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Aeroflot subsidiary grounded by European sanctions

European sanctions have forced Aeroflot to ground its new low-cost subsidiary Dobrolet, Russia's national carrier said on Sunday in the most direct fallout yet of the EU's punitive measures against Russia over the Ukraine crisis.

Dobrolet will temporarily suspend all flights from Monday after European counterparties annulled aircraft insurance agreements, stopped providing aeronautical information and have refused to fulfil leasing, repair and maintenance agreements, Aeroflot said.

The move comes less than a week after Brussels added Dobrolet to its list that EU persons and entities are prohibited from doing business with.

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The EU said on July 30 that as a subsidiary of a Russian state-owned airline, Dobrolet had exclusively operated flights between Moscow and Simferopol since Russia's annexation of Crimea. "It therefore facilitates the integration of the illegally annexed Autonomous Republic of Crimea into the Russian Federation and undermines Ukrainian sovereignty and territorial integrity," the EU said.

The Russian government, business leaders and economists have during the past two weeks focused on the introduction of broader sanctions against Russia by both the US and the EU.

Those measures, which prohibit a number of Russian banks and energy companies to sell new bonds or equity with a maturity longer than 90 days in either US or European capital markets, are expected to have a bigger affect on the Russian economy in the longer term than the targeted measures with which the sanctions started.

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However, Dobrolet's case shows that the damage from targeted measures to individual companies can be devastating.

Aeroflot, a member of the SkyTeam Alliance, had set up Dobrolet, Russia's first national low-cost carrier, in October 2013 and only started flights this year.

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Aeroflot said Dobrolet flights would be operated by Orenburg Air, another Aeroflot affiliate, to Simferopol until August 20 and to Volgograd until mid-September.

Passengers booked on Dobrolet flights to other Russian destinations would receive a full refund.

Aeroflot did not give details on which companies had suspended maintenance and other services and cancelled insurance contracts.

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The Crimean tourism sector is struggling as Ukrainians – once one of its main sources of arrivals – stay away following the territory's annexation by Russia.

In order to prop up the industry, the Russian government subsidises air traffic from Russian cities to Crimea.

Aeroflot, Transaero, which is Russia's largest privately owned airline, and a number of smaller Russian airlines all operate flights to Simferopol.

Gennady Timchenko, a Russian billionaire close to Russian President Vladimir Putin who was among the first to be targeted with US sanctions, is also having trouble using his private jet because of the restrictions, according to Itar-Tass.

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In an exclusive interview with the Russian news agency, Mr Timchenko said Gulfstream had withdrawn technical support for the aircraft, therefore suspending his flights.

Mr Timchenko was quoted as saying that the US company was prohibited from having contacts with him. "They cannot discuss either future supplies of already ordered jets or the operation of this one."

Mr Timchenko was quoted as saying the sanctions had added some inconveniences to his life. "The way sanctions work sometimes border on the ridiculous," Itar-Tass quoted Mr Timchenko saying.

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