690.5 5,669.2 6,339.9 6,722.7
International routes m tkm 2,192.1 2,253.8 1,959.6 1,949.2 1,793.2 2,864.8 3,295.4 4,054.4 4,306.9 4,236.8
Domestic Routes m tkm 539.0 630.9 731.3 894.1 945.4 1,217.3 1,395.1 1,614.8 2,033.0 2,485.9
Available Tonne-Kilometres m tkm 4,709.3 5,000.8 4,828.2 5,058.9 4,900.0 6,458.9 7,536.8 8,881.1 9,848.7 10,660.0
International routes m tkm 3,849.4 3,988.4 3,661.1 3,599.0 3,383.3 4,622.8 5,408.2 6,455.5 6,821.1 6,983.1
Domestic Routes m tkm 859.9 1,012.4 1,167.1 1,459.9 1,516.7 1,836.1 2,128.6 2,425.6 3,027.6 3,676.9
Revenue Load Factor % 58.0% 57.7% 55.7% 56.2% 55.9% 63.2% 62.2% 63.8% 64.4% 63.1%
International routes % 56.9% 56.5% 53.5% 54.2% 53.0% 62.0% 60.9% 62.8% 63.1% 60.7%
Domestic Routes % 62.7% 62.3% 62.7% 61.2% 62.3% 66.3% 65.5% 66.6% 67.1% 67.6%
Flight Hours hours 248,351 271,905 285,915 306,746 286,278 327,054 394,341 460,734 509,058 554,659

Rossiya airline

Indicator EUnit 2011 2012 2013 2014
Passenger Traffic th PAX 3,537.5 4,208.9 4,590.1 5,191.8
International routes th PAX 1,790.8 2,130.2 2,113.5 1,914.7
Domestic Routes th PAX 1,746.7 2,078.7 2,476.6 3,277.0
Passenger Turnover m pkm 7,190.9 8,760.9 9,186.3 10,147.4
International routes m pkm 4,673.4 5,738.4 5,579.4 4,867.2
Domestic Routes m pkm 2,517.5 3,022.5 3,606.9 5,280.2
Passenger Capacity m ASK 9,551.2 11,304.7 12,031.9 13,414.3
International routes m ASK 5,960.6 7,123.9 7,164.3 6,652.1
Domestic Routes m ASK 3,590.6 4,180.8 4,867.5 6,762.2
Seat Load Factor % 75.3% 77.5% 76.3% 75.6%
International routes % 78.4% 80.6% 77.9% 73.2%
Domestic Routes % 70.1% 72.3% 74.1% 78.1%
Cargo and mail Carried th tonnes 8.8 9.9 10.2 9.6
International routes th tonnes 2.2 2.1 2.2 1.5
Domestic Routes th tonnes 6.6 7.8 8.0 8.1
Tonne-Kilometres m tkm 666.0 810.3 848.0 934.1
International routes m tkm 426.3 522.2 508.4 442.2
Domestic Routes 239.7 288.1 339.5 492.0
Available Tonne-Kilometres m tkm 1,045.8 1,239.0 1,325.3 1,478.8
International routes m tkm 655.4 786.1 788.1 726.6
Domestic Routes m tkm 390.4 452.9 537.2 752.2
Revenue Load Factor % 63.7% 65.4% 64.0% 63.2%
International routes % 65.1% 66.4% 64.5% 60.9%
Domestic Routes % 61.4% 63.6% 63.2% 65.4%
Flight Hours hours 94,207 107,698 112,277 124,927

Orenair airline

Indicator Unit 2011 2012 2013 2014
Passenger Traffic th PAX 2,507.2 3,193.5 3,141.0 3,034.7
International routes th PAX 2,109.1 2,562.5 2,375.5 2,101.6
Domestic Routes th PAX 398.1 631.0 765.4 933.1
Passenger Turnover m pkm 7,500.3 10,505.2 10,983.8 8,471.0
International routes m pkm 6,840.8 8,572.6 8,895.6 6,715.2
Domestic Routes m pkm 659.5 1,932.6 2,088.2 1,755.8
Passenger Capacity m ASK 8,996.1 12,260.7 13,393.9 10,775.1
International routes m ASK 7,980.7 9,551.2 10,344.3 8,131.9
Domestic Routes m ASK 1,015.4 2,709.5 3,049.6 2,643.2
Seat Load Factor % 83.4% 85.7% 82.0% 78.6%
International routes % 85.7% 89.8% 86.0% 82.6%
Domestic Routes % 64.9% 71.3% 68.5% 66.4%
Cargo and mail Carried th tonnes 1.8 6.1 5.2 2.3
International routes th tonnes 0.1 0.1 0.1 0.2
Domestic Routes th tonnes 1.7 6.0 5.1 2.1
Tonne-Kilometres m tkm 677.7 975.4 1,012.2 767.5
International routes m tkm 615.9 771.8 800.8 605.5
Domestic Routes m tkm 61.8 203.6 211.3 162.0
Available Tonne-Kilometres m tkm 872.4 1,278.1 1,445.4 1,086.5
International routes m tkm 771.8 948.8 1,094.4 823.6
Domestic Routes m tkm 100.6 329.3 351.0 262.9
Revenue Load Factor % 77.7% 76.3% 70.0% 70.6%
International routes % 79.8% 81.3% 73.2% 73.5%
Domestic Routes % 61.4% 61.8% 60.2% 61.6%
Flight Hours hours 68,652 80,954 81,784 71,872

Donavia airline

Indicator Unit 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Passenger Traffic th PAX 599.6 588.2 956.8 1,314.4 1,210.3 1,385.9 863.9 985.7 1,353.6 1,736.1
International routes th PAX 180.1 170.2 524.8 758.8 698.6 655.8 328.7 242.0 303.9 398.2
Domestic Routes th PAX 419.5 418.0 432.0 555.6 511.7 730.1 535.2 743.7 1,049.7 1,337.9
Passenger Turnover m pkm 912.2 874.5 1,665.0 2,539.7 2,391.8 2,423.0 1,271.1 1,433.7 2,001.1 2,448.0
International routes m pkm 305.7 287.5 1,044.7 1,608.3 1,625.3 1,354.4 587.4 404.3 472.1 514.6
Domestic Routes m pkm 606.5 587.0 620.3 931.4 766.5 1,068.6 683.7 1,029.4 1,529.0 1,933.4
Passenger Capacity m ASK 1,590.3 1,368.5 2,274.4 3,455.7 3,004.1 3,064.3 1,849.3 2,077.6 3,019.6 3,312.6
International routes m ASK 492.1 410.9 1,322.1 1,997.4 1,861.3 1,578.0 806.4 590.8 680.5 742.4
Domestic Routes m ASK 1,098.2 957.6 952.3 1,458.3 1,142.8 1,486.4 1,042.9 1,486.8 2,339.1 2,570.2
Seat Load Factor % 57.4% 63.9% 73.2% 73.5% 79.6% 79.1% 68.7% 69.0% 66.3% 73.9%
International routes % 62.1% 70.0% 79.0% 80.5% 87.3% 85.8% 72.8% 68.4% 69.4% 69.3%
Domestic Routes 55.2% 61.3% 65.1% 63.9% 67.1% 71.9% 65.6% 69.2% 65.4% 75.2%
Cargo and mail Carried th tonnes 2.6 2.3 2.0 2.4 1.8 2.2 1.6 1.5 2.3 2.4
International routes th tonnes 0.5 0.5 0.3 0.4 0.2 0.4 0.4 0.4 0.5 0.5
Domestic Routes th tonnes 2.1 1.8 1.7 2.0 1.6 1.8 1.2 1.1 1.8 1.9
Tonne-Kilometres m tkm 87.0 82.9 153.1 232.8 217.8 221.4 116.6 131.0 183.1 223.6
International routes m tkm 28.5 26.7 94.6 145.3 146.6 122.5 53.4 36.8 43.0 47.0
Domestic Routes m tkm 58.5 56.2 58.5 87.4 71.2 98.9 63.2 94.2 140.1 176.6
Available Tonne-Kilometres m tkm 155.8 137.7 230.4 355.1 302.5 307.8 170.5 197.5 304.1 354.3
International routes m tkm 50.0 43.1 137.2 210.4 191.1 163.9 74.3 53.3 65.4 74.9
Domestic Routes 105.8 94.6 93.2 144.6 111.4 143.9 96.2 144.2 238.7 279.4
Revenue Load Factor % 55.8% 60.2% 66.4% 65.6% 72.0% 71.9% 68.4% 66.3% 60.2% 63.1%
International routes % 57.0% 61.9% 68.9% 69.1% 76.7% 74.7% 71.8% 69.2% 65.7% 62.8%
Domestic Routes % 55.3% 59.4% 62.8% 60.4% 63.9% 68.7% 65.7% 65.3% 58.7% 63.2%
Flight Hours hours 15,153 15,182 21,832 30,357 28,627 29,623 22,720 23,582 30,264 33,748

