Financial report / Letter from the Deputy CEO for Commerce and Finance

Aeroflot Group pursued its efforts to realize the huge potential offered by the Russian air transport market and showed stable financial results in 2012, despite changes to industry regulation and high volatility of prices for aircraft fuel.

Expansion of operations and increase of passenger carrying due to new airline acquisitions led to major increase of Aeroflot Group revenue to USD 8,138 million in 2012 (51% more than in 2011).

Tight control and optimization of costs led to per unit reduction of many cost items in 2012 compared with 2011. Unit costs per passenger-kilometer were 3.7% lower than in 2011 thanks to increase in the number of airport and passenger service tasks, which Aeroflot carried out using its own capacities at Sheremetyevo Airport. However, expansion of JSC Aeroflot operations and consolidation of new airline assets led to substantial increase in staff costs and aircraft fuel costs, and the Company spent substantial amounts on advertising to defend and increase its market share in the face of tough competition from both Russian and western airlines.

Aeroflot Group reduced per-unit fuel consumption by 4% in the reporting period thanks to fuel-saving measures and more efficient use of its aircraft fleet.

The Company continued to invest in its development during 2012, applying state-of-the-art technologies and achieving even higher standards of passenger service. Aeroflot also launched a large-scale programme for reorganization of management processes, fleet modernization and new service technologies at subsidiary and affiliate airlines. Cash attributable to acquisition of tangible and intangible assets amounted to USD 167.1 million, which is 30.3% more than in 2011. The largest investment spending items were operations, passenger services, fleet modernization, acquisition of exclusive rights to trademarks and IT development.

The Company maintained comfortable debt leverage. Total debt of Aeroflot Group grew by 14% to USD 2,622 million in 2012 and Debt/EBITDA ratio was 3.9. The growth was due to increase of finance lease sums, reflecting new aircraft deliveries. Group debt without this item was 8% lower in 2012 than in 2011.

Aeroflot’s ambitious development strategy means that the Company’s financial managers will face major challenges maintaining the financial strength of Russia’s leading airline in the future. Meeting these challenges successfully will depend on prudent and efficient financial management and the use of a broad range of financial instruments. The high quality of our management, reliable procedures, control and coordination of financial activities make us optimistic about future development of Aeroflot’s financials in the medium and long term.

Deputy CEO for
Commerce and Finance
Sh. R. Kurmashov

Sh. R. Kurmashov