Russia’s national airline is revoking air miles from those who criticize its CEO

The Bell

Hello! Find out this week why venting on Twitter about your delayed Aeroflot flight may not be such a good idea, and what this tells us about the country’s national airline. Also read about the growing fears for the Russian auto industry after the arrest of Nissan-Renault boss Carlos Ghosn, what liberal bellwether Aleksei Kudrin is getting up to at the Audit Chamber, the Kremlin’s invitation for Facebook and why the risks for the authorities as they ban more and more concerts by young — and very popular — music stars.

Aeroflot head Vitaly Savelyev’s sensitivity got the company into hot water this week

Aeroflot head Vitaly Savelyev’s sensitivity got the company into hot water this week. Photo credit: TASS.

What happened

Aeroflot, Russia’s national carrier, fell victim this week to its chief executive’s obsession with his own image. A scandal erupted when the head of a well known charity criticized chief executive Vitaly Savelyev on Twitter and the company responded by cancelling his platinum miles card.

  • Savelyev’s penchant for strange ideas is obviously the reason for this scandal. On November 15, charity head Mitya Aleshkovsky published a document on Twitter that outlined new rules for Aeroflot staff (the company confirmed its authenticity). According to the document, Aeroflot employees are barred from using smartphones in the company’s offices (so they can’t make unauthorized videos). On Twitter, Aleshkovsky said Savelyev had “lost his mind.” Three days later, Aleshkovsky discovered his and his wife’s platinum Aeroflot cards had been cancelled. It turns out the airline recently introduced a rule that clients can be stripped of their bonus miles for online. “People who are insulting on social media should understand they have to be held accountable,” Savelyev said when asked about the decision.  
  • Leading Aeroflot is a key role. Historically, the airline was not just the bridge connecting Russia with the West, but also a cover for Russian intelligence — and former employees of the company have told The Bell that the company is still closely tied to the security services. Until 2009, the company was led by the son-in-law of Russia’s former president, Boris Yeltsin and his successor, Savelyev, has known Putin since the mid 1990s. Private airlines have a hard time in Russia and after each bankruptcy Aeroflot picks up the best routes. Since 2014, its market share has grown from 37% to 47%.
  • Perhaps ironically, Savelyev differs from other top state executives in his infatuation with PR. The Bell’s sources suggest that Aeroflot’s annual budget to promote positive coverage in the media and on social media is no less than $15 million and the company recently spent $1 million on a system to monitor social media.
  • However, the huge PR budget doesn’t protect the company from periodic scandals like this one. Aeroflot is in constant conflict with the pilots’ union and last year was embroiled in court battles after it transferred overweight flight attendants to domestic routes.

Why the world should care

This tale of a tyrant chief executive with his own litany of strange rules is unusual even for a Russian state-owned company. So, if you fly with Aeroflot don’t forget: the company’s $2 million annual budget for monitoring social media means your posts won’t go unnoticed.

‘Mckinsey for the Kremlin’: can Kudrin turn a toothless agency into a force for change?

What happened

The country’s leading liberal economist, Aleksei Kudrin, has now been in his new government role for half a year. Since May, he has been in charge of the Audit Chamber, a second tier agency he wants to transform into a “consultancy like McKinsey, only with access to government secrets,” according to one senior official. The Bell looked into Kudrin’s new team and assessed whether he has any chance of success.  

  • In 2011, when Kudrin resigned as minister of finance, Putin made a point of calling him a “close friend” and a “useful person” — and it is well known that Putin got his first job in Moscow thanks to Kudrin. Despite this, Kudrin often criticizes the government and has occasionally participated in opposition protests. After the 2018 election, there were reports Kudrin would return to top tier Kremlin politics, but, instead, he was named head of the Audit Chamber – not what he had expected, sources told (Rus) The Bell.
  • In October, Kudrin spoke out for this first time since his appointment, strongly criticizing the proposed budget. Now, the question is whether the Audit Chamber can go further and become not just a critical voice, but a driver of real change. “The department’s influence is measured by its ability to go directly to the president and Kudrin has this ability,” a source in the presidential administration told The Bell.
  • This month, Kudrin finished building his new team. The position of Audit Chamber auditor confers significant formal authority and, in terms of status, auditors are comparable to government ministers. Among the new auditors are Kudrin’s former deputy from the ministry of finance and colleagues of Kudrin’s liberal colleagues. But there are also some unexpected faces: for example, former governor Svetlana Orlova, who was one of the losers in the Kremlin’s regional elections crisis earlier this year.

Why the world should care

Business news agency Bloomberg calls Kudrin the “investor favorite” and what he is up to is often seen as a key indicator of how the winds are blowing in the Kremlin. Several people on his new team have experience in anti-crisis management dating back to 2008. The government might soon need these people, the question is whether it is prepared to listen.

The downfall of Renault-Nissan boss sparks fears for the future of Russia’s auto industry

What happened

The arrest of Carlos Ghosn, the legendary head of Renault-Nissan-Mitsubishi Motors group is likely bad news for Russia. Ghosn was the visionary behind Renault-Nissan’s purchase of 75% of Russia’s largest carmaker, AvtoVAZ, a deal which saved the company from bankruptcy and the city where AvtoVAZ has its giant factory from a social disaster.   