Aurora airline

Indicator Unit 2011 2012 2013 2014
Passenger Traffic th PAX 1,512.3 1,427.5 1,403.6 1,055.3
International routes th PAX 384.5 321.4 303.9 213.1
Domestic Routes th PAX 1,127.9 1,106.1 1,099.7 842.2
Passenger Turnover m pkm 4,830.6 3,384.9 2,875.8 1,753.1
International routes m pkm 779.3 610.9 551.2 333.4
Domestic Routes m pkm 4,051.3 2,774.0 2,324.6 1,419.7
Passenger Capacity m ASK 6,873.8 5,075.3 4,173.6 2,337.9
International routes m ASK 1,224.7 1,000.0 948.3 485.6
Domestic Routes m ASK 5,649.1 4,075.3 3,225.4 1,852.3
Seat Load Factor % 70.3% 66.7% 68.9% 75.0%
International routes % 63.6% 61.1% 58.1% 68.7%
Domestic Routes % 71.7% 68.1% 72.1% 76.6%
Cargo and mail Carried th tonnes 18.2 12.4 10.4 6.2
International routes th tonnes 3.1 2.8 1.1 0.5
Domestic Routes th tonnes 15.1 9.6 9.3 5.7
Tonne-Kilometres m tkm 510.1 339.7 283.0 170.0
International routes m tkm 75.8 60.3 51.6 30.8
Domestic Routes m tkm 434.3 279.4 231.4 139.2
Available Tonne-Kilometres m tkm 724.7 557.3 465.0 252.9
International routes m tkm 130.6 108.1 103.6 53.5
Domestic Routes m tkm 594.1 449.2 361.4 199.4
Revenue Load Factor % 70.4% 61.0% 60.9% 67.2%
International routes % 58.0% 55.8% 49.8% 57.6%
Domestic Routes % 73.1% 62.2% 64.0% 69.8%
Flight Hours hours 57,014 47,631 42,875 28,695

Note. Consolidated data on OJSC “Vladivostok Air” and OJSC “SAT airlines”.

8.8 Terms and Abbreviations

Aviation security — aviation protection against unlawful interference and the measures and resources needed to achieve such protection.

SkyTeam (SkyTeam Alliance) — global airline alliance founded on June 22, 2000.

Flight safety — capacity to provide air transportation services without risk to people’s life or health.

DAR — domestic air routes.

Passenger turnover — measures the volume of air transportation operations calculated by multiplying the number of paying passengers carried on each flight stage by the stage distance, expressed in passenger kilometres

Aeroflot Group — all the companies (having a separate legal personality), linked with financial and economic ties, which carry out coordinated business on the air transportation market, of which JSC Aeroflot is the head (parent) company and corporate centre, based on its significant or dominant stakes in the other companies.

Class of service — services and level of comfort offered to passengers according to a contract of carriage by air.

Code sharing — agreement on the joint use of route codes, enabling one and the same route to be sold by two companies under their own brands and with a distinct route number for each company. Either of the airlines in the agreement can be the actual provider of transportation service on the route.

Passenger load factor — ratio of the number of revenue passenger kilometres flown to total available seat kilometres, expressed as a percentage.

Cargo load factor — ratio of the number of performed tonne-kilometres to available ton-kilometres, expressed as a percentage.

Seat kilometre (SKM) — measure of an airline’s passenger carrying capacity — one seat flown one kilometre

Marketing partner — a party and/or airline that has the right to use its code on the flight of a partner operator and to show its code under the ‘carrier’ heading on tickets for a code-sharing flight, but which does not carry out technical and ground handling or operating control of the aircraft that makes the code-sharing flight.

