Volga-Dnepr Group / Press-center / Media Coverage

A true heavyweight

05/15/2009

Volga-Dnepr Group provides a “cargo supermarket” offering scheduled and charter freight operations on two distinct airlines.

Few airline executives will disagree that the outlook for air cargo is grim. Following eight consecutive months of contraction in international scheduled RTKs, including a 22.6% drop in December and a 23.2% year-on-year collapse in January, IATA DG and CEO Giovanni Bisignani in February warned that "alarm bells" were ringing everywhere. Yet Volga-Dnepr Group refrains from such dramat ic declarations, preferring to take a more positive outlook.

"We recognize the downturn and we have prepared several anti-crisis programs, including a 'worst case scenario' if volumes fall by 20%. For now, we plan for 2009 to be on par with 2008 in terms of flight hours, revenue tonne-kilometers and cargo tonnage," VP-Marketing and Strategic Development Tatyana Arslanova tells ATW during a visit in Moscow. The Russian group had not yet released full-year results when this article was prepared, but she reckons it most probably did not turn a profit last year, in contrast to 2007 when it earned $49.7 million. Revenue rose 46% from Si.04 billion in 2007 to a record $1.4 billion in 2008, which placed it 14th in the LATA ranking of all-cargo operators.

Much of Volga-Dnepr's confidence is founded on what it calls its "unique cargo supermarket" concept and its dual business strategy, with Ulyanovsk Vostochny Airport-based Volga-Dnepr Airlines offering air cargo charter services on ramp freighters and AirBridgeCargo Airlines operating scheduled cargo flights with 747s. In aggregate, the two flew 1.72 billion FTKs in 2008, a robust 32% increase over 2007 (compared to a 4% fall in international scheduled FTKs, according to IATA data).

Their combined transported volume soared 25% over the 12 months to 267,000 tonnes, of which 130,400 were for the account of AirBridgeCargo and 136,500 for the namesake charter unit. VDA specializes in the niche of ultra-heavy and oversized cargo using a dedicated fleet of 10 An-124-100 Ruslans, five Il-76TDs and two upgraded 11-76-90VDs (for Volga-Dnepr). "We have been developing the An-124 and 11-76 product over the years and both of them are now well known and well established worldwide. Many companies plan their activity based on the possibility of using these aircraft in their logistics chain," Arslanova says.

In particular, she says, the unique capabilities of the Ruslan have made VDA's charter services very popular for humanitarian relief aid and other cargo requirements of governments and international organizations. Such activities represent more than 50% of the carrier's Antonov activity and it maintains it has a 50% share of the An-124-100 oversized cargo market. The group was the first civil customer for the aircraft and is the driving force behind plans to restart serial production of a modernized version. Last summer it proposed a startup order for 40 An-124-100M-150s.

The bulk of VDA's capacity is booked through freight or project forwarders on behalf of a wide array of companies such as Lockheed Martin, Boeing, Alcatel, Bombardier, Embraer, Mitsubishi Heavy Industries, Space Systems Loral, Airbus, Rolls-Royce, BP, Exxon, Shell, Siemens and General Electric. The corporate demand for heavy-lift cargo primarily comes from the energy, aerospace and automobile industries. Oil and gas companies contribute 23% of VDA's total traffic volume while aerospace companies account for 18% of the cargo transported by the airline.

Big Business

VDA certainly has carried some fascinating cargo since it commenced operations in 1991, including 52 tonnes of gold from Abu Dhabi to Zurich and 121 Porsche Cayenne cars from Germany to Mexico. Less flamboyant but no less impressive were the transport of a 125-tonne chemical reactor from Paris to Doha, an 80-tonne shipment including two Mir submers-ibles and an oceanographic craft for a scientific expedition on Lake Baikal, the fuselage section of a Sukhoi Superjet 100 and a complete 80-tonne new production line for glasswork manufacturing factory SaratovStroySteklo from Amsterdam to Ulyanovsk.

Because all of its business is on-demand, it has no fixed network of airports, although the majority of the flights are among the US, the Middle East and Europe. It operates worldwide and has had the right to carry unique and oversized cargo within US territory since 1993. About half of the activity is ad hoc; the other half is locked in through indefinite-term or longer-term contracts with, for example, Boeing, which signed an agreement in 2007 for contingent use of An-124s to support the 787 production logistics program. Another current multiyear contract is within the framework of the so called Strategic Airlift Interim Solution project established to provide sufficient lift capability to allow participating NATO and EU member countries to contribute to security missions across the world while awaiting delivery of the A400M.

Easy AS ABC

VDA more than doubled its cargo tonnage over the past five years, but its younger sister performed noticeably better as it grew volume more than tenfold from 12,268 tonnes in 2004 to 130,400 tonnes in 2008. ABC was set up in 2003 as part of its strategy to offer more than one product. A year later it commenced scheduled services with a pair of ex-Alitalia 747-200Fs, becoming the first Russian carrier to operate the type. It obtained its own AOC in 2006 and currently operates three new 747-400ERFs, two 747-200Fs and one 747-300F. In contrast to the group's Antonovs, which are owned, the 747s are leased. Its older Ilyushin fleet also is leased. It owns the two Il-76TD-90VDs, which were upgraded to its requirements with Volga-Dnepr financing.

