Air Transport 1991-2000
The development of domestic aviation in the last ten years has been defined by two basic factors: near-total isolation from the world market and a substantial surplus compared to demand within Russia itself. The country's aircraft fleet consists of 6540 airplanes and helicopters, 70% of which are in a state of disrepair, although no one is particularly worried about this. In spite of the official existence of thousands of airlines, the first ten of them account for up to 80% of air transport. Sixty-nine percent of air transport operations are carried out on the domestic market (in 1990, this figure was 90%), and 47% of flights in general and 80% of flights abroad are made from Moscow airports. On average, a Russian citizen flies once every four years, which puts Russia in one of the last places in Europe according to this indicator.
The only dynamically growing segment of the market is charter flights abroad, which are growing by 20-30% per year; however, this is more likely due to the rapid growth of the tourist market than to the merits of aviators. Overall, the drop in air transport in Russia, which went on for ten years, only ended in 2001.
Today, the country's aviation industry is virtually paralyzed, existing mainly by repairing airplanes and producing parts for them. When the demand for air transport will grow enough to support the aviation business, or at least ensure stability, no one can tell.
HISTORY: 1991-2000
Over the past ten years, air transport as an industry has seemingly changed beyond recognition: the Soviet Aeroflot has disappeared, a multitude of new companies have been formed, and carriers have started competing. However, in reality, only outward changes have occurred. As before, managers of the old structure, for whom transport operations were not a business but rather a fulfillment of technical functions, set the tone at airlines. Investors have not become involved in airlines, the state is still the largest owner, and serious redistribution of property has still not started. Nevertheless, there are a lot of intriguing pages even in the unfinished history of the aviation industry under capitalism.
1991
British Airways, Aeroflot's international business office, the Domodedovo Production Association (PA), and the Russian Foundation for Innovation announced the creation of the airline Air Russia, which was supposed to fly with Boeing 757s and 767s. Two years later, Air Russia obtained an operator's permit at the Air Transport Department of the Ministry of Transport and planned to begin flights in July 1993. The project failed for lack of funding and disagreements among the partners.
In April, the government issued a decree on an interim increase in ruble prices for tickets. It was followed by transition to open prices for air transport.
On September 17, the air cargo company Volga-Dnepr signed an agreement with the major British cargo carrier HeavyLift on the creation of the joint venture HeavyLift-Volga-Dnepr. HeavyLift became the agent for Volga-Dnepr, which specialized in transporting custom cargoes ( e.g., oil and gas equipment) on An-124-100 Ruslan heavy transport planes. This was the first and only case of the creation of a successful joint aviation venture in Russia. Within nine years, it came to controll more than 50% of the world market in the transport of oversized loads.
1992
In July, the staff of Aeroflot filed an application to privatize the company. It was allowed only in 1995.
Toward the end of the year, the unified flight schedule for civilian airlines was virtually eliminated. In its place, airlines used so-called "noodles"-photocopied information on the flights of 223 operating air carriers. Passengers, who had very limited access to the noodles, simply had no way of knowing how to fly or with whom. Companies finally received the right to set their prices independently, and prices promptly increased by 10-45%. The outflow of passengers was more than three million.
1993
In summer 1993, the Vnukovo airline company founded the joint-stock company (AO) Vnukovo Airlines on the basis of its flight crew and maintenance base.
In July, the Ministry of Energy obliged suppliers to provide civilian aircraft with a volume of jet fuel no less than 70% of the previous year's deliveries at state prices. The remainder would be bought up at market prices. By September, for the first time in Russian history, domestic prices for aviation fuel reached world levels.
1994
In January, at a meeting of the executive directorate of the largest domestic airline, Aeroflot, a decision was made to begin negotiations with Boeing on leasing four new Boeing 767-300ER airliners to replace Soviet aircraft on routes where it was unprofitable to operate them. This marked the start of an ongoing conflict between the Russian aircraft industry and a Russian company that within several years brought the number of imported airplanes in its fleet up to 25%, which handled half of the company's traffic.
March witnessed, the first air disaster involving a foreign airplane flying under the Aeroflot flag. An A-310-300 crashed near Mezhdurechensk. Foreign public opinion was unanimous: it was dangerous to fly in Russia. Aeroflot received the text of the official statement from the US Federal Aviation Administration (FAA) only on May 6. The FAA experts considered flights in Russia to be safe.
In April, the government issued the resolution "On the Confirmation of the Charter of Joint-Stock Company Aeroflot-Russian International Airlines." The document gave Aeroflot the right to represent the country's interests on the world air transport market. According to the Charter, individual state companies, Sheremetevo international airport, and the airline company Moscow Airlines (which went broke within a few years) would be separated from Aeroflot.
