by Dmitry Zaks
MOSCOW, July 29 (AFP) - Russia gave initial approval Thursday for the privatization of its flagship air carrier Aeroflot in a bid to revive a Soviet-era icon known for its surly service and rickety planes.
Aeroflot immediately denounced the decision and said Russia must keep it safely in state hands rather than face the threat that what was once the world's largest airline could fall into foreign ownership.
The Aeroflot decision came at a cabinet meeting that drafted a list of state-controlled companies to be sold off to help budget coffers between the years 2005 and 2007.
The government plans to sell a part or all of its 51.2 percent stake in Aeroflot before 2007 and possibly this year.
Russia's Economy, Trade and Development Minister German Gref said a final decision on Aeroflot's sale would be reached by October 1.
"We have to privatize Aeroflot in order to improve its management's effectiveness and competitiveness," Gref said.
The former Soviet monolith has been partially broken since communism's collapse into smaller companies known as "baby flots."
But it still dominates international travel and remains the largest carrier within Russia.
Aeroflot has tried to revise its image in recent years by purchasing Western craft for long-haul flights and launching a series of public relations campaigns.
One -- dreamt up in the mid-1990s and aimed at mocking its poor Soviet-era global image -- featured an elephant taking off into the skies by flapping its ears.
In May, Aeroflot announced it had decided to try to join the Skyteam alliance led by Air France. The group also includes the US airline Delta Airlines, AeroMexico, Alitalia, CSA Czech Airlines and Korean Air.
Aeroflot made net profit of 126.7 million dollars (105 million euros) in 2003 -- up 54 percent from 2002. It transported 5.9 million passengers last year.
But company officials said they wanted the state to keep control because they feared that Aeroflot would be sold on the cheap to a foreigner.
"I do not think that this is a very timely decision," said the company's Director General Valery Okulov.
"The company is currently undervalued. If it is privatized now, it may be valued at just 300 million dollars," Irina Dannenberg, the top company spokeswoman, separately told the RIA Novosti news agency.
"This stake could fall in the hands of our foreign competitors, and then the state will lose its own national carrier," she said.
But analysts said this option seemed unlikely.
"I am not sure that foreigners will be allowed to bid on Aeroflot," said Scott Semet, chief analyst at Moscow's MDM Bank.
He said the government was now swimming in petrodollars and did not really need quick massive profits from Aeroflot's privatization and thus would be careful about who won control of the business.
"Aeroflot is a strategically important company for Russia," said Renaissance Capital industry analyst Natalia Zagvozdina, agreeing the sale would be local.
The Russian carrier -- which was launched in 1923 and which weathered fairly well the slump in the global aviation industry after the September 11, 2001 attacks and the Iraq war -- flies to 103 destinations in 54 countries.
It has a fleet of 92 planes.