Volga-Dnepr Group / Press-center / Media Coverage

Russia will open its skies for the rest of the world. And secure good profit

08/14/2006

The favorite amusement of Alexey Isaikin, a 54-year-old President of Volga-Dnepr Group, is to view route network which his pilots have flown since 1990. With its fleet of ten gigantic Ruslan (AN-124-100) freighters, Volga-Dnepr has dominated in the global oversize and heavy cargo market, while Isaikin regards the route web weaved by himself a ‘roentgenogram of the world’s economy.’ And also of the world history.

“When we were at the very beginning in early 1990s, we carried out over half of all our operations over Atlantic,” says Isaikin, “As early as before 11/09, this business took to downturn with charter activity shifting to first Europe-Middle East, then China-Europe routes.” Route density is the best detector to indicate in which part of the world a new global economy engine has been started.

We are talking at Farnborough Air Show. “When you have time tonight, have a look at the number of aircraft airborne in London area, at various flight levels and different headings,” Isaikin suggests. At Heathrow Airport, the main air gates of the UK, aircraft land in every 40 seconds.

“On our Company’s route network, like on that of global air transportation industry, Russia land territory, poses an absolute blank,” admits the Company owner. “They prefer flying round us from the North and South …” But it will not be always this way. The former Air Force lieutenant colonel, who has established a $460 million business in sixteen years, sounds optimistic: “The one sixth part of land will be covered, it will become as comfortable as both Europe and USA in passenger and cargo carriage. Skies over Russia will be occupied by air carriers with the same density as over UK.”

Do you remember school definition of a right line? The shortest line that can be drawn between two points. Looking at the global map, the way from East Asia to Europe appears the shortest through Russia. But in real life it’s anything but this. Russia has continued to collect hundred thousands ‘overflying’ USD from foreign operators and transfer these funds to Aeroflot.

Ministry of Transport’s forecast is that by 2020, cargo transit via Russia territory will grow three times. “A key industry – global passenger and freight traffic services - will be developed,” Isaikin gives encouragement to the forecast, ”Money out of thin air!” He earnestly believes, Russia will be able to propose to the world “a very helpful selection of routes on the most intensive airways connecting key economies.”

This does not mean, Mr. Isaikin believes in redemptive interference of the state which will promote air transportation industry. It’s circumstance of insuperable force rather than goodwill of bureaucracy that will cover the ‘blank spot’ on Russia territory. This circumstance is called “global economy growth”. Global trade gravity will overcome any artificial barriers. Although, Mr. Isaikin’s ideas (“covering blanks”) have particularly mechanistic nature, this does not mean he is not right.

Economic growth areas will include Russia and its neighboring countries. “China will stay the horn of plenty in commodities for the next twenty years,” Mr. Isaikin believes. According to Mr. Isaikin, Russia national economy will, by 2025, come up to the “point when network logistics is feasible.” Besides, network freight deliveries within Russia is more perspective as a business against intercontinental transit at 10–12km flight levels.

What we need to do is develop the new industry’s infrastructure: hubs and maintenance bases which may be used by dozens of very demanding international customers, rather than just a single company. Recipe of flourishing by Isaikin: “to have skies full of aircraft, the ground must be fitted out.” Potential sales of the business is “almost $1 billion involving only four” Russia freight and passenger hubs. True, difference between the actual and the desired is very big. “Today, so far as we have nothing for the future intensive traffic, neither for our own fleet, nor others’,” Isaikin says, “The paradox is that providing for only own fleet would be impossible because infrastructure investments will never be paid back.” This means, the development will place Russia air carriers in fair competition conditions with western companies, all the more so, because protectionism will weaken any industry, and take away from employees and businessmen motivation towards improvement.

AIR COMBAT

Will there be a ‘national champion’ in passenger services in Russia? Mr. Isaikin is sure, a return to a time when everybody flew with Aeroflot aircraft is impossible. “The only company needs just one country, and we know it, the Soviet Union. It is impossible to reverse history. There will be three to four competing Russia carriers about the same ‘weight category’.

Our air carriers will have to prove their advantage over national and foreign companies without noting they tied down to certain part of the airspace or airport with a cheaper fuel stock,” and the main argument in this competition will be adequate business arrangement. Here’s how Volga-Dnepr is getting ready.

Transportations with ramp freighters (cargo is loaded through nose or rear cargo door) are mainly charter flights today. “The intensity of freight flows has grown higher year after year, and a time will come when heavy freight is transported with scheduled operations. Therefore, charters will be complemented by scheduled operations. Which airplane to choose, Ruslan or more compact B747 will be decided by customer. Mr. Isaikin compares the model with a supermarket with a big choice of mass products. He believes, this model will enable the company to reach $1 billion sales by the end of the decade.

One more Isaikin’s idea: to sell expertise rather than transportation services. “We have more often faced the problem that market demands a logistic chain by which cargo finds its way from manufacturers to end users, rather than just air transportation. This requires concentrated specialization. Exactly such personnel we have now.”

“Generally, when the specialized intellect is collected and cultivated, it may secure advantages for quite a long time,” Isaikin says. And there is such chance with the national aircraft-building industry. “Collision between Airbus and Boeing shows, there are no absolutely correct solutions in this industry. In-depth study will always find its way to areas still unoccupied. And the risk is everywhere. Americans, if successful, will release to the market a very effective product (B787). Airbus has used a more conservative approach, and risks to fall behind for rather a long time.”

There is something to do: get national designers continuously busy with tasks the products of which are demanded in the market. First, to resume production of freighter aircraft. “Practice brains on this, and taste the victory alongside with new developments, that’s short-term. We should also consider regaining a share of international passenger market for Russia-built aircraft.

INTELLECTUAL POTENTIAL

Russia is destined to be a global intellectual leader. “Raw material suppliers are, of course, strong now,” Isakin admits, “But, from the point of state’s existence, fifteen years may seem a second.”

Russia’s competitive advantage is availability of “intellect starving for information, which will, like sponge, absorb anything from the world’s experience, and transfer that into the country. Everybody knows about distribution networks and hypermarkets. These were borrowed from Europe and US. And everybody may go and see the difference: European and US distribution networks are worse in quality against those in Russia.”

Bureaucracy revenge seems impossible to Mr. Isaikin. “True, there are some atavisms: the state may want to return its share in industries, which may be reasonable to some extent. And everything we have absorbed in the last 10 to 15 years from the western culture, will surely run to seed in Russia. And after over-saturating Moscow, it will spread to other regions of Russia.” Should the idea of intellect emancipation be implemented consistently, Russia will, without any supportive projects, solve the problem of the Far Eeast and Siberia: “ensure more jobs without additional effect on the environment of the area.”

How would you guess the idea is implemented consistently? Isaikin’s criterium is very simple: “when and if когда Russian emigrants, for example, in US or Israel would like to return to Russia”. These two contries, in Isaikin’s opinion, accommodate “considerable part of our aviation brains.” There will be enough work for everybody.

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