In June, the All-Russian Coordination Center announced a check auction of Vnukovo Airlines. Twenty-nine percent of the company's charter capital was put up for auction, and the remaining 41.4% unallotted shares were to be put out to investment tender.
On August 1, the Air Transport Department of the Ministry of Transport began to conduct a tender for carrying out international operations that was open to Russian airlines of all forms of ownership.
September saw the opening of the Transport Clearing House (TCH). It had been established at the end of June by Aeroflot Bank, the Air Transport Department, the Central Air Communications Agency, the Central Civil Aviation Computing Center, airline companies, Sheremetevo airport, and the international ticket reservation company Siren. The plan to create the clearing house met with opposition from some Moscow banks, since it made provision for the transfer of the accounts of all participating organizations to one bank-AKB Aeroflot (Aeroflot Incorporated Bank).
In December, Aeroflot received an official order from vice-premier of the Russian government and chairman of the Russian State Committee for the Management of State Property (GKI) Vladimir Polevanov that reversed a previous GKI decision to transfer part of Aeroflot's fleet to its subsidiary companies. Thus ended the two-year-old dispute over partitioning Aeroflot into separate airlines, i.e., Russian Airlines, Russian Hero, Gold Star, and Moscow Airlines. Their management had demanded that that GKI allow them to separate from Aeroflot and receive ownership of the planes they operated, which amounted to about one-quarter of Aeroflot's airliners.
1995
In January, Aeroflot announced its reorganization into a joint-stock company: 51.15% of the shares were assigned to the state, and the rest to the labor collective.
Starting in June, Russian airports, which had previously belonged to the Ministry of Civil Aviation of the USSR, began the process of separating from the airlines based at them and transforming into independent enterprises in accordance with decisions of the GKI and the Ministry of Transport. The major airports as well as the controlling blocks of shares in regional airports remained government property.
Over a period of a year, rumors circulated that the owner of LogoVAZ, Boris Berezovsky, was showing a business interest in Aeroflot. In October, Aeroflot got a new general director, Evgeny Shaposhnikov, and LogoVAZ managers were moved over to Aeroflot. In November, the former LogoVAZ general director, Samat Zhaboev, became first deputy general director of sales and advertising at Aeroflot; former LogoVAZ deputy general director, Aleksandr Krasenker, became deputy of sales and advertising to Shaposhnikov; and LogoVAZ development director, Mikhail Denisov, was appointed to the post of deputy general director of automation and business development at Aeroflot.
In an interview with Kommersant on November 16, Boris Berezovsky declared that "Aeroflot is Russia's largest air carrier, and naturally business is interested in it as a source of profits. I repeat, our interest is perfectly obvious.If I may put it this way, privatization in Russia proceeds in three stages: in the first stage, profit is privatized; in the second, property; and in the third, debt. Aeroflot is going through an intermediate stage between profit and property. We want to be part of both."
1996
In January, Nikolai Glushkov, a member of the board of directors of LogoVAZ, became the first deputy general commercial director of Aeroflot. The number of ex-LogoVAZ people and those who were simply close to Berezovsky at Aeroflot was now more than 30. Aeroflot's accounts had already been transferred AvtoVAZ Bank (LogoVAZ was one of four principal shareholders of this bank) under Shaposhinikov's predecessor, Vladimir Tikhonov. Under Shaposhnikov, they ended up in the Incorporated Bank controlled by Berezovsky.
In February, the government issued Resolution #103 "On Attracting Credit of $90 Million from Eximbank USA to Buy Equipment, Software, and Technologies for Setting Up a Siren-3 Automated Ticket Selling System." In order to implement the resolution, the Air Transport Department, by decree #DV-16 of February 19, 1996, began charging a special-purpose commission (SPC) of $2.50, which was included in the cost of an airline ticket, starting on March 1, 1996. Thus, the government decided that ordinary airline passengers would by 2004 repay the foreign credit granted by the commercial organization OAO International Technological Corporation.
In May, Evgeny Shaposhnikov, Aeroflot's general director, and Aleksandr Pleshakov, head of Transaero, announced the start of their collaboration. As the management of the companies stated, a decision had been made "to minimize expenses and to work jointly for results according to plan. Aeroflot will bring in passengers from abroad, and Transaero will transport them throughout Russia and the CIS." However, there were no further declarations on cooperation of the carriers or on the merger of Transaero and Aeroflot. The underlying cause of the sensation was that LogoVAZ was actively buying up Transaero shares.
