Home / Archive / N3 2009 / SAVING REGIONAL AVIATION
SAVING REGIONAL AVIATION
Transportation not obtainable Year by year, the regional air transportation is getting more and more unpopular with the Russia’s population. From any Russian city, one can find a way much faster, simpler, if not even cheaper, to reach the capital than the neighbor Nburg at a distance of 500 to 700 km. And the reason is that almost all the federal districts of the country have suffered the loss of air links in local and regional lines. And when people of Russia’s central regions may use some other ways of transportation, as they can choose the railway or bus for their trip, the regional aviation in the hard-to-reach areas of the European North, considerable part of Siberia and Far East, is not a luxury at all, but the only means of transportation. However, this kind of transportation is getting less and less available year after year for the majority of Russian citizens, due to both the high ticket price and the irregular flights. “Over the recent years more than 500 Russian cities and towns have lost the opportunity of using the air service”, explains Vladimir Mishanin, the Deputy Director of the Department of Transport and Communications of the Government of Moscow. According to him, as many as 90% of population of Yakutia, Buryatia, Sakhalin and Magadan Regions have virtually no access to air service. “As for the all of Russia, only 6% of population can resort to air service”, adds Alexandra Ochirova, member of the Public Chamber of Russia. “So what can this thing be called, but the transport discrimination?” By the way, the issue of availability of transportation is currently number one in Russia. Public leaders, officials and politicians have qualified the availability of transportation as one of the most important parameters, “rating the quality of life and the level of development of population”.
Due to the unstable connection of small settlements with the more populated and developed areas it would hardly be possible to attract an investor with business projects and offers there. Therefore, people would most probably start abandoning such places, discontinue field development, road construction, port operation, they would just stop living there. And the number of such half empty settlements in Russia is growing year by year. Give Us Aircraft!
The market members and branch-wise experts point at many reasons for stagnation of regional air transportation service. “Low efficiency of the aircraft fleet, vanishing infrastructure of aerodromes and low paying capacity of population, all these factors adversely affect the development of regional air transportation”, analyzes Pavel Chernov, the First Deputy Minister of Transport and Road Facilities of the Republic of Tatarstan. According to him, the large majority of air carriers deliver three-four flights per week using AN-24, YAK-40 aircraft. The straight loss with such a scheme is 30 to40 million rubles yearly. (Add the shocking state of airport runways to the morally obsolete air fleet, and it becomes clear why the regional air transportation is mostly unattractive
and unprofitable).
And what the obsolete medium range aircraft park can be replaced with is the problem that causes a real headache for air carriers. For the time being, the United Aircraft Corporation (UAC) is only considering the possibility of participation in four projects concerning regional and local aircraft, such as AN-140, IL-114, Be-32 and L-410.
However, everything is not going off smoothly about it. For example, the Tashkent Aircraft Production Association named after Chkalov (TAPAC), which is capable of producing 100 to 200 planes annually, has not yet started the serial production of IL-114-100 aircraft (64 seat capacity). At the moment 8 such Russian-Uzbek aircraft are operated in air companies. The BE-32 regional aircraft (15 seat capacity), designed at the Experimental Design Bureau named after Beriev G.M., has not been put to the large-scale production either. “At first its serial production was planned to be started at the Irkutsk aircraft plant, then under a license in Romania, but nothing has started so far”, explains Vasiliy Prutkovskiy, the Vice-President of the UAC on the corporate development and governance. The AN-24 could have been replaced by the regional turboprop AN-140 (52 seat capacity). This aircraft, built at the Samara Aircraft Corporation, is perfect for operation in the harsh climate conditions, where the lowest temperatures go down to -55 degrees Celsius.
It is for this reason that the Yakutia Air Company took interest in the plane. However, the AN-140 is being built slowly, and this year the Yakutia company will get only its third aircraft. The total number of such planes operated in Russia and Ukraine is eight.
Apparently, understanding that the Russia’s aircraft industry is not able to quickly and efficiently piece out the current deficiency in the market of regional aircraft, the UAC reckons as a possible prospect the joint project with the Aircraft Industries Czech aircraft construction company. The Czech are ready to start delivering the L-410 local line aircraft (17-18 seats) to us, promising to cheapen the maintenance repair, extend the number of cabin modification versions, etc.