IAR — international air routes.

JSC Aeroflot — Open Joint Stock Company Aeroflot — Russian Airlines, created by Russian Government Orders No. 267 (01.04.1993) and No. 314 (12.04.1994), carrying out air transportation of passengers, baggage, mail and cargo, and also providing services based on an operator’s certificate and the appropriate licenses.

Passenger kilometre (PKM) — transportation of one passenger over one kilometre.

Market capitalization — total market value of the shares of a company.

TCH — Transport Clearing House.

Tonne kilometre (TKM) — one tonne of paying load (passengers at 90 kg per passenger, cargo and mail) being moved over one kilometre.

Hub — term used to describe an airport where there is a large share of transit passengers, including airports where the timetable of incoming and outgoing flights is organized in such a way as to minimize transit time between any one flight and the maximum number of other flights.

E-ticket — a way of documenting sale and control of air transport without record of a special accounting form. All information relating to transportation of a specific passenger (routes, fare, class of service, sum paid, duties, etc.) is contained in an electronic ticket file, located in a database of the relevant carrier. E-tickets are not necessarily associated with sale of transportation services via the internet, although it is easier to sell electronic tickets than ordinary tickets via the Internet.

BSP/ARC (Billing and Settlement Plan/Airline Reporting Corporation) — systems for settlement between agents and airlines. BSP is an international settlement system between agents and airlines organised by IATA, which enables sales of air transportation services on neutral forms (not assigned to any specific airline), helps airlines to expand their presence on the air transportation market, minimizes financial risks, lowers expenses on maintenance of the sales system, and speeds up the accounting system by use of electronic technologies. The purpose of BSP is to raise the efficiency of interactions between airlines and agent networks. ARC is a system used in the USA, which is analogous to BSP.

IATA (International Air Transportation Association) — an international association created in 1945 to foster cooperation between airlines to ensure the safety, reliability, and cost efficiency of flights in consumers’ interests. IATA website — www.iata.org.

ICAO (International Civil Aviation Organization) — created as a result of the Chicago Convention on International Civil Aviation, signed in 1944. The ICAO is a specialized institution within the UN, responsible for the development of international standards, recommended practice and rules in the technical, economic and legal realms of international civil aviation. ICAO website — www.icao.int.

IOSA (International Operational Safety Audit) — an international audit of operational safety, which includes the following aspects of airline operations — organization and management system; flight operations; aircraft engineering and maintenance; ground handling; operational control and flight dispatch; cabin crew; aviation security; cargo operations and transportation of hazardous cargo.

ISO — International Organization for Standardisation.

ISO 9000 — a series of international standards for creation of a quality control system at an enterprise, consisting of a number of recommendations for raising business process efficiency.

8.9 Aeroflot Offices
in Russia and Abroad

Sales offices in Moscow

Address Telephone E-mail Opening hours
10 Arbat Street +7 (495) 223-55-55 arb@aeroflot.ru Mon.–Sat.: 9:00–20:30
Sun.: 9:00–16:30
19 Yeniseyskaya Street +7 (495) 223-55-555
+7 (499) 186-20-92
ens@aeroflot.ru
group@aeroflot.ru
Mon.–Sat.: 9:00–20:30
Sun.: 9:00–16:30
7 Korovy Val Street (Building 1) +7 (495) 223-55-55 krv@aeroflot.ru Mon.–Sat.: 9:00–20:30
Sun.: 9:00–16:30
3 Kuznetsky Most Street +7 (495) 223-55-55 kzm@aeroflot.ru Mon.–Sat.: 9:00–20:30
Sun.: 9:00–16:30
20/1 Petrovka Street +7 (495) 223-55-55 ptr@aeroflot.ru Mon.–Sat.: 9:00–20:30
Sun.: 9:00–16:30
32 First Tverskaya-Yamskaya Street +7 (495) 223-55-55 tvr@aeroflot.ru Mon.–Sat.: 9:00–20:30
Sun.: 9:00–16:30
4 Frunzenskaya Embankment +7 (495) 223-55-55 fru@aeroflot.ru Mon.–Sat.: 9:00–20:30
Sun.: 9:00–16:30
Terminal D, Sheremetyevo Airport* +7 (495) 223-55-55 24 hours (two 15 minute breaks: 8:45–9:00; 19:45–20:00)
Terminal E, Sheremetyevo Airport +7 (495) 223-55-55 24 hours (two 15 minute breaks: 8:45–9:00; 19:45–20:00)
Terminal F, Sheremetyevo Airport +7 (495) 223-55-55 24 hours (two 15 minute breaks: 8:45–9:00; 19:45–20:00)