1997
On March 11, after Evgeny Shaposhnikov had been appointed advisor to Boris Yeltsin, the airline's board of directors appointed Valery Okulov, Shaposhnikov's deputy and Aeroflot's chief navigation instructor, who was also Yeltsin's son-in-law, as acting general director. Aeroflot maintained that Okulov was a temporary figure and that Nikolai Glushkov would be Shaposhnikov's successor. Even before the board of directors had decided who would become the new general director, Aeroflot's press service received Glushkov's biography in order to inform new agencies of the appointment of the airline's new chief. But Okulov was appointed instead.
In March, 80% of the payment transactions of Aeroflot's foreign representative offices (ticket sales, lease payments for Western airplanes, fuel and food expenses, etc.) were consolidated into the private Swiss company Andava S.A. Rumor had it that Andava was controlled by Berezovsky.
In March, Intourist and Vnukovo Airlines concluded a general agreement on cooperation in the area of airline passenger transport on both international and domestic routes. This was the first long-term exclusive agreement between a travel company and an air carrier in Russia.
In March, Aeroflot concluded a partnership agreement with the American company continental Airlines, the first of its kind in the history of Soviet and Russian civil aviation. The agreement provided for mutual ticket sales on all of the companies' routes. The US aviation authorities refused to ratify the deal. On September 5, Aeroflot signed an agreement on an alliance with Air France.
On April 15, acting general director of Aeroflot Valery Okulov announced that the company intended to develop operations within Russia, which amounted to no more than 5% of the total passenger transport volume. Within three years, Aeroflot was carrying 20% of its passengers on domestic routes. The company's initiative was motivated by a price war among regional airlines.
In December, the Federal Aviation Service issued Decree #222, which stipulated a new procedure for allocating passenger transport for airlines that opened new routes. The gist of the decree was that if two or more carriers were already flying route A-B, newcomers would be allowed to carry no more than 10% of the transport volume of the "native" airlines.
1998
In January, Lufthansa Cargo AG, a Lufthansa subsidiary, and the St. Petersburg airline Pulkovo came to an agreement on the construction of a new cargo terminal.
A controlling block of shares of the Novosibirsk airline Sibir passed to a group of companies headed by the MIC (military-industrial complex) MAPO aircraft factory and the Novosibirsk Chemical Concentrates Plant. As a result, a controlling block of Sibir's shares (51.3%) ended up in the hands of two groups. Local governor Vitaly Mukha supported the new owners-he was one of the initiators of the change of management at the company. In return for his support, the governor obtained an agreement from the new shareholders on the creation of a new united airline based on Sibir.
In March, enticed by tax concessions, Transaero reregistered its legal address in Orel. This was the first case of a "change of registration" of an air carrier.
On April 1, an Aeroflot plane that had been impounded at the request of the Canadian company IMP Group Ltd. was released in Montreal. The company had seized the airliner in an attempt to recover a debt collected from Aeroflot by the Stockholm arbitration of the International Chamber of Commerce. There was a longstanding dispute between the companies over control of the Moscow Aerostar Hotel (Aeroflot's headquarters were located in the hotel), which they managed to settle. This was the beginning of attempts to seize the property of Russian companies abroad.
A Mi-2 helicopter with general director of the airline Sibir'avia Aleksandr Zelenko at the controls landed in front of the territorial administration building in Krasnoyarsk. This was his protest against the policy of the local authorities with did not allow his company to fly, the protest of this kind.
On May 12, the Moscow city government issued the resolution "On the Creation of the Airline OAO Atlant-Soyuz Airlines, Moscow's Official Carrier." After handing over 25% plus one share to the Moscow government, the airline began cargo and passenger flights on the government's behalf.
In July, a dispute broke out between two groups of Transaero shareholders. A certain manager of the company had sold LogoVAZ more than 12% of its shares. In this way, LogoVAZ and a number of affiliated structures concentrated a blocking parcel of Transaero shares. The new co-owners tried to replace the company's previous management. The confrontation took the form of two boards of directors, and it was only after a year that the Moscow Court of Arbitration declared the share sale illegal.
According to information of the Federal Aviation Service, a month after the August 17 default, the volume of operations had decreased by 20% compared to the same period in 1997. Airlines had great difficulty getting money from travel agencies for tickets already sold, since banks were not making payments. However, ticket prices increased slightly.
In October, Vnukovo Airlines took an unprecedented step by Russian standards by moving its operations from Vnukovo Airport to Domodedovo, although admittedly it remained there only until May 1999. By then, being based at Vnukovo turned out to be cheaper. Within three years, Transaero moved its base from Sheremetevo to Domodedovo, leaving a $10- million debt.