But, when the projects remain on paper, the Russian air carriers have to find by themselves the replacement options for the obsolete aircraft park. No draconian measures on the part of the government in the form of custom duties and VAT on the imported air vehicles, causing the 40% rise in price for the aircraft, as compared with initial cost, could influence their choice. Just as well as the issuance of a RF Government Decree 466 on the partial reimbursement of expenses on the Russian-made air vehicle lease payments for Russian air carriers. Very few air companies enjoyed this privilege, as they more often prefer to lease the more efficient and economical, though even a second-hand, foreign-made vehicles. For instance, the UTair company had been gradually acquiring the ATR-42 and ATR-72 Franco-Italian aircraft, the Polyot company of the Voronezh city had been purchasing the Swedish SAAB-2000 economical turboprop aircraft. As for the Atlant-Soyuz and Region Avia companies, they had finally chosen the Brazilian Embraer-120. “When choosing the aircraft producer, we were to check the aspects of further maintenance, repair, spare parts delivery, the issues of the pilot and maintenance personnel training”, comments on his strategy Denis Pavshinskiy, the Region Avia managing director, who is going to still purchase only the same type air vehicles
in the future.
After the nullification of custom duties on the import of foreign-made 50-seat and smaller aircraft, which came into effect in March 2009, west producers of regional air vehicles will get the chance of successfully filling the vacant niche in Russia.
«The market opportunity is like a big door has opened, - says ECC managing director Mark Dunnachie. - We have been coming into this market for many-many years. We had a wide range of contacts and one of the issues has been an import tax so from the 15th of March as you know 20% of import tax on 50-seaters and smaller has been removed. So we see this opportunity to look forward with our discussions with airlines we are talking to».
According to Mr. Dunnachie, in due course the advantages of buying a foreign-made aircraft will become evident. As per calculations of ECC company experts, one ERJ 145 aircraft can replace 4 AN-24 aircraft, 1 TU-134 aircraft or 7 YAK-40 aircraft, and the fuel economy purely would be 1.5 million dollars, 1.8 million dollars, 8 million dollars respectively. A prime example for the abovementioned is the Dneproavia Ukrainian air company, which had started introducing air vehicles of the ERJ 145 family into its fleet since 2007. Now the air carrier uses 11 ERJ 145 aircraft in 12 line routes. “Using the up-to-date foreign-made vehicles of 50-seat and smaller capacity, air companies will be able to develop the route network, regenerate the passenger traffic, firm up within 3-5 years”, believes the head of Region Avia company. “As for domestic-made helicopters, Russian air carriers are not at all pressing on buying them, although in this case there would have been no need to invest in the aerodrome infrastructure, and the helicopter capacity may be 20-30 seats”, wonders Igor Pshenichny, the first deputy director general of the ‘Helicopters of Russia’ company. The ‘Helicopters’ have only one contract in Russia with the UTair company on the delivery of 40 vehicles, and, possibly, Leningrad region would purchase several helicopters for the joint programs with the Ministry of Defense, Emergency Medicine and EMERCOM. And the bulk of Russian helicopter product goes abroad.
It is not proper to accuse air companies of unpatriotic attitude. As soon as Russian aircraft conforming to the international requirements of ergonomics, economical characteristics, and ready for serial production, appear, then air carriers would hardly refuse such a good acquisition. Where is the Passenger According to Alexander Filatov, director for the strategic planning and development of the Russkie Mashiny OJSC (Russian Machines), the main cause of the crisis in the sector is the low economic efficiency of regional air transportation service in Russia for private aerodrome companies and air carriers. Since the USSR time the number of operable aerodromes have decreased more than thrice, from 1302 to 330 (260 of them are actually used). The worsening of living standards has made the volume of transportation services go down. Since 1990 the passenger turnover in the domestic airlines has fallen from 71% to 43%. However, Denis Pavshinskiy, the Region Avia LLC managing director, believes that his company has its future, as long as the regional transportation market is not occupied by anyone. He has calculated that the people can potentially fly at short distances, for example, from Yekaterinburg to Karaganda or Kustanai, from Samara to Perm, Lipetsk or Ulyanovsk, from
Sochi to Rostov or Krasnodar.
Nowadays about two thirds of domestic Russian flights or 67% are being carried out via Moscow. For instance, in order to reach Kazan from Perm, one has to fly first to Moscow from Perm, and then from Moscow to Kazan. Such super-extended routes result in rise in the ticket price and unpopularity of air transportation services. In the end people switch to trains or put themselves behind the car steering wheel, and the regional aviation loses its passengers and money. The effect of such a choice is the lack of money for the renewal of air fleet, impossibility to pay wages and train personnel. Nevertheless Mr. Pavshinskiy is certain that one can achieve a success in this field, if the main competitor, railway, is defeated by virtue
of quality service, speed and tariff.