* Aeroflot service desks are located in the left wing of terminal D on the 3rd floor in the domestic departures area in front of check-in counters 21-28

Sales offices, representative offices and branches in the Russian Federation

City Code Telephone Fax Address
Abakan 3902 296-500 59A Druzhby Narodov Street
Anapa 86133 322-55 315-66 170 Krymskaya Street
Arkhangelsk 8182 494-058 494-059 Office 303, 30 Naberezhnaya Severnoy Dviny
Astrakhan 8512 511-112 511-111 3 Gubernator A. Guzhvin Prospect
Barnaul 3852 369-902 369-902 85A Dmitrov Street
Blagoveshchensk 4162 318-771 318-771 Office 233, 1 Lenin Street,
Volgograd 8442 385-479 388-555 15 Lenin Prospect
Gelendzhik +7(918) 055-69-55 As Aeroflot does not have representative office in Gelendzhik, flights from Gelendzhik are handled by staff of the Anapa representative office.
Yekaterinburg 343 356-5570 356-5571 41 Belinsky Street
Irkutsk 3952 255-780 211-326 Office 107, 27 Stepan Razin Street
Kazan 843 200-95-85 200-95-85 35/15 Butlerova Street
Kemerovo 3842 349-409 349-451 1 Kolomeitsev Street
Krasnodar 861 225-04-14 225-04-14 167 Krasnaya Street
Krasnoyarsk 391 274-37-20 274-37-23 73A Karl Marx Street
Magnitogorsk 3519 395-490 162 Sovetskaya Street
Mineralnye Vody 87922 6-6612 6-6612 Mineralnye Vody Airport
Murmansk 8152 289-551 289-889 Polyarnye Zori Hotel, Room 222, 17 Knipovich Street,
Nakhodka 4236 656-233 656-944 11 Leninskaya Street
Nizhnevartovsk 3466 245-555 245-555 11 Omskaya Street (City Centre)
Nizhny Novgorod 831 434-4188 434-4188 6 Gorky Square
Novokuznetsk 3843 538-347 51 Prospect Metallurgov
Novosibirsk 383 217-69-49 217-96-93 28 Krasny Prospect
Novy Urengoy 3494 +7 (964) 205-23-30 936-242 Novy Urengoy Airport
Omsk 3812 955-412 955-412 Office 4.2, 14 Gagarin Street
Orenburg 3532 660-555 9 Turkestanskaya Street
Perm 342 290-1303 290-1302 10 Lenin Street
Petropavlovsk Kamchatsky 4152 424-244 424-244 37 Tushkanov Street
Rostov-on-Don 863 218-66-18 286-95-42 24 Sholokhov Street
Samara 846 276-02-77 276-02-80 141 Leninskaya Street
Simferopol 810-38-0652-595-606 810-38-0652-595-606 6 Airport Square
Sochi 8622 644-511 644-511 61A Roz Street
Surgut 3462 234-243 41 Lenin Street, Mir TC
Tomsk 3822 901-129 901-129 51A Kirov Street, bldg. 115
Tyumen 3452 383-871 383-871 84 Malygin Street, bldg. 1
Ulan-Ude 3012 210-347 210-347 Buryatia Hotel, office 7, 47A Kommunisticheskaya Street
Ufa 347 216-42-97 71/1 Chernyshevsky Street
Khabarovsk 4212 327-592 306-337 50 Pushkin Street
Chelyabinsk 351 237-04-96 237-09-17 90 Svobody Street
Chita 3022 321-808 321-808 130/3 Chkalov Street
Yuzhno-Sakhalinsk 4242 784-555 788-555 172 Prospect Mira
Yakutsk 4112 402-606 402-607 8 Oyunsky Street