1999
On January 1, Aeroflot's general director, Valery Okulov, gave an order to double the pay of the company's employees-he needed the support of the staff, who controlled more than 20% of Aeroflot's shares. On January 2, Okulov issued an order according to which only those Aeroflot financial documents that bore his signature would be declared valid. On January 26, the management of Aeroflot sent a message to the airline's shareholders in which the fact that powers of attorney had been drawn up in Aleksandr Krasnenker's name to consolidate the votes was characterized as "using rank to put undue pressure on the shareholders." Toward the end of January, Okulov gained a powerful ally in his battle with Berezovsky: by then, the oligarch's clashes with Russian Prime Minister Evgeny Primakov had reached their peak.
On January 18, the Prosecutor General's office instituted a criminal case on charges of violation of currency laws and abuse of official position against "a number of OAO Aeroflot officials." There were plans to question Boris Berezovsky as a witness in the Aeroflot case.
On February 2, Valery Okulov fired Aleksandr Krasnenker and Leonid Itskov "for deficiencies in organizing and conducting the business and sale of transport operations, which were discovered as a result of audits of Aeroflot's activities." Thus began the "Aeroflot affair," which is still ongoing.
A conference of representatives of Aeroflot's labor collective held on February 5 voted by an overwhelming majority to support Valery Okulov's staffing policy. On the same day, Aeroflot's board of directors removed eight people from the airline's management. Now, not only Aleksandr Krasnenker, but also senior vice-president of hardware and material security Aleksandr Azeev and vice-president of shareholder operations Sergei Shakhmatov were no longer part of the company's management. The former first deputy head of the FSB for economic security, Oleg Osobenkov, joined the company's management in place of Boris Berezovsky's proteges. During March, Aeroflot's accounts were transferred from the Incorporated Bank to Sberbank.
In June, Pulkovo Airlines announced a freeze on the project to build a third terminal at St. Petersburg airport. The terminal was to have opened for the world hockey championships in St. Petersburg in 2000, but the $140 million needed for construction did not materialize.
In June, the general director of Sibir, Vladislav Filev, took on the additional post of general director of Vnukovo Airlines. For the first time in the history of the Russian airline industry, a merger of major airlines, Vnukovo Airlines and Sibir of Novosibirsk, was being prepared. The result could have been a structure surpassing Aeroflot in volume of operations in Russia and the CIS. On July 26, Vladimir Filev submitted his resignation as head of Vnukovo Airlines: the company's condition was much worse than it had appeared to Sibir.
In November, a tender competition organized by Aeroflot to select the bank that would service the foreign-currency accounts of the company's foreign representative offices and handle the lease payments for Western-manufactured passenger planes leased by Aeroflot (the company operated 26 such planes) came to a close. The winner of the tender was Chase Manhatten Bank; Andava quit the business.
2000
In January, Aeroflot and the Belarussian national airline Belavia signed an agreement on cooperation. Similar agreements were later concluded with Armenian and Georgian airlines.
In February, Vnukovo Airlines, East Line, Continental Airlines, Trans-European Airlines, AJT, and Atlant-Soyuz established the Association of Airlines of the Moscow Airline Hub (AAMAH). Aeroflot joined AAMAH as an observer. The member companies of AAMAH pledged to introduce quotas on traffic volumes abroad from Sheremetevo-2, Vnukovo, and Domodedovo, not to sell flights from Shermetevo-2 more cheaply than the prices specified in the agreement, and not to engage in dumping with respect to one another.
In June, Aeroflot's management announced their intention to build their own airport, Sheremetevo-3, in Moscow by 2003. The decision to build the terminal costing $300 million was dictated by obligations to foreign partners. Aeroflot intended to enter an alliance with Air France and Delta Airlines in 2003, and each member of the alliance had to have its own terminal at its base airport.
In August, the airline Tyumenaviatrans filed a suit for $48 million against ZAO Aviakor Aircraft Factory in a court of arbitration. The plaintiff accused the factory of disrupting the delivery of five Tu-154M passenger planes. This was the first case of this kind of legal proceedings between an aircraft factory and an airline.
In December, the management of Domodevo Airlines, Krasnoyarsk Airlines, Chelyabinsk Airlines, and Aviaekspresscruiz announced the creation of an alliance based at Moscow's Domodedovo airport. The alliance would compete with Aeroflot.
