Russia's Aeroflot set to buy competitor Transaero

Russia's flagship airline Aeroflot is going to make an offer to buy its struggling competitor Transaero, a source close to the government told AFP on Tuesday.

The decision to make an offer for 75 percent of the capital of Transaero was taken at a meeting led by First Deputy Prime Minister Igor Shuvalov and must now be finalised by the board of the state-owned Aeroflot, the source said.

Aeroflot declined to comment to AFP.

Russian news agency Interfax reported that Aeroflot was planning to acquire Transaero for the symbolic price of one ruble (one US or euro cent), citing a source present at the talks with Shuvalov.

Transaero, which began operating in 1991, is the second-largest Russian airline and the country's largest privately-owned carrier. In the first half of 2015, it carried 5.7 million passengers compared to 10.9 million who flew on Aeroflot.

Transaero has incurred massive debts in recent years as it modernised its fleet and was threatened with bankruptcy. It has no choice but to accept Aeroflot's offer in order to survive, wrote the Vedomosti business daily.

With a fleet of 106 planes, Transaero serves domestic destinations, most of European capitals as well as long-haul destinations popular with Russian holidaymakers such as Thailand. It has particularly suffered as Russians have tightened their belts in the economic crisis and has been hit with serious financial losses in recent months.

The falling spending power of Russians has hit international carriers and pushed them to reduce their margins and to sell cut-price tickets to fill planes.

The ruble's plunge in value has also increased costs linked to the dollar, such as rental and maintenance of aircraft as well as paying back dollar-denominated loans.