Branches in Russia

City Code Telephone Fax Address
Vladivostok 423 262-10-05 262-10-05 143 Svetlanskaya Street
Kaliningrad 4012 954-805 954-805 4 Pobedy Square
St. Petersburg 812 438-55-81 438-55-29 1/43 Rubinstein Street (closed for reconstruction)
61 Nevsky Prospect

Offices abroad

Country/City Code Telephone Fax Address
Austria
Vienna 43-1 512-15-01 512-15-01-78 Opernring 1/R/417-419, 1010 Vienna
Azerbaijan
Baku 99412 498-11-67 498-11-66 123 Khagani Street
Armenia
Yerevan 37410 532-131 522-435 12 Amiryana Street
Belarus
Minsk 375-17 328-69-79 328-68-95 Office 101, 25 Ya. Kupaly Street
Belgium
Brussels 32-02 513-60-66 512-29-61 Bosstraat 13, 1930 Zaventem
Bulgaria
Sophia 3592 962-55-66 962-10-01 Office 2B, 1407 Zlaten Rog street
Great Britain
London 44 (0) 207-355-22-33 208-976-52-41 Room 6112, North East Pod, Heathrow Airport, Terminal 4, Hounslow TW6 3FB
Hungary
Budapest 361 318-59-55 317-17-34 Jozsef Attila Utca 18, 1050
Vietnam
Hanoi 84-4 377-187-42 377-187-18 Office 209-210, building D1, Van Phuc Diplomatic Compound, 298 Rim Ma street, Ba Dinh district
Ho Chi Minh 84-8 354-725-88 Hai Au Building, 39B Truong Son Street, Ward 4, Tan Binh district
Germany
Berlin 49 (0) 306-091-53-72 306-091-53-71 Justus-von-Liebig-Strasse 7
Hamburg 49 (40) 507-527-46 502-837 Flughafen Hamburg Terminal 1, Flughafenstrasse 1-3, 22335
Hannover 49 (0) 511-977-20-65 511-977-20-64 Flughafen Hannover Terminal B Flughafenstrasse 6, 30855 Langenhagen
Dusseldorf 49-211 421-65-56 528-76-99 Flughafen Dusseldorf TS 1.642-643 Terminal-Ring 140474
Munich 49-89 975-910-93 975-910-90 Flughafen Muenchen terminal 1 C, Raum C4365 85356
Frankfurt 49-69 273-006-11 273-006-19 Hansaallee 154, Haus «Hamburg», 60320 Frankfurt am Main
Hahn (regional representative office for cargo transportation in Europe) 49-6543 508-600 508-606 55483 Hahn Airport, Building 860
Stuttgart 49-711 948-49-14 948-49-13 Raum 3301, Ebene 3, Terminal 3, Flughafen Stuttgart, 70629
Greece
Athens 30-210 353-06-11 353-21-48 Athens international airport “Eleftherios Venizelos”Ving H, P.O. box 80084, T.K. 19019 Attiki
Denmark
Copenhagen 45 323-147-00 325-114-62 Denmark Koebenhavns Lufthavn, Terminal 2, 2 Sal 2770 Kastrup
Egypt
Cairo 202 273-698-57 273-501-11 27, Ahmed Heshmat street, Zamalek
India
Delhi 91-11 233-104-26 237-232-45 Room 510, Ansal Bhawan, 16, Kasturba Gandhi Marg, New Delhi 110001
Israel
Tel Aviv 972-3 7951-578 975-72-43 23 Ben Yehuda street
Iran
Tehran 98-21 888-074-94 889-10-889 62 Sadr Street, Vali Asr Ave.
Spain
Barcelona 34-93 430-58-80 419-95-51 Oficina 431, Aeropuerto de Barcelona, Terminal 1, Dique Norte, planta 0
Madrid 34-91 431-41-07 431-80-98 Oficina 42739, Aeropuerto Barajas, Terminal 1, 28042
Malaga 34-95 297-45-34 297-45-33 Aeropuerto de Malaga, Avenida Comandante Garcia Morato, 29004
Italy
Bologna 39 051 647-22-95 647-22-07 Bologna Guglielmo Marconi AirportVia del Triumvirato, 84, 40132
Venice 39-041 269-84-84 269-84-47 Aeropuerto de Venecia Marco Polo, Luigi Broglio street 8, 30030
Milan 3902 585-810-14 585-810-15 Aeroporto Interc. Malpensa, Terminal 121010
Rome 3906 454-259-64 439-570-7 Via Leonida Bissolati, 7600187
Kazakhstan
Alma Ata 727 291-54-16 291-54-16 42 Begalina Street
Karaganda 7212 305-353305-387 68 Buhar Zhyrau Avenue
Cyprus
Larnaca 357 2400–8455 2400–8458 P.O. 43062, P.C. 6650 New International Airport Larnaca
Kirgizia
Bishkek 996-312 620-071 620-075 64/1 Erkindik Boulevard