In practice, this agreement would not be implemented; however, it would continue on into the next century.
by Leonid Zavarsky
&
PRESENT
In the mid-1990s, only lazy people in Russia were not setting up airlines acquired during privatization of a few planes from the huge fleet of the former USSR. As a result, the industry ended up full of provincial government enterprises and fly-by-night companies that lived from hand to mouth, operated equipment to death, and did not pay their debts as a matter of principle. About 20 companies were in more or less stable condition, mainly Moscow-based and key regional companies, with Aeroflot as the undisputed leader. As before, the largest owner of air transport was the state, which basically did not know what it wanted from the industry.
The Hard Life of a Rich Heir
As a result of the reorganization of the unified Aeroflot at the beginning of the 1990s, the entire regular international market passed to the present-day Aeroflot, which received the name Aeroflot-Russian International Airlines and was based on the Sheremetevo fleet. In addition to a full set of flying rights, the carrier got almost the entire central executive apparatus of the unified Aeroflot, that is, a few professionals and a network of representative offices abroad. Of the domestic routes, only the Moscow-St. Petersburg route remained.
Along with the international market, Aeroflot also received royalties, that is, the right to conclude commercial agreements with Western airlines on flights from Europe and Southeast Asia over Russian territory along the Trans-Siberian air corridor. To this day, these agreements in many respects determine Aeroflot's economics, bringing it about $250 million per year (15-20% of total revenues). After comparing the structure of the airline's revenues and expenditures, it is easy to see that without the Trans-Siberian corridor, the hole in its budget would be a minimum of 10-15%.
Shares of Russia's largest carrier sold very quickly: the state retained a controlling block of shares, and 49% went to the labor collective. Strange as it may seem, in the last ten years or so, no one has managed to consolidate a significant volume of the airline's shares in one set of hands. Even at the end of 1995, when managers generally known as "Berezovsky's team" came to Aeroflot, top management was represented by Nikolai Glushkov and Aleksandr Krasnenker, that was a move made by the main owner, namely, the state. In mid-1995, Evgeny Shaposhnikov became the company's general director and recruited new top managers. In three years of work at the airline, "Berezovsky's people" had concentrated no more than 2.5% of Aeroflot's shares in its hands.
However, this year, major changes have occurred in the company's ownership structure. For the first time, a more than blocking package of shares (30%) is concentrated in a single set of hands. Officially, the shares belong to several offshore companies, but it is known from unofficial sources that they are controlled by Sibneft.
What Sibneft is planning to do with its share of Aeroflot is unclear, and according to unofficial information, the company's leadership itself has still not defined its position. The alignment of forces in the company's management will probably not change at least until the next meeting of the shareholders. By that time, the term of Valery Okulov's contract will have expired, and his departure can strongly influence the situation; however, it is far from obvious that he will resign.
Today, the flow of passengers to Aeroflot, which amounted to 5.1 million people in 2000, is slightly less than one-quarter of the domestic air transport market. At the same time, the increase in volume, which was interrupted during the change of management in 1999, continues: in 2000, passenger traffic increased by 10.7%, and a further increase of 20% is expected in 2001 according to preliminary estimates.
However, these impressive figures have their flip side. The airline's infrastructure for servicing transport operations (commercial and production) has remained almost unchanged. Under these conditions, maintaining a rapid pace of growth is becoming a serious problem for Aeroflot.
An Oasis on the Banks of the Neva
To this day, the second-largest domestic carrier by volume, the St. Petersburg-based Pulkovo Airlines, remains a unitary state enterprise (USE) combining the carrier and the airport. Pulkovo has held onto its firm monopoly in the Northwest region for many years, transporting about 1.7 million passengers per year, and volumes are stably, although slowly, increasing (figures for 2000 show that growth was 4.1% on domestic routes and 16.7% on international routes).
The director of the USE, Boris Demchenko (on the right), has held this post since Soviet times and has absolute power in his domain; he is considered one of the most serious and influential figures in the Russian aviation community. Pulkovo has traditionally enjoyed the support of Vladimir Yakovlev, the governor of St. Petersburg. No one is in a hurry to sell shares in the enterprise.
As the absolute master in its own region, Pulkovo has undertaken active steps to strengthen and broaden its position in the domestic air transport market in the last several years. This is shown mainly in the hasty removal of the last vestiges of Aeroflot in the enterprise's activities (a switch to its own codes for international flights, opening representative offices abroad, and creating an infrastructure for sales of international carriage) and the attempt to move beyond the borders of the Northwest region, especially in the direction of Moscow. Like many regional airlines, Pulkovo is fighting for licenses for flights from the capital and has already opened a number of domestic flights from Sheremetevo.
The object of the announcement of an alliance between Pulkovo and a second state carrier, GTK Russia, at the beginning of 2001, besides the officially declared objective of organizing joint operations of Tu-214 airplanes, which GTK was soon supposed to buy, was evidently to help the St. Petersburg airline by using the chance to operate flights under its partner's codes and secure a place in Moscow.
The Siberian-Vnukovo Alliance
As early as the mid-1990s, Vnukovo Airlines (VAL), which people called "Vnuchka," was the second-largest Russian airline by volume. Whereas Aeroflot got all the capital's international traffic when it was split up, Vnuchka got almost the entire domestic market, except for several long-haul routes left at Domodedovo. In addition, the company quickly attracted the attention of private capital, and by 1997, the state owned only a "golden share" in it.
Vnuchka's owner was traditionally considered to be the Russian Aviation Consortium, an organization uniting dozens of different industry players. Nevertheless, the airline always had very specific owners, who controlled more than 75% of the shares through several firms (the remaining shares were dispersed among the labor collective).
The most public representative of Vnukovo's owners was Tatevos Surinov. Surinov's right-hand man was Aleksandr Klimov. With his help, Tu-204 airplanes were delivered to VAL in due course [Aleksandr Klimov's father, Valentin Kilmov, headed the Tupolev Aviation Scientific and Technological Complex (ASTC) in the mid-1990s].
Several years before, the list of owners of Vnukovo Airlines had also included the co-owners of the company Nafta-Moskva, Suleiman Kerimov in particular. However, the rapid worsening of the airline's economic situation and the constant scandals surrounding it forced the partners to split up. Vnuchka proper passed to Surinov from his partner, and a sizable block of shares of the Transport Clearing House (TCH) acquired by Vnukovo Airlines passed to Kerimov.
Today, Vnukovo Airlines barely exists. At the end of 2000, the owners again began approaching executives of Sibir, which by that time, was relatively established in Moscow at the very same airport, i.e., Vnukovo. That winter, the Siberians brought almost all of the Moscow carrier's business under its control, in spring they announced the amalgamation of the companies, and got a license for joint operations.
At the end of April, the list of Vnuchka's owners was changed officially, it included three Novosibirsk firms, two of which were already owners of Sibir. The union of Vnukovo Airlines and Sibir can be the first large merger in the Russian aviation market if it ends successfully.
Sibir's present management (general director Vladislav Filev and his wife and first deputy, Natal'ya Fileva) appeared in the company at the beginning of 1998, bringing a whole set of new managers with them. Officially, the Filevs do not own any Sibir shares; however, their team retains control of the carrier. The State owned only a blocking package of shares.
Under the Filevs' direction, Sibir began to develop rapidly, opening up flights abroad, expanding the branch network in its region, and actively winning over the Moscow market in both regular and charter flights. By now, Sibir has become a Moscow company to all intents and purposes. The jump in volume observed that year was in many respects the result of Vnukovo's decline, Sibir's arrival in a number of freed-up routes, and the transfer of part of Vnukovo Airlines' aircraft fleet to the Siberians. According to figures for the first seven months of 2001, the Novosibirsk carrier occupies fourth place among Russian airlines in passenger traffic on domestic routes, following only Aeroflot, Pulkovo, and Tyumenaviatrans, and third place on international routes, where it is surpassed only by Aeroflot and Pulkovo.
A One-Region Airline
Today, along with the players already mentioned, the group of five leaders in the Russian aviation market includes two regional companies, Tyumenaviatrans (TAT) and Krasnoyarsk Airlines (KrasAir). Both companies significantly increased their traffic in 2001; however, their strategies are very different.
Tyumenaviatrans, which has its head office in Surgut, occupies a fairly isolated spot in the domestic air transport system: it mainly services the gas industry in its region. TAT is made up of a diverse group of regional aviation enterprises of the Khanty-Mansi Autonomous Region (AR), including airports. The company owns one of the world's largest helicopter fleets (mainly heavy machines), and much of its activity consists of helicopter operations. According to the head of the company, Andrei Martirosov, passenger transport is not a priority, although in the last year and a half, it's volume has grown rapidly.
TAT's owners have traditionally been off screen, and its activities have been entirely managed by the general director. Nevertheless, it is known that at the end of 2000, about 30% of the shares were owned by foreign investors, and 18.8% by the Surgut administration. In April, the Khanty-Mansi AR administration acquired 13.6%; and at the end of July, its portion had increased to 25.03%. According to representatives of Surgut's administration, companies affiliated with both administrations bought yet another 23% of TAT's shares.
This year's successes of Krasnoyarsk Airlines, which is an integrated aviation enterprise including airlines and their respective airports, are connected with the introduction of a new market development strategy rather than with a change of ownership (51% of the shares belong to the state, and about another 35% are controlled by management).
