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Just as Russian holidaymakers set out to return home late last month, profligate and sprawling airline conglomerate, AiRUnion, was forced to ground flights as it failed to honour long outstanding fuel debts. The political furore created by thousands of stranded tourists was sufficient to cause Prime Minister Vladimir Putin to step in, first slapping the wrist of his Deputy PM and Transport Minister, then directing the state-owned Russian Technologies to fix the problem. Today, the crisis is apparently over, but its resolution will come at a significant cost to state coffers.
The scope of a potential collapse of the conglomerate affected more than the carrier. Announcing an end to the “crisis” over the weekend, Deputy Finance Minister, Andrei Nedosekov, said government intervention had been necessary to avoid “collapse of the whole sector” in Russia. Russian Technologies has played a role of rescuing failed former government-owned companies which have faltered since being privatised. The eventual outcome is likely to be a consolidation of some of the many smaller airlines which populate Russia’s skies. If this occurs, it will rival Aeroflot in size.
The issue of overdue airline fuel bills had been building for months, with suggestions back in Jun-08 that billions of dollars were already accumulating to Russia’s airlines. News agency ITAR-TASS reported last week that AiRUnion’s outstanding fuel debt was currently one billion dollars, still lower than other independent estimates. Operating mainly soviet-era aircraft, AiRUnion group airlines had sold holiday travel well before the spike in oil prices and, unable to recoup the higher costs through fuel surcharges, were haemorrhaging money throughout the summer.
Despite this gathering storm, domestic traffic had been building rapidly. As recently as Jun-08, AiRUnion was bullishly talking of enhanced cooperation with Lufthansa at Domodedovo Airport, after reporting 23% traffic growth for the first five months of the year and a slowing 15% for the month of Jun-08. To support the cooperation process it had recently transferred the operations of partially-owned Hungarian flag carrier Malev to the airport from Moscow’s older third airport, Sheremetyevo. (The new arrangements reportedly will not affect Malev, but some uncertainties remain.) And, just last month, the carrier announced plans to invest RUBLES19.5 billion in fleet modernisation over the period 2009-12.
The shake-up inevitably affects more than the airlines immediately involved. One group which will not see the solution positively is the privately run Domodedovo Airport. AiRUnion has been a major customer and – with no advance notice – all of the group’s airline services were shifted to the state-owned and newer Moscow airport, Vnukovo over the past weekend. Opening its extended new parallel runway in Jan-08, Domodedovo had been aggressively expanding, seeking to head off growing competition from Vnukovo and Sheremetyevo.
Moscow airports’ monthly passenger traffic: Jan-08 to Jul-08
Source: Centre for Asia Pacific Aviation & Transport Clearing House
The airport move accompanies moves for AiRUnion carriers to be merged into a grouping along with the Moscow government-owned Atlant-Soyuz Airline, also based at Vnukovo Airport, where it currently accounts for about 25% of traffic. AiRUnion members, some of whom had remained partly state owned, currently include KrasAir, Domodedevo Airlines, Omskavia, Samara and Sibaviatrans.
A number of participants in the scattered domestic regional airline market may also be involved in the consolidation. Like China’s post-deregulation market in the mid-1990s, dozens of local, and often inefficient airlines with old and thirsty equipment, are still flying domestic skies. Many of these are also reportedly in critical condition, with heavy unpaid debts.
Atlant-Soyuz is primarily a charter carrier, with only three scheduled routes, to Simferopol, Anapa and Sochi. But last month the carrier commenced its first international scheduled service, to Latvia’s third city, Liepaja, using Embraer-120 equipment. According to the airline, this “is the first stage of ‘Atlant-Soyuz’ Airline major plans. Nowadays the airline is discussing the issue of Moscow-Riga direction opening. Moreover ‘Atlant-Soyuz’ Airline has been seeking the opportunity of air traffic arrangement not only en route Moscow but to other towns of Russia and Europe.”
Atlant-Soyuz Airline’s current charter network
The AiRUnion grouping was operated by the Abramovich brothers, Boris and Alexander, but the KrasAir administration, of which they were direct owners, is now reportedly being examined for alleged improprieties.
For the time being, it looks as if the immediate threat to continuity has been resolved, helped no little by Mr Putin’s announcement that 24,000 tonnes of fuel will be provided, to keep the group operating until at least 14-Sep-08. But the longer process, of consolidating a disparate group of largely unfinancial airlines, will necessarily lead to major changes in the Russian system – and beyond.
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