Government Assistance Needed The market members are sure, the problem consists in the fact that every region survives on its own, some actively and some passively. “Now the government is allocating grants to 28 regions for the support of regional aviation, including both airports and air carriers. And all the assistance programs are so different, not standardized, and a half of them are not efficient, since they have no obvious motivator in favor of the solution of the problem”, says Alexander Filatov. According to him, the Russia’s transport strategy should be supplied with a section on the systematic development of regional aviation with the
obligatory state involvement.
“We need a Federal program dedicated to the development of regional aviation. As for now, the regional aviation is under local authorities. So what we have is if the government of some region is interested in the development of air transportation, it will definitely assist the process, help air carriers, update airports. And if not, then the all of aviation and infrastructure will be perished”, believes Leonid Terebnev, the chairman of the committee of transportation and transport infrastructure. “At the moment the federal government has withdrawn from dealing with that problem, whereas it is not simple to develop the aviation on its own initiative or with the help of private business. There is no way boosting aviation
without money grants”.
“If federal government is involved, 3-5 years are enough to create prerequisites for the development of regional air transportation in Russia, namely, the reconstruction of airport infrastructure of the key air hubs, the renewal and expansion of regional aircraft park”, assures Andrei Lebedinets, the deputy managing director of the Ilyushin Finance & Co leasing company. “And after 7-8 years the regional air transportation sector will get the sufficient scale and quality to insure the commercial effectiveness of
business of participants”.
Stanislav Smelov, the chief of the work group on the development of short-range aviation in the Sverdlovsk Region, expressed the same opinion with his colleagues. He is sure that supporting regional air transportation will promote the economic development of regions in general, enhance business activities of population and attract investors. And still very few regions in Russia can boast now such an involvement on the part of administration. In addition to Leningrad and Sverdlovsk Regions, Samara, Novosibirsk Regions, Krasnodar Area and the Republic of Tatarstan are worth being
mentioned.
The Government of Moscow reconstructs regional airports of the Central Federal District, invests funds in their development. “It contributes to the strengthening of economic and cultural integration of the capital and regions and economic relations between constituent entities of the Federation”, emphasizes Vladimir Mishanin, the deputy chief in the Government of Moscow. Over 2 billion rubles have already been invested in the reconstruction and renewal of the Ivanovo-Yuzhnyi (Ivanovo-South) airport. Moscow is also going to participate in the reconstruction of 17 airports, among them Bryansk, Tver, Kaluga, Petrozavodsk, Ulyanovsk, Lipetsk and Nizhniy Novgorod. It would have been nice if the example of Moscow’s reviving the route network would have been followed in the whole sector, too. But this can only be a dream now.
Way Out Same as In The experts of the air market are sure that the political will could have been the best motivator for the development of regional air transportation. The decreasing year by year subsidies from the regional budget can hardly sustain its existence. And to attract attention to the problem and get necessary funds allocated, a Federal dedicated program, approved and signed, is needed. And not that only. “If we want to achieve something, we ought to stop considering ourselves unique”, said at parting Iolanta Strikitsa, aviation expert from the Strikitsa Consulting company. “We should start from ourselves, from business plans and actual proposals, and not for 1-2 years, but for 20 years. We should adopt the aviation experience from those countries which possess large territories, with long distances between cities, for example, Greenland, Australia, Sweden”.
“And furthermore we need to unite together our efforts, in order to create the livable regulatory legal framework, remove bureaucratic encumbrances; and not hinder the companies’ development”, asserts Evgeniy Bakhtin, the managing director of the AVCOM company. “And then the specific reasons for the revival of air transportation will come up in every district, in every entity of the Federation. Some will stick to economic reasons, like Utair or Severstal, which transport not only their personnel, but the community people as well. Some may have political reasons, like in Ivanovo. And somebody would decide to invest in a regional company, which would possibly open up new routes, become profit-making and insure the transportation availability for the Russian population”.
“The ongoing economic crisis in Russia creates background for the re-orientation of economy towards the domestic market outlet, and the competitive capability and transportation availability of regional economies will be dependent on the fast and efficient air communication available”, summarizes Stanislav Solomko, the director for managing route networks of the Lufthansa Consulting company. “The regional agglomerations of Russia in their present form can be taken both as part of regional air transportation and center of attraction of feeder traffic to the trunk routes. In the long run, the establishment of the regional air transportation system will contribute greatly to the social and economic development of Russia”.
Svetlana Komagorova