In May 2001, KrasAir brought in a schedule that made Krasnoyarsk the central hub in the company's transport system. In fact, this was the first case in Russia of full-fledged hub, a very widespread organizational principle in Western air transport, with short connections and a fan-shaped system of radial routes. As a result, KrasAir significantly increased its volume of traffic, jostling other companies on the market that make direct flights from the Far East and eastern Siberia to the central and southern regions of Russia, primarily Aeroflot, Domodedovo Airlines, and Dalavia. In winter, the company planned to include several major European and Southeast Asian cities in its route network.
Today, KrasAir is wholly controlled by its management, more precisely, by its general director, Boris Abramovich, who came to the company in 1998 at the suggestion of governor Aleksandr Lebed. Besides Krasnoyarsk Airlines, Boris Abramovich and his brother Aleksandr own another, already completely private airline, Sibiraviatrans (SIAT). This company carries out local and charter transport operations in Krasnoyarsk and Norilsk and sometimes in Moscow. This year, it began to actively establish itself in Murmansk. According to figures for the first seven months of 2001, SIAT held 20th place in the rating of Russian companies by number of passengers on domestic routes.
Transaero: a Tale with a Sad Ending
The story of the rise and fall of Transaero, one of the first private Russian airlines, which started from nothing rather than on the base of a state enterprise, runs through all events in the development of the domestic aviation market. Transaero was set up at the beginning of the 1990s by a group of ambitious young managers, including Aleksandr Pleshakov, who personifies Transaero at the moment. It was initially built on brains, that is, on a base of Western airplanes, modern business techniques, and international standards of service. The active support of Tatiana Anodina, the head of the International Aviation Committee who was also Aleksandr Pleshakov's mother, played an important role in the company's formation (for example, in obtaining preferential customs duties along with Aeroflot on imports of foreign aircraft equipment). She is still one of the most remarkable and powerful figures in the industry with extensive connections in both aviation and political circles.
Although Transaero began with flights to Norilsk, the anchor point in the company's development was the Israeli market, where for a long time the company had exclusive rights as a regular carrier. The company's heyday was in 1997, when it carried nearly 1.6 million passengers; but then it was followed by a rapid fall, which was caused mainly by Aleksandr Pleshakov's personal ambitions.
One after another, the founders and former teammates of its leader quit Transaero. Today, they are scattered throughout various structures of the Russian and international aviation market. For example, Grigory Gurtovoi successfully heads the major Ukrainian carrier Aerosvit. Transaero's move to Domodedovo in the spring was also a result of financial problems: the airport offered favorable servicing terms.
Nevertheless, this year, Transaero's situation has been relatively stable, passenger traffic has held at about the level of 2000, and Olga Pleshakova was appointed general director. Aleksandr Pleshakov became a member of the Federation Council for Penza region.
Flying Trucks
Certain leaders can always be singled out from among Russian air cargo carriers. Aeroflot has traditionally held first place, mainly due to its additional load of regular passenger flights and transit traffic of freight from Europe and Asia. Up to the end of 2000, the East Line company, which specialized in traffic of goods from China, certainly followed next behind Aeroflot. According to unofficial information, the company's revenue base in this business was not only transport, but also, to a great extent, customs clearance of cargoes.
However, last year, East Line attracted the intense scrutiny of the customs authorities and the FSB. The reason for the misfortunes that rained down on the airline was given as the total strengthening of control over customs clearance or personal claims to it of one of the government figures still on staff. Be that as it may, East Line has still not recovered from the blow. It has dropped from second to sixth place in terms of freight flow and has been concentrating on passenger traffic. Amiran Kurtanidze resigned as the company's general director this year. A final candidate for the new head of the company has still not been confirmed.
Atlant-Soyuz, one of East Line's main competitors, which operated along the same lines, filled East Line's place in the cargo market. Lobbying by the Moscow government, which controls a sizable block of its shares, has helped the company. Atlant-Soyuz's owners include general director Stanislav Leichenko (31%), the capital's Property Department (26%), and AFK (Joint-Stock Finance Corporation) Sistema and ZAO Promtorgtsentr (19% each). The remaining 5% belong to ZAO International Law Firm.
