Published: 12/12/1997

12th December 1997 - Issue 54 According to the privatisation plan (see CP697.1), the unitary Domodedovo Production Association of Civil Aviation - DPO GA - is being divided into three independent structures;the airport, airline and state administration of the airport. While the future of the airport looks bright, being widely considered as the most promising of all four near Moscow city, the future of the airline is not as certain. Leonid Sergeyev, DPO GA chief, and Dmitry Shiryaev, flight director with Domodedovo Airlines, share their viewpoints on the subject exclusively with ConCISe. The problems associated with Domodedovo Airlines go back to the routes it had originally been given during Soviet times. Domodedovo airport was built to serve remote regions like Siberia, Far East, Extreme North and Middle Asia. The summer timetable of the airline during that time included scheduled flights to Yakutsk (daily), Vladivostok (daily), Khabarovsk (daily), Magadan (daily), Petropavlovsk-Kamchatsky (daily), Anadyr (four times a week), Yuzhno-Sakhalinsk (three times a week) and Bratsk (once a week). In winter the intensity of flights on many routes went down substantially. The links with former Soviet republics in the Middle Asia, which are now independent states, are determined by interstate agreements. Scheduled services are maintained to Tashkent (daily), Baku (daily) and Gyandzha (three times a week). International flights are mostly on regular charter basis, to China, Turkey, India, Pakistan, Italy, Bulgaria, Egypt, Arab Emirates and other countries. Declining traffic In 1997, Russian civil aviation passenger traffic as a whole declined by 10-12%, whereas Domodedovo Airlines registered a 30% drop over the previous year. In the first eight months of 1997 the flight time for the Il-62 airliner fleet was just 67% of that for the same period last year. Leonid Sergeyev does not consider this to be a direct result of competition on the market. He states the cause is the further worsening of financial problems for Domodedovo Airlines' traditional clients - the population of the northern regions has suffered from non-payment of salaries more than any of the other territories. Also, with the end of so-called "great construction projects of communism", the flow of people to remote regions from the central part of the country has ended. Servicemen and their families have always been a very special group of passengers for Domodedovo Airlines. Their carriage was traditionally paid for by the Defence Ministry, which now suffers from shortages of cash. However, there are some routes with a stable flow of passengers, like those to Vladivostok and Petropavlovsk-Kamchatsky in Russia, and Tashkent and Baku in the CIS. Shiryaev says that if it was not for the interstate agreements, it would be possible to increase frequencies to the two latter destinations. As for the whole of Russian civil aviation, the boom of international flights from Domodedovo came to an end in the second quarter of 1996. This August, Domodedovo Airlines' passenger numbers were just 43% of those of last year. Shirayev says that the rise used to be caused by so-called "shop-tourism", which declined with the implementation of new customs tax for imported goods in 1996. The suppliers of consumer goods from China and Turkey have converted to pure cargo flights, which remains at the same level in 1997. Fleet The historic long-range specialisation has determined the fleet of Domodedovo Airlines. The basic type is the Ilyushin Il-62, accepted in DPO GA service in 1966, just two years after the company's foundation. Although its production ended in the early-90s, no suitable replacement has yet been found. Meanwhile, Domodedovo Airlines fleet has decreased from the peak of 55 in 1991, down to 33 in 1997. Currently, the passenger airliner fleet consists of 25 Il-62s, 2 Il-96-300s and 2 Il-18Ds. In terms of organisation, the aircraft and their crews are divided into two flight detachments (one for international, the other for domestic flights) and a separate squadron flying the Il-96. DPO GA often leases its crews and ground specialists on to other Russian operators, like East Line, whereas opportunities for leasing airplanes are rare. Of the 29 airliners in the inventory, eight have no engines, due to the company's limited financial resources. Two Il-62s are currently at the 243 Repair Plant in Tashkent for major overhaul. The number of operable Il-62s is determined by the market situation. Most of the time, Domodedovo Airlines employs from 10 to 15 passenger planes for both scheduled and charter flights. The cargo fleet includes four relatively new Il-76TDs. Domodedovo Airlines is considering converting five or seven of its redundant Il-62s into freighters or combies. The first Il-76TD arrived new from Chkalov's TAPO factory in 1990, followed by the second in 1991 and the other two in 1992. The first two airframes have logged over 12,000 flight hours and undergone a major overhaul. In the last four years DPO GA has had no serious flight accidents on its two Il-96-300, which were brought in for operational trials in 1991. At first, they flew so frequently that their engines amassed 3,000 hours running time before than the test models at Perm Motors achieved that figure. Despite a series of technical shortcomings discovered, the plane was found suitable for service. However, in 1996 and 1997, the two Il-96-300s logged very few flight hours, due to the lack of money to put their PS-90 engines in a serviceble condition. Workhorses Dmitry Shiryaev divides all his Il-62s into two groups - those manufactured in the mid-70s and newer models, with strengthened wings and an extended lifetime of 45,000 flight hours. By the end of this year three of the oldest Il-62s will be retired, with the last "weak-wing" model leaving active service in 2002-2003. After that Domodedovo Airlines will have only 21 "strong-wing" Il-62Ms, including 12 delivered new from the Gorbunov's KAPO factory between 1988-1990. These should be finally retired by 2012, but the high fuel consumption of these aircraft may bring their end nearer. According to Shiryaev, Russian companies are currently operating no more than 80 Il-62s, so he expects a steady rise in the cost of spare parts, as the remaining airplanes quit active service. The Il-62's high fuel consumption does not automatically guarantee an advantage for western airliners in terms of operational economics, given current Russian economic conditions, Shiryaev states. He says, "If our famous operators were not exempt from paying customs tax on foreign aircraft, they would have gone bankrupt long ago". According to Shiryaev, high rentals plus customs tax for the Boeings simply cannot be compared with wear-and-tear payments for Soviet-built types. Surprisingly, the Il-18D, being the oldest type in Domodedovo Airlines inventory, remains the most profitable. The veteran successfully works on Moscow-Baku and Moscow-Gyandzha routes. Powered by four Ivchenko AI-20M turboprop engines driving 4.5m AV-68 propellers, the Il-18D is better then both the Aeroflot Il-62M and Transaero Boeing 737-200, which are also flying to Baku. According to Shiryaev's data, the 100-seat turboprop reaches Baku in three hours, burning six tonnes of kerosene, whereas the Il-62M with 132-168 seats does it in 2h 20min, burning upto 16 tonnes of fuel. The 98-seat Boeing requires some 6-7 tonnes of fuel. The Il-18's outstanding economics allows Domodedovo Airlines to keep its tariffs lower than Aeroflot, Transaero and AZAL. In winter a one-way ticket Moscow-Baku with Domodedovo Airlines costs $90, some $20 less than with Transaero. In 1996, the two remaining Il-18s logged 30% more flight hours than in 1995, whereas all jet types were "in minus". Baku's "frequent fliers" do not care much for vibration and noise. In 1996 and 1997 the passenger load factor on the Il-18's Moscow-Baku flight stood at 85.3%! Dmitry Shiryaev, an Honoured Pilot of Russia with 16,000 flight hours to his credit, speaks highly of the Il-18, praising it as a very reliable and easy-to-repair machine. During its long service life Ilyushin engineers identified and eliminated all of the design shortcomings. Shiryaev says each of the two Il-18s has 15,000 flight hours remaining and can serve for another eight years. There is no problem with spare parts - ones for the Il-38 maritime patrol aircraft fit the Il-18 too. Stored in large quantities in military stockpiles, they will hardly be exhausted during the next five to six years. Fleet renewal Praising the Il-18 and Il-62M for physical sturdiness and flight safety, Shiryaev appreciates that these aircraft are nearing the end of their useful life. Purchase of either new or second-hand long-haul airliners is not affordable for the company and there is no hope of getting bank loans, worth some $1bn, from local banks at an affordable rate of interest. Shiryaev does not expect radical changes in the financial situation until the restoration of a sufficient solvent demand on the air transport market. Given this, the only way to renew the inventory is to undertake operating leases of old western aircraft. This idea may materialise after Domodedovo Airlines finally turns from a state-owned enterprise into a joint-stock company, which should happen by the end of this year. DPO GA considered leasing several Boeing 757s back in 1994-1995, and even converted some crews for that type, but the implementation of higher customs tax in 1995 killed the attractiveness of the projected deal. In parallel with leasing western types, Shiryaev proposes to pay off the debt to the VASO factory for the third Il-96-300 (ordered earlier and already completed) and put it in to service. These three airframes would allow the airline to commence regular services on the type. However, Shiryaev says, no more copies of the Il-96-300 are required, because the plane's passenger capacity (250 seats) is too big for today's traffic. Who feeds whom? In 1996, Domodedovo Airlines' expenses were higher than operating revenues. Leonid Sergeyev states that only being a part in the unitary aviation enterprise has allowed the airline to keep afloat. Today, over 40 airlines fly to Domodedovo airport and the number is rising due to lower fees in comparison with Sheremetievo and Vnukovo. The absence of night-operation services at Bykovo forces air companies to opt for Domodedovo. The attractiveness of Domodedovo airport for operators is also explained by the location here of DPO GA's aircraft maintenance base, regarded as one of the best in Russia. It carries out light and heavy maintenance (except for major overhaul) on almost all Soviet airliners. Roughly 70% of its capacity is used to fulfil orders from other operators. The company has a hangar large enough to accommodate four Il-96 airliners. Among work being done is the installation of business-class seats, life-extension and local repair of engines. The vast majority of Moscow-based Il-76s in service with over 20 operators undergoing maintenance forms at Domodedovo. Sergeyev believes that Domodedovo Airlines can survive by means of reducing operating expenses. Under his command, in 1997 some unprofitable routes were closed, and the share of salaries and wages in the company's expenses decreased from 30% to 17%. More charter flights abroad are flown, all being highly profitable. Some 65-70% of all charter flights abroad are said to be cargo missions. To attract rich passengers, Domodedovo Airlines equipped its Il-62Ms with business-class seats, which reduced the passenger capacity from 168 down to 156. Although Shiryaev sees no scope for revival of the airline in the near future, he believes that the overall number of scheduled daily flights will never fall below 8-10 (there are 90 departures from Domodedovo airport daily in winter). Even though this statement is true, it does not guarantee anything. Aeroflot and Transaero are now trying hard to expand their network, drastically lowering prices on newly-opened routes. Transaero has succeeded in attracting Siberian and Far Eastern passengers, who used to fly Domodedovo Airlines. In 1997, Transaero increased its frequencies to Vladivostok twice, whereas Domodedovo has reduced it from the peak of seven daily (in 1991) down to nine a week. Commenting on Transaero's success, Shiryaev says, "What can I do to compete with their ten Boeings while the cost of fuel is $260 per tonne and rising? Without fleet renewal we will lose the battle." The only unbeatable argument in favour of Domodedovo Airlines is that the company has not ever had a crash since its foundation in 1964. The DPO GA chief's vision of the future is different to Shiryaev's. Sergeyev is convinced that the airline can become a profitable business under proper management after privatisation even without fleet renewal. Domodedovo Airlines' capital base is set at Rbs7.8bn, in which the state share will be 25.5%. Some 38% of shares are to be sold at a commercial auction to rise the money for reforming the enterprise. Both Sergeyev and Shiryaev foresee severe cuts in the work-force after privatisation. Currently, Domodedovo Airlines employs 800 crew members and 800 stewards, which is twice that required, Sergeyev states. (AL1297.1) (VK)

Article ID: 105