Volga-Dnepr Group / Press-center / Media Coverage

The conventional ambitions of Alexey Isaikin

04/01/2003

Volga-Dnepr's chairman, Alexey Isaikin has a long history of confounding expectations in the development of his airline. His latest project is to launch the carrier as a conventional cargo operator, and give Russia a cargo airline to compete with any in the world. Peter Conway reports.

Right from its beginnings in 1990 Volga-Dnepr has been different from other Russian cargo airlines. While they acquired IL-76s on the cheap and started flying them to Dubai, Sharjah, Delhi and China in pursuit of so-called "shop-tourism" business, Volga-Dnepr's founder and current chairman Alexey Isaikin focused on the larger and less common Antonov 124. While other carriers focused on short term profits, he built a niche business with global reach, partnering with the UK's outsize specialist HeavyLift to introduce western manufacturers and relief agencies to the unique capabilities of the AN-124.Volga-Dnepr has also always invested in its own new aircraft, rather than simply acquiring existing military surplus planes. Alexey Isaikin

Over the past 13 years, Isaikin has enabled Russian manufacturer Aviastar to finish nine AN-124 airframes left behind by the military cutbacks at the end of the Cold War, and it is now is working on a tenth. Ultimately his ambition is to have Aviastar making entirely new airframes.Isaikin has been a tireless champion of improvements and enhancements to Russian aircraft too. His tenth AN-124 will be an updated version, needing only four crew instead of six at present, and carrying up to 20 percent more payload. Unlike the IL-76, which in April 2002 fell foul of European Union noise legislation and were banned from Europe, he has been careful to ensure that his AN-124s are chapter three compliant and so still able to fly in both Europe and the US. Typically, Volga-Dnepr is also pioneering a stage three version of the IL-76.Most of all, however, Isaikin has always shown a long term strategic vision for his carrier, an ability to think out of the box and break away from stereotypes. Russian manufacturer Aviastar has refurbished nine AN-124 airframes left behind by the military cutbacks at the end of the Cold War

The competitors Isaikin has in mind seem to be Chinese carriers. Though he plays his cards close to his chest as to his exact strategy for its B747 fleet - "I think I will keep that to myself," he smiles - he admits that China to Europe traffic is a key target, and hints at services from Korea and Japan too. He also reveals an ambition to extend the conventional service across the Atlantic to the US if market conditions permit.The Asia to Europe market might seem to be crowded enough market already, but Isaikin points to the shorter flying routes to Europe across Russia that Volga-Dnepr will be able to offer - without some of the restrictions placed on European competitors such as Air France by the Russian government, one might add - and hints also at the possibility of setting up a technical services base for Boeing aircraft in Russia, so presumably lowering costs. The latter would only be part of the plan in the "second or third year", however.The idea of setting up a technical base illustrates one major handicap that Volga-Dnepr has to operate under in its drive to make itself a global carrier. In an attempt to protect its aviation manufacturing industry, Russia places up to 40 percent tax on imported aircraft, meaning that purchasing western aircraft is not an option for Volga-Dnepr, particularly as spare parts incurr the same high customs duties too. Isaikin is exerting as much pressure as he can to get this policy changed. "Chinese carriers have a simpler situation, and I think China's policy is correct in this respect," he says .

Faced with this restrictions, the only option for Volga-Dnepr is to lease Western aircraft, which is what Isaikin confirms it plans to do. Naturally, he is looking for B747Fs, but he refuses to be drawn just yet on where the aircraft might come from. Atlas might seem to be the obvious answer, but while Isaikin speaks warmly of relationships with the US lessor (which survived Choudry's tragic death in 2001) with typical business acumen he also observes that the market for B747s is "in our favour" at present. That means that Atlas is just one of several suppliers being looked at. "It is understandable that we would want to look at all the options," Isaikin says.While plans continue for scheduled B747 service, Volga-Dnepr has back pedalled on ambitions to develop scheduled service with its ramp loading aircraft. The carrier had an unhappy foray into the Russia-China market with AN-124s and IL-76s in the mid 1990s, and in 2001 Isaikin was hinting that it might return to this market. The idea was to try and clean up and regularise the "shop tourism" trade between the two countries, which even Isaikin admits was dominated by "criminal elements" in the past. Plans for certification of AN-124 by the UK Civil Aviation contnue. Now he clearly sees that as yesterday's market, however, to be replaced by conventional cargo services. "Shuttle flights have reduced dramatically, particularly as the Chinese carriers became more aggressive," he says. "The only way that Russian operators will continue to compete on these routes is by changing aircraft." In general, he predicts the imminent demise of the IL-76 as a general cargo aircraft, saying it will revert to mainly specialist uses.That doesn't mean Volga-Dnepr is turning its back on Russian aircraft, however. Isaikin admits that his goal is that the new conventional cargo operation's revenue will match that of the An-124 side of the business within a few years, but he is at pains to stress that Volga-Dnepr remains committed to ramp aircraft (the AN-124 and IL-76) and the specialist market they have created.