The third whale of Russian air cargo carriers is Volga-Dnepr of Ulyanovsk. It is involved in the transport of oversize loads and is a classic example of the alignment of a business around one specific type of aircraft (with truly unique properties), the An-124-100 Ruslan. Volga-Dnepr's fleet of Ruslans has enabled the company to become the only Russian airline to play a serious role in the international market, more specifically, in one of its relatively narrow segments, namely, oversized, large-volume loads. Its main competition is the Ukrainian company Antonova Airlines belonging to the Antonova Aviation Scientific and Technological complex, which has about the same number of An124-100s.
by Renata Yambaeva
TRENDS
The future of the air transport market depends to a critical extent on the number of passengers. But there is no reason to expect passengers in the near future.
One Airline For Every 100 000 Passengers
More than 20 million passengers per year on 200-odd airlines is today's reality. This is not very many. However, given that people in Russia fly very little, the situation on the market resembles a pack of dogs tearing apart a cat they've happened to catch. Air transport is not a very profitable business, especially in Russia where tickets prices are low. According to Deputy Minister of Transport Karl Ruppel', the average ticket price is 3628 rubles, whereas the average salary in the country is 2942 rubles, which means that only a very narrow segment of the population can afford air travel. Regular clients make up 70% of the total number of passengers. Last year's turnaround of 20 million people was due to about 2.4 million people who fly 4-6 times a year and 1 million who fly 8-12 times a year. The fact is that passengers are the carriers' breadwinners.
Out of 264 airlines operating in the country, 90% of today's air transport market is serviced by only 30 companies, and 50% of passengers are carried by four companies: Aeroflot, Pulkovo, Sibir, and KrasAir. Profits from operations of all airlines in the first six months of 2001 amounted to 5.1 billion rubles. This is only enough for carriers to make ends meet, and outside investors do not want to run risks with financial aid.
Horseless Carriers
True, the passenger situation has recently improved somewhat. Thus, in the past year, for the first time in the last ten years, the volume of traffic increased by 0.5%, and for the first eight months of this year (2001), volumes increased by 14.6% compared to the same period last year. A total of 540 000 tonnes of cargo and mail was also transported, which is 9.2% more than the year before. It is possible that 24 million passengers will be carried this year. However, this does not mean that a bright future awaits the players in the passenger transport market.
A tragedy is about to happen with the aircraft fleet. It was passed down to companies from Soviet times and is worn out and hopelessly obsolete, both morally and physically. Replacing it is almost out of the question: only 20 or so relatively new Il 96-300 and Tu-204 airplanes are in operation, and they were designed in Soviet times. Renewing the fleet with these machines is problematic, since depreciation charges in the industry as a whole amount to 0.9 billion rubles, and the annual investment potential of all air transport, assuming that internal funds are consolidated, is equal to 6 billion rubles. This is enough money for only a few new airplanes: an Il-96-300 costs anywhere from 1.3 billion rubles upward, and a Tu-204 costs 0.63 billion rubles or more. Valery Okulov, Aeroflot's general director, has calculated that airlines may need 1095 airplanes before 2015, including 310 liners, that is, the most expensive kind. Saving the aircraft industry will require a lot of money-a minimum of $1 billion per year according to Aleksandr Rubtsov, director of the leasing company Ilyushin Finance Company.
In the words of Karl Ruppel', "the industry today does not have the necessary internal resources at its disposal to expand production, especially for modernizing the aircraft fleet." So it is not surprising that outside investors are in no hurry to invest money in the industry, especially since billions of dollars have to be invested, and not just in airlines, aircraft factories, and aircraft design offices. There are 486 airports operating in the country, including 63 federal and 72 international airports, which are in critical need of funds for modernization. There is not enough for even the most urgent needs. In addition, the recent terrorist attacks in the US have forced all airports to think about providing extra security measures.
According to Karl Ruppel', 13 000 attempts to carry aboard substances and objects posing a potentially life-threatening hazard to passengers and crews were stopped during preflight checks at Russian airports in the first eight months of this year. This high detention level shows the need for outfitting airports with more up-to-date equipment. Airports can count only on their own funds and the number of passengers served.
A Protracted Slump
Today, foreign flights account for more than a third of air traffic. International traffic, whose share has grown from 20 to 35%, has provided the current growth in passenger turnaround. The flights are mainly carried out on leased Western airplanes. Foreign leasing companies offer our carriers completely affordable terms for acquiring imported airplanes.
However, the government seriously intends to shut foreign equipment out of Russia and then, in the words of vice-Premier Il'ya Klebanov, "there is an objective danger of the loss of a certain volume of international traffic," because if Western equipment is replaced with domestic, some passengers will refuse to fly with Russian airlines. After all, even today, Russians make up 60% of the passengers on flights of foreign carriers to Russia, which means we would have to forget about hopes for an increase in the traffic volumes of Russian airlines.
by
Leonid Zavarsky
All the Article in Russian as of Oct. 30, 2001
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