China
Hong Kong 852 253-726-11 253-726-14 Jubilee Centre, Room 1005,18 Fenwick Street, Wanchai
Guangzhou 020 360-504-10 360-664-82 Guangzhou Baiyun International Airport, Hotel Pullman Guangzhou Baiyun Airport, room W202, 510470
Beijing 86-10 650-024-12 650-125-63 N2 Chao Yang Men Bei da Jie, 100027
Shanghai 86-21 683-555-10 627-980-35 Suite 664, Shanghai Centre, 1376 Nan Jing Xi Road, 200040
Cuba
Havana 537 204-32-00 204-55-93 Barcelo Habana Ciudad, 5ta Avenida,Entre 76 y 80, Barrio de Miramar,Oficina 208
Latvia
Riga 371-6 778-07-70 778-07-71 57A Dzirnavu street, LV-1010
Lebanon
Beirut 9611 739-597 739-596 Office 1002B, Gefinor Center, Block “B”, Clemanceau Street, Ras-Beirut/3234
Mongolia
Ulan Bator 976-11 319-286 323-321 15 Seoul Street, 210644
Maldives
Male 960 333-00-82 333-00-79 Boduthakurufaanu Magu, Aagadhage Building, 20026
Moldova
Kishinev +373 69516780 Kishinev airport
The Netherlands
Amsterdam 31-20 625-40-49 625-91-61 1118BG Schiphol , Schiphol Boulevard 159
Norway
Oslo 47 648-104-10 648-184-12 Oslo Airport, Edvard Griegs veg 1, 2060 Gardermoen
United Arab Emirates
Dubai 971-4 222-22-45 222-77-71 PO box 1020,Al Maktoum Street, Al Mazroei Building, Office 101, Deira
Poland
Warsaw 48-22 628-17-10 628-25-57 Aleje Jerozolimskie 65/79, 00-697
Republic of Korea
Seoul 82-2 569-32-71 569-32-76 Room 207, «Shin-a» Building 50, 11gil, Seosomun-ro, Jung-gu
Romania
Bucharest 4-021 315-03-14 312-51-52 2-4, Gheorghe Manu Street, 010445 District 1
Serbia
Belgrade 381-11 328-60-71 328-60-83 30 Kneza Mihajlova, 11000
USA
Washington 202 499-59-29 1-866-535 5915 1101 17th St NW, Washington, DC 20036
Los Angeles 323 272-48-61 413-21-59 9100 Wilshire Blvd, 175, Beverly Hills, CA 90212
Miami 305 869-19-46 869-19-43 6450 NW 25th St, Miami, FL 33122
New York 212 944-52-00 944-23-00 358 5th Ave, 1103 New York, NY 10001
Thailand
Bangkok 662 134-2178 134-2179 Suvarnabhimi Airport, Concourse G, Room G2-085, 999 Moo 1 Nong Prue, BangPhli Samut Prakan, 10540
Turkey
Antalya 902-42 330-31-06 330-34-77 Antalya International Airport, Terminal-2, Z-196
Istanbul 90-212 296-67-25 296-67-37 Harbiye Mah., Cumhuriyet Cad N48 B, Sisli
Uzbekistan
Tashkent 998-71 120-05-55 120-05-57 73 Bobur Street, 100029
Ukraine
Dnepropetrovsk 38-056 239-57-74 239-57-85 Civil Aviation Airport, 49042
Kiev 38-044 369-55-55 245-48-81 112-A Saksaganskogo Street, 01032
Odessa 38-0482 39-33-03 39-33-04 Odessa International Airport
Kharkov 38-057 766-36-17 1 Romashkina Street, Airport, Kharkov, 61031
Finland
Helsinki 358-9 753-0273 753-0273 Terminaali 2, Helsinki –Vantaan,Lentoasemantie, 01530
France
Nice 33-4 932-14-482 932-14-544 Aeroport Nice Cote d’Azur,Rue Costes et Bellonte, Terminal 206281, Cedex 3
Paris 33 (0) 148-16-90-87 149-47-05-16 Le Dome — Batiment 4-4, rue de la Haye — 95731 Roissy CDG Cedex
Croatia
Zagreb 385-1 487-20-55 487-20-51 4 Hebranga Andrije, Stan 2, 10000
Czech Republic
Prague 420 227-020-020 227-020-111 Truhlarska 1109/5, 110 00 Praha 1 -Nove Mesto
Montenegro
Tivat 382 326-833-83 326-833-83 Tivat Airport
Switzerland
Geneve 41-22 798-24-30 738-83-12 15 Route de l’Aeroport-CP-7, CH-1215 Geneve 15, Suisse
Zurich 41-43 816-40-48 816-40-88 Terminal 2 CH-8060 Zurich Flughafen
Sweden
Stockholm 46-8 593-618-00 593-618-00 Box 19, 19045, Stockholm Arlanda Airport
Japan
Tokyo 81-3 553-287-81 553-288-21 Toranomon Kotohira Tower 16F, 1-2-8 Toranomon, Minato-ku, 105-0001

