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Procurement

Procurement activities at Aeroflot Group comply with Federal Law No. 223-FZ On Procurement of Goods, Works, and Services by Certain Legal Entities dated 18 July 2011, PJSC Aeroflot’s Regulations on Procurement of Goods, Works, and Services, relevant policies of Aeroflot’s subsidiaries, and other procurementrelated regulations adopted by the Russian Government. Procurement needs of subsidiaries are met both through a consolidated procurement process by Aeroflot, and individual subsidiary procedures

Procurement transparency, no discrimination and unreasonable restrictions, and ability to procure from a wide pool of quality bidders are top priorities for the Group in its strive to maximise procurement efficiency and reduce costs.

The procurement process in Aeroflot and its subsidiaries is organised in line with the best practices, including online bidding. In 2016, the value of Aeroflot’s competitive procurements in electronic format accounted for 56.36% (50.45% in 2015) of the total, in line with the requirements of the Federal Agency for State Property Management (Instruction No. GN-13/1206 dated 21 January 2011). For Aeroflot Group, this share totalled 56.31%.

Each bidding procedure averaged at 3.3 bids (+1.1 y-o-y) from potential contractors. This testifies to complete transparency and competitive nature of Aeroflot’s procurement process, and a growing interest of potential suppliers.

In 2016, competitive procurements saved RUB 1,732 million for Aeroflot and RUB 2,186 million for the Group.

Item Aeroflot Aeroflot Group
Competitive procurements in electronic format (by value) 56.36% 56.31%
Single source procurements 63.91% 53.44%
Procurements from SMEs 64.96% 59.27%
Average number of bidders 3.30 2.36
Savings through competitive procurements, RUB million 1,732 2,186
Savings through competitive procurement, % 1.25% 0.82%

Fuel Procurement

In 2016, all fuel supply contracts were signed by Aeroflot based on results of bidding processes won by tenderers who could offer the best financial terms and guarantee required reliability, including flight safety assurance.

Transparent competitive procedures and formulabased pricing optimise fuel costs, which has always been a major expense item for the Company. Fuel pricing formulas are devised in the bidding process. In 2016, the share of fuel procured by Aeroflot Group at formula-based prices in Russia reached 90%.

Pursuant to the order of the Deputy Prime Minister and paragraph 3 of Meeting Minutes No. IS-P9-25pr dated 21 November 2011, Aeroflot focuses on direct cooperation with vertically integrated oil producers through contracts with their subsidiaries specialising in aircraft fuel sales to avoid an unjustified rise in fuel prices or an artificial supply shortage.

At the Group level, fuel procurement terms are determined by agency agreements. When making a consolidated order covering the demand of all the Group’s companies, Aeroflot initiates bidding processes to select suppliers of fuel and related aircraft services.

Aeroflot settles accounts for supplied fuel and aircraft storage and refuelling directly with counterparties, and supervises separate accounting for transactions with consignees, which allows to promptly charge controlled entities for the costs incurred.

These arrangements cover virtually the entire fuel needs of subsidiary airlines, excluding a small number of Russian airports (less than 3%), which are not contracted or alternate airports, as well as airports where fuel procurement is part of integrated ground handling agreements.

Optimisation of fuel procurement at Aeroflot is supervised by the Fuel Commission.

Procurement from Small and Medium-Sized Enterprises

In 2016, Company’s initiatives to support small business substantially increased supplies from small and medium-sized enterprises (SMEs). The number of contracts concluded by Aeroflot with SMEs increased by 85.4% y-o-y, or more than fourfold by value. Aeroflot’s procurements from SMEs accounted for 64.96% of the Company’s procurement volume. For Aeroflot Group, this share was 59.27%.

According to Resolution of the Russian Government No. 1352 dated 11 December 2014, annual procurements from SMEs shall not be less than 18% of the aggregate annual volume of contracts concluded by customers as a result of the procurement process. Procurement data both for Aeroflot and the entire Group for 2016 reflect Aeroflot’s focus on SMEs as priority suppliers (subject to specific business profiles).

In 2016, Aeroflot signed an agreement with JSC RSMB Corporation promoting cooperation of the parties to ensure access for SMEs to procurements of goods, works, and services. A representative of JSC RSMB Corporation is a member of the Advisory Board in charge of independent audit of Aeroflot’s procurement efficiency.

In the reporting year, the Company implemented a number of initiatives to ensure accurate reporting on procurements from SMEs, including optimisation of the list of procurement codes, updating SAP data to verify counterparties’ SME status, in line with the Unified Register of Small and Medium-Sized Business Entities effective from 1 August 2016.

The Group is committed to continue supporting SMEs by facilitating their access to corporate tenders, in accordance with the specifics of SME participation in procurements and the specifics of civil aviation.

Advisory Board in Charge of Independent Audit of Procurement Efficiency

In its pursuit of procurement transparency, Aeroflot has in place the Advisory Board in charge of independent audit of procurement efficiency. The Advisory Board includes representatives of public organisations, academic and industry scientists, and well-known procurement experts.

The Advisory Board:

  • is responsible for auditing Aeroflot’s procurement operations;
  • monitors implementation by Aeroflot of measures enhancing access of small and medium-sized businesses to corporate tenders;
  • improves efficiency of applied advanced technologies, ensures transparency, and enhances fair competition in Aeroflot’s procurement processes.

The Advisory Board operates under an action plan approved for each calendar year. Proceedings of the Advisory Board are published on Aeroflot’s website at: http://www.aeroflot.ru/cms/content/ soveshchatelnyi-organ.