OAO Aeroflot’s share price down, suspends flights of its low-cost subsidiary due to EU sanctions

Russia-based OAO Aeroflot made an e-mailed statement yesterday, saying that it suspended the flights of its low-cost division because of some sanctions, which were imposed to the company by the European Union as punishment over the crisis in Ukraine.

According to the statement of OAO Aeroflot, which is a state-run flag carrier, servicing, insurance and leasing contracts with its Dobrolet division were annulled by some European companies. Aeroflot said in its statement, which was cited by Bloomberg that due to “unprecedented pressure on Dobrolet from European counterparties, the carrier is obliged to stop flights and selling tickets”.

The sanctions imposed by the European Union as a response to the crisis in Ukraine forced the Russian company to ground its new low-cost unit. As a result to the annulment of the contracts, Dobrolet is to suspend all flights temporarily. This step of the company is taken less than a week after its division was added to the black list of Brussels.

The European Union made an official statement on July 30th, revealing that Dobrolet had facilitated the flights between Moscow and Simferopol, the capital of the Crimean region. The European Union said in the statement, which was cited by the Financial Times: “It therefore facilitates the integration of the illegally annexed Autonomous Republic of Crimea into the Russian Federation and undermines Ukrainian sovereignty and territorial integrity.”

The Chief Executive Officer of OAO Aeroflot – Mr. Vitaly Savelyev revealed in October 2013 that the unit will be the low-cost subsidiary of the Russia-based company and it is expected to cost about 100 million dollars over two years. The subsidiary started flights this year. Now, the case of the division becomes a proof of the targeted measures damage, which can be literally smashing for individual companies.

However, the measures taken by the European Union against several Russian banks and energy companies are also expected to have a massive negative impact on the entire economy of the country in the longer term.

OAO Aeroflot lost 0.59% to trade at 49.24 Russian rubles per share by 14:08 GMT, marking a one year change of -10.27%.