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Chairman`s Statement

Dear Shareholders,

In 2016 Aeroflot once again convincingly proved its place as the flagship Russian airline and a strategically important company in the Russian aviation sector. To a great extent, our airline forms the architecture of our industry, bringing it dynamism and stability, both of which are especially important in challenging times for the economy.

In the period from 2009 to 2016 Aeroflot Group’s passenger volumes have quadrupled, passenger load factor has grown by 11.3 percentage points and revenue has risen nearly fivefold. Meanwhile, industry experts have recognized the achievements of the management team led by Aeroflot’s Chief Executive Officer Vitaly Saveliev. As the Centre for Aviation (CAPA) has highlighted, thanks to the efforts of top management, the Group’s structure has changed beyond recognition, transforming from a model of non-integrated subsidiary airlines into a streamlined, results-oriented multi-brand strategy focused on different market segments.

Aeroflot carries out a number of multifaceted duties in its role as a national carrier. Last year, the airline did much more than simply deliver profitable growth. By staying commercially successful, Russia’s leading air carrier continued to effectively execute tasks of State importance, which were extremely meaningful for the socio-economic development of the country and strengthening of its position in the world in a challenging geopolitical environment.

We have made noticeable progress in our key strategic initiative to improve access to air transportation and increase overall mobility of the Russian population. Aeroflot has made a unique contribution to the improvement of transportation links between the remote regions and central part of Russia. The Company has extended its flat tariff programme through 2017-2018, while at the same time expanding it to include the Moscow-Magadan-Moscow route. Aeroflot’s budget airline Pobeda offers unprecedented low rates, which makes travel possible even for individuals on low incomes. Twelve percent of Pobeda’s passengers are using the airline for their first ever flight. Additionally, every year during Victory Day celebrations Aeroflot carries out a broad programme of free flights for veterans.

Today, having completed its integration, Aeroflot Group sets the standard for the Russian air transportation industry, leading by example in best business practices, innovative decisions and implementation of advanced corporate standards while remaining a socially responsibly company.

Impressive progress has been made in implementing the steps laid out in the roadmap for enhancing corporate governance at Aeroflot. A large part of the sections and key principles of the Corporate Governance Code has already been implemented. Aeroflot Group has also updated the section of its Risk Management Policy related to preventing and countering corruption.

Another noteworthy trend is that Aeroflot has significantly strengthened its role in formulating government policy as it relates to civil aviation. At the initiative of our Company, a number of legislative changes were introduced to benefit the entire industry, and in particular low-cost travel. Among the most important developments was the introduction of non-refundable tariffs. Now, the process of adopting stricter legal measures in relation to rowdy passengers is no longer at a standstill. This is important as such passengers present a serious nuisance to the airline and a real threat to flight safety. Aeroflot has been successful in improving the organisation of air travel and ground infrastructure, and remains in continuous dialogue with its home airport Sheremetevo on such matters.

Aeroflot is strategically important for Russia not only as its largest air carrier, but also in that it is the main consumer of innovative products produced by the domestic aviation industry. Furthermore, with the aim of supporting and improving the State preparatory system for flight personnel, we maintain direct contact with civil flight schools. In 2016, our Company signed an agreement with the Krasnokutsk Flight School to place its top graduates in jobs within Aeroflot.

Our efforts are met with understanding and constructive responses from government leaders. This is evidenced by the two in-depth meetings that were held in 2016 between Aeroflot’s CEO and Russian President Vladimir Putin.

In 2017, we see signs that the Russian aviation industry has passed the low point of the crisis. The prospects of a recovery in growth are evident thanks to the revived economy, the development of domestic tourism and the revival of some popular foreign tourist destinations.

The economic environment is becoming more favourable, but it would be wrong to take this as a guarantee of automatic success. There is a window of opportunity before us and we must act efficiently and without delay to make the most of it.

I am confident that these opportunities will not be missed. The foundation of this belief that these opportunities will be capitalised on is our track record of team work, creative approach to business, close interaction with the State, as well as our success in 2016.

I expect Aeroflot this year to make significant progress toward our goal of strengthening our status as one of the largest global airlines, boosting our importance as a strategic asset for Russia and reaching new heights in the interests of our shareholders and for the good of our great country.

Kirill Androsov
Chairman of the Board of Directors PJSC Aeroflot