He is also interested in the 18 tonne TU-204 and also in the IL-96 for use as feeder aircraft or for secondary routes for the conventional cargo operation.In the medium term, indeed, Isaikin still has great hopes of the Russian aviation industry. While he is in talks with the Russian government to persuade them to ease the tarrif barriers on Western aviation products, he is also trying to persuade Russian aviation manufacturers that their best hope for the future lies in cooperation with western players. "My idea is that by creating joint ventures on Russian territory, we will guarantee the future of Russian aviation," he says. "I think there is also now an understanding in the government that this is what is needed and the only question is to agree a reasonable compromise between the parties."Isaikin's influence in this debate might get stronger in May, when a shareholders meeting of Russian aircraft maker Aviastar, which builds AN-124s, will be considering him as a board member. "My candidature is being supported by the government, and I have made it with only one purpose, to give advice as to the direction of Aviastar and what needs to be done better. I believe I can help it change to a better situation," he says.He thinks Aviastar particularly has a lot to learn from the west on the subject of marketing, and one can imagine that Volga-Dnepr might be held up as an object lesson in that respect: a Russian company that learned to do business with the West. Isaikin also says Aviastar needs to bring in "the right professionals", which he confirms means some Western aerospace managers.Being on the board might also help Volga-Dnepr resolve what seem to be regular disputes with Aviastar and other Russian aerospace firms over progress on existing models. Isaikin agrees that with the Tupolev 204, and plans for updated Antonov 124s and IL-76s, Russia has some world class products that are not realising their potential. He also thinks Russia could be a world class competitor in the construction of passenger planes up to 100 seats.He is diplomatic, however, when asked about specific disputes, such as recent reports that Volga-Dnepr was planning to break with Aviastar altogether.

"The existence of such accounts in the press is just confirmation that work is in progress," he says with a wry smile. "Obviously in an ideal world everything would progress without any conflict, but Russian capitalism is a bit young and not everything is privatised in an appropriate way yet." Asked to expand on this, he says a particular problem is that key shareholders in some companies keep changing. "New owners come and go and it takes time to bring them to an understanding of the business," he says.Some idea of the frustrations Isaikin faces when dealing with Russian aviation companies can be seen in its ongoing attempts to equip an IL-76 with stage three engines. He admits that progress is "slow", but says Volga-Dnepr has now paid for the new Perm engines for the aircraft, and fixed on a longer version of the aircraft to upgrade, one with a potential 60 tonne payload compared to the usual 40-45 tonne limit.Asked if the delays to the project are in the engines or the airframe, Isaikin admits it is both. "We have to deal with three parties, the Ilyushin Design Bureau, the factory in Tashkent and the engine manufacturer," he says. "Obviously it would be better to deal with one party." Though it is not stated, he is also clearly frustrated with other Russian carriers for not backing the programme. The original plan was to convert three IL-76s, one for Volga-Dnepr and two for other carriers. At present, only Volga-Dnepr is supporting the project, however.Back with the core business, 2002 was a particularly good year for AN-124 operations. Revenues for the Volga-Dnepr Group soared to $190m in that year, $180m of it from AN-124 operations. That is nearly double the $100m clocked up in 2001, though that was down from $140m in 2000. AN-124 is best known for transport of outsize items.

The US port strike helped, as did relief flights to Afghanistan in the first half of the year, but Isaikin says there was underlying growth even without these two factors. This came particularly from developing long term relationships with industries such as oil and gas, aerospace and satellite manufacture. This Isaikin sees as a useful counterpoint to the emergency response side of the AN-124's business - relief flights and ad hoc shipments of outsize items - though he admits these will always be a core business for the Antonovs.The automotive industry, a strong supporter of AN-124 flights in the late 1990s, was less in evidence in 2002, however, due to a general decline in demand for cars and trucks in world markets. Isaikin stresses that he does not see AN-124s competing with general cargo operators in any case, though he says for point to point shipments they can still be competitive.

"It is a bit like a bus versus a taxi," he says. "The Antonov is the taxi. It is ideal if you want to avoid congested conventional hubs, fly a specific route, or deliver a full set of equipment on one aircraft." Soon, of course, he is hoping to be able to offer both bus and taxi service.Interestingly, one place that automotive traffic is still thriving for Volga-Dnepr is in Asia, where Isaikin says lots of shipments are being moved between South East Asia and China's growing automotive industry. Last year was a good year for Asian traffic in general: due to the US port strike, 30 percent of the carrier's revenues came from the region. The average in the previous five years was 15 percent, but that might change as Volga-Dnepr ramps up its sales presence in the region. The carrier's long established sales office in Beijing, which covers the whole of the Asian market, is hiring further staff, Isaikin confirms, and a small sales office was also opened in Sharjah in August complementing an existing maintenance operation for Russian aircraft that has been at the UAE airport since 1996.On the subject of a possible flotation of Volga-Dnepr, Isaikin says that he is planning to hire some "high-value financial managers" this year to look into the idea, as well as co-opting independent directors on the Volga-Dnepr board. What market Volga-Dnepr might float on - New York or a European market - has not been decided, but Isaikin says that "for sure it will not be on the Russian market".Plans for the certification of the AN-124 by the UK CAA are also proceeding. Discussions continue on the subject and have met with "no barriers that I know", according to Isaikin. The aim of the certification is as much financial as operational. AN-124s currently operate effectively without restriction in the UK, but a certified aircraft could be used as equity in financial transactions, Isaikin says.Even here, however, Isaikin is looking beyond mere flotation or certification. He admits that one of his biggest projects at present is preparing Volga-Dnepr for the day when he is no longer running it. He is particularly aware that companies often lose their way once their charasmatic founders retire, and so he has already stepped back from the general director (CEO) role to become chairman to give others chance to take day to day responsibility. "The average age of management in this company at present is 50," he says. "We need to train the second and third generation." Part of that plan is to create a "corporate university" sometime in the coming year, to inculcate the Volga-Dnepr culture into its rising stars. "You would think that for an airline, investment in the fleet would be more than investment in staff," says Isaikin. "But I think if recruitment and training is now much more for us."His ultimate ambition, he says, is to be able to sit surrounded by his grandsons and granddaughters and tell them. "You know, I used to run that company...."What kind of carrier Volga-Dnepr will be by that time is anybody's guess, but Isaikin's track record so far gives plenty of fuel for speculation.

Payload Asia, april 2003

Back to the list