8.10 Contact
Information

Full name — Joint Stock Company “Aeroflot — Russian Airlines”
Short name — JSC Aeroflot
Certificate of inclusion in the Unified State Register of Legal
Entities — Issued by the Moscow Department of the Russian
Tax Ministry (No. 1027700092661 issued on 02 August 2002)
Taxpayer identification number — 7712040126
Location — 10 Arbat Str., Moscow, Russian Federation
Postal address — 10 Arbat Str., Moscow, 119002, Russian Federation

INVESTOR RELATIONS

For institutional investors
Tel./fax: +7 (495) 258-06-86
E-mail: ir@aeroflot.ru

For retail investors
Tel./fax: +7 (495) 258-06-84
E-mail: emitent@aeroflot.ru

PRESS SERVICE

Tel.: +7 (499) 500-73-87, (495) 752-90-71
Fax: +7 (495) 753-86-39
E-mail: presscentr@aeroflot.ru

Registrar

CJSC Computershare Registrator
License number: 10-000-1-00252
Location: Kutuzoff Tower Business Centre,
8 Ivan Franko Street, Moscow
Tel.: +7 (495) 926-81-60
Fax: +7 (495) 926-81-78
E-mail: info@nrcreg.ru

Sheremetyevo Branch of the Registrar:
Location: Aeroflot Aviation Personnel Training Department, Building 6, Terminal B, Sheremetyevo Airport, Khimki, Moscow Region
Tel.: +7 (495) 578-3680
Fax: +7 (495) 578-3680
Opening hours for share operations:
Monday-Thursday: 9:30 to 16:00, break from 13:00 to 13:30;
Friday: 9:30 to 14:30, without break

Aeroflot Bonus Program

Tel.: +7(495) 223-55-55
8-800-444-55-55 from Russian regions
Fax: +7 (495) 725-43-56
Opening hours: 24 hours.
www.aeroflotbonus.ru
E-mail: bonus@aeroflot.ru

Call centre

For air ticket booking and information:
+7 (495) 223-55-55, 8-800-444-55-55

Inquiries regarding tickets purchased over the Internet can be sent by e-mail to: callcenter@aeroflot.ru

NOTICE CONCERNING FORWARD-LOOKING STATEMENTS

In addition to factual data, this Annual Report also contains opinions, assumptions and forecasts by Company management based on currently available information. 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, etc., may cause actual performance by the Company in the future to differ from forecasts in this Annual Report