  • Carlos Ghosn’s vision as head of Renault-Nissan in the mid 2000s was to conquer emerging markets with the help of inexpensive cars. This strategy led to the alliance to Russia, where, just before the 2008 global financial crisis, the alliance agreed to purchase a stake in AvtoVAZ, Russia’s largest auto manufacturer.
  • AvtoVAZ is both a cult brand and a symbol of the poor quality of Russian-made cars. Its enormous factory in the Volga city of Tolyatti was built at the end of the 1960s, funded by a contract with Italy’s Fiat. Production went into freefall in the 1990s as criminals took control and during the economic boom of the early 2000s AvtoVAZ was on the verge of bankruptcy because people had enough money to buy imported cars. The failure of AvtoVAZ — a terrifying prospect for the Kremlin — would have cost Russia its only domestic car producer and made tens of thousands unemployed. Putin’s government made huge efforts to attract Western investors and was eventually able to agree a deal with Ghosn.
  • But the deal wasn’t that profitable: the 2008 crisis destroyed the Russian auto market and the Russian government and Renault-Nissan had to spend tens of billions of dollars supporting AvtoVAZ. But the partnership allowed the company to relaunch its huge production line and it began to produce better quality — but still inexpensive — models. In 2017, AvtoVAZ at last turned a profit, winning 20% of the domestic market. “Car producers who believe that Russia has no future have already left,” Ghosn said in 2016, a dig at General Motors, which quit the Russian market. Now Ghosn’s arrest means the fate of AvtoVAZ is, once again, in question.

Why the world should care

No Western institutional investor has ever taken as many risks in Russia as Renault-Nissan under Ghosn. If his departure means the alliance re-evaluates those risks, it would be a huge signal for Western companies, similar to a downgrade from the rating agencies.

Officials suggest Facebook might like to open an office in Russia

What happened

The Kremlin’s pointman on the internet, former prime minister Sergei Kiriyenko, had his first meeting with top managers from the big internet companies this week. During a session at Russian Internet Week, Kiriyenko complained the state doesn’t have enough IT specialists and that foreign companies don’t follow Russian law. But in a closed meeting, The Bell learnt that Kiriyenko asked Facebook representatives in the audience to open an office in Russia.

  • “In Russia, there are laws, and the government expects global leaders to adhere to these laws when they have a local office,” Kiriyenko said, a source told The Bell, adding that it sounded like “scare tactics.” If the Russian market is important and valuable for a company, that company should open an office in Russia, Kiriyenko continued.
  • A representative of Facebook replied that things were not as simple, a participant in the meeting told The Bell. Currently, Facebook’s Russian and Eastern European operations are managed from its Warsaw office and Roskomnadzor, the Russian agency which controls the internet, is very unhappy about this. The government has the same problem with Google, whose Russian office only does marketing.
  • Roskomnadzor’s main complaint against Facebook and Google is that they don’t hold the personal data of Russians inside Russia (Linkedin was blocked for this reason).
  • Another reason for the government’s displeasure is that the internet companies don’t comply with Russian law for messenger apps that mean data can be handed over to security services. There is no guarantee that this pressure on Facebook would disappear if the company were to open an office, Kiriyenko apparently admitted in the meeting. Facebook didn’t respond to a request for comment.  

Why the world should care

Kiriyenko was likely talking not just to Facebook, but to other foreign companies as well. Having an office in Russia would allow the authorities to keep a closer eye on these U.S. tech giants.

Popular Russian music stars are having their concerts pulled, alienating young people

What happened

Recent weeks have seen a series of young, popular musicians hit by enforced concert cancellations at the last minute, a phenomenon reminiscent of Soviet times. These performers are a force to be reckoned with; their music videos draw millions of views on YouTube and their concerts can generate as much as $100,000.

  • The existence of quality, Russian-made music for young people is a relatively new trend. For the past 10 to 15 years, teenagers have mostly listened to foreign musicians. All the banned performers are about 20 years old, and one of the affected artists has a music video that has been watched 170 million times. Their popularity, combined with political commentary woven into their lyrics, makes the government nervous. This is even clearer when you realize these performers’ target audience: young people who have been very prominent in recent anti-Kremlin protests.
  • In Nizhny Novgorod, the authorities cancelled five concerts last month, allegedly because of obscenities and the propaganda of narcotics and debauchery. Among those banned was Jah Khalib (he performs lyrical songs and his most popular video has almost 100,000 views) and Monetochka, a young singer whose ironic lyrics are adored not just by teenagers. Critics named Monetochka’s album “best pop album of the year” (her videos have 4 to 6 million views on YouTube). The group Friendzone (one of their videos has over 7 million views and they sing mostly about teenage problems) was banned from performing in the Siberian cities of Krasnoyarsk and Kemerovo. And in the southern Russian city of Krasnodar this week, there was even an arrest when rapper Husky performed in the street after his concert was banned at the last minute. Husky was sentenced to 12 days of jail time. In court, he said he didn’t have a choice: he felt responsible “in front of the fans who bought tickets” and “had to speak with them.”
  • While the earnings of these musicians are not comparable with their counterparts in the West, cancelled concerts mean losing money. Husky’s manager, Andrey Orekhov, said the rap star had lost “quite a bit” from cancellations. Tickets for Husky’s Moscow concerts sell for around 1000 rubles, and there are up to 7,000 places in the venue, said a member of Husky’s entourage. In other words, Husky can bring in more than $100,000 with one concert. Monetochka earns up to $21,400 per concert, according to her manager Stanislav Durnev but the singer charges $34,000 for a corporate event, according to concert agency Rocket Booking. Jah Khalib has said (Rus) he earns $36,000 per concert in Moscow.

Why the world should care

Russian society is living through a generational shift. Until now, the government has been quite successful in raising young people loyal to the regime. But the recent concert bans and protests suggest that a serious confrontation could be around the corner.

Peter Mironenko

Anastasia Stognei contributed to this newsletter. Translation by Tanja Maier, editing by Howard Amos.

This newsletter is supported by the Investigative Reporting Program at UC Berkeley


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