UPDATE 2: Sberbank, VTB Bank to invest $1 bln to set up interregional airline

(Adds paragraphs 8, 9, details in paragraph 3)

RIYADH/MOSCOW, Oct 23 (PRIME) -- Russia’s two biggest lenders Sberbank and VTB Bank plan to invest at least U.S. $1 billion to establish an airline for interregional transportation, VTB CEO Andrei Kostin told PRIME on Tuesday.

“It is hard to estimate the volume of investment that the project will need, but it will be no less than $1 billion,” he said.

The idea of an airline belongs to Sberbank CEO German Gref and has been actively supported by VTB, Kostin said and added that both banks will have 50% stakes in the new company.

“The point is that there almost no interregional air companies in Russia. You know that one often needs to get from one city to another via Moscow. So the idea is that banks with their large leasing companies could invest necessary money, buy planes and lease them to the operators. But it should be a public private partnership as the company will make loss without state subsidies.”

Kostin added that aviation experts are sure that the new company should buy foreign planes because many Russian airports are unable to serve domestically-made vehicles, but the decision has not been made yet.

The airline will be established from scratch or based on one of the existing carriers. National flagship carrier Aeroflot has declined to participate in the project, Kostin also said and added that VTB and Sberbank do not plan to invite other banks for participation.

Aeroflot CEO Vitaly Savelyev said that the company in uninterested in small aircraft aviation as it does not correspond with the business model.

CEO of UTair Passenger Airlines Pavel Permyakov said that his company is ready to offer expert assistance in the establishment of a new aviation company as it has a good track record of interregional passenger transportation.

Transport Minister Yevgeny Ditrikh said that the ministry will support the idea as rising competition on the market will reduce ticket prices.

Earlier in October, a source familiar with the matter said that the two banks are developing a business plan to create the airline and want to finish the work until the end of 2018.

End