ABC's foundation is quite unambiguous, namely the unique possibility to use transsiberian and cross-Polar flight routes to cut cargo delivery time. It has built a network connecting Europe's biggest hubs (primarily Frankfurt and Amsterdam) with Asia's major airports (mainly Beijing, Shanghai, Hong Kong, Tokyo) over its hubs in Moscow (Sheremetevo and Domodedovo) and Krasnoyarsk Yemelyanovo.

The latter is earmarked to become a real transit airport for ABC as part of an ambitious plan in cooperation with local authorities, Swissport and KrasAir to use the airport's strategic location in Siberia to establish Russia's largest multimodal cargo hub. Progress on the project, which dates back to 2004, has been slow, but not solely owing to the demise of KrasAir/AiRUnion. "We remain committed to the project," Arslanova confirms, "but for now we are focused on developing our Moscow hubs." She adds that Krasnoyarsk could become a hub in two years.

In the meantime, the airport has given ABC a real headache as it got caught up— albeit indirectly—in a row between Lufthansa Cargo and the Russian government owing to the latter's decision in late 2007 to revoke the German airline's overflight rights for its 49 weekly Europe-Asia services unless it started refueling at KJA instead of Astana in Kazakhstan. "As a result, the German authorities did not approve our winter '08 schedule and we could not park our aircraft in FRA. We had to operate to AMS instead," Arslanova says. "This gave us additional trucking costs and customer dissatisfaction. They contracted us to operate to FRA, and suddenly we had to fly to another airport. This is not the correct way to operate." At press time, ABC was still awaiting confirmation from the German authorities for its summer schedule to Frankfurt.

Cargo Supermarket

Demand for Volga-Dnepr's charter business remained buoyant throughout 2008, whereas demand for scheduled services between Europe and China fell about 10%-15% in the last quarter, Arslanova says, admitting that on routes to Japan demand dropped a hefty 30%-35% compared to a year earlier. Demand also weakened in the first months of this year; "2009 will be a year of no growth," she concedes, adding, "Our strategy for this year is trying to improve our product, our quality, our structure, our efficiency and be more flexible in reaction to the market situation." Its aircraft could fly a bit more, she readily admits, although 150-200 block hr. per month for a freighter on charter is "considered normal." VDA's An-124s operated an average of 5.44 block hr. per day last year and its Ilyushins managed 4.26 hr. The 747-200s/-300s achieved 9.2 hr. and the new -400s just over 11 hr. "We made some schedules in the past based on a more intensive daily use of [the 747s] but we faced punctuality and regularity problems. We had negative feedback from our customers so we tried to optimize our network based on better quality," she explains. "We understand the issues involved [with] operating aging -200s, so a daily utilization of 9 to 10 hours is okay. As regards to the -400s, we were still in a startup phase."

The group has initiated a cost-cutting program but at press time had no route closures or aircraft groundings planned in its scheduled business. It recently reduced frequency on certain routes (e.g., its seven-times-weekly service to Hong Kong moved to six-times-weekly).

"Being in two businesses allows us to balance capacity between charter and scheduled operations," Arslanova says, affirming that the group intends to develop further the close cooperation between its two core businesses in support of its "cargo supermarket" concept, which also includes expert technical appraisal and preparation of consignments for transportation, logistics programs for heavy and outsize cargo and project-specific logistics engineering solutions.

A saving grace, she believes, is the fact that the group has no additional aircraft coming this year. As part of a fleet upgrade strategy for ABC, two older 747-200Fs were replaced with two new -400ERFs last year and the carrier's five 747-8 Freighters (ordered in 2007) are scheduled for delivery from 2010 onward but could arrive later owing to the delay in the program. The group has three more Il-76TD-90VDs on firm order, but the delivery schedule is uncertain. In the meantime, VDA has removed five Il-76TDs from its fleet in the last 12 months. "We remain very involved in the 11-76 modernization project because it allows for worldwide operations of the aircraft and its unit costs are much below those of comparable Western-built aircraft," Arslanova remarks. The -90VD is ICAO Chapter IV compliant whereas the standard IL-76TDs with D-30 engines meets only Stage 2 noise restrictions and therefore is banned from flying to many regions.


Volga-Dnepr Selected Results (year ended December 31)

Financial ($ millions)

2008

2007

2006

2005

Total Operating Revenues

1,389.4

985.9

648.2

455.7

Cargo Charters

1,004.9

681.8

420.8

339.8

Scheduled Cargo Services

384.5

304.1

227.4

115.9

FTKs (millions)

Cargo Charters

618.8

540.2

327.9

424.1

Scheduled Cargo Services

1,720.0

1,399.4

994.7

750.6

Cargo Carried (tonnes)

Cargo Charters

136.000

111,253

75,342

60,081

Scheduled Cargo Services

130,000

108,045

83,508

42,170

Total

267,000

219,298

158,850

102,251

Source: Volga-Dnepr Group

Volga-Dnepr Current Fleet

Aircraft

Number of Aircraft

An-124-100

10

II-76TD

5

II-76TD-90VD

2

747-200

2

747-300

1

747-400ERF

3

Total

23

Source: Volga-Dnepr Group

Array

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