Of all the Western companies to tackle the risk-laden challenge of doing business in the CIS, two can look back on the experience with more satisfaction than most. Their ventures were among the first East-West links forged after the opening up of the USSR, and have proved among the most enduring and lucrative.
The Western enterprises involved - Air Foyle and HeavyLift Cargo Airlines - have much in common, notably a shared UK nationality, but they share many differences too. Their eastern partners - respectively the Antonov design bureau of the Ukraine, and Volga-Dnepr Airlines of Russia - are even less alike. The common denominator for both pairings lies with the prodigious capabilities of one aircraft - the Antonov An-124 Ruslan.
Despite its weaknesses, this outsized Ukrainian freighter has one strength, which is crucial under the rules of Western capitalism, its abilities are unique. That factor allowed the highly entrepreneurial Christopher Foyle to elevate his operation into a global force, while providing heavyweight-freight specialist HeavyLift with new areas of growth. The relationships differ - Air Foyle acts as general sales agent (GSA) for Antonov outside the CIS, while HeavyLift has a true joint venture with Volga-Dnepr - but both are thriving.
Neither UK Company relies totally on the An-124 business. Air Foyle, 95%-owned by Christopher Foyle, says that its entire CIS activity accounts for about 60% of its approximately $48 million turnover, and around 50% of profits. The 60% figure includes some work with Ilyushin Il-76s and a specialised contract to provide an IL-76 and a Lockheed Martin L-100 Hercules on standby for oil-spill response. Most of the remainder of Luton-based Air Foyle's income comes from running a fleet of British Aerospace BAe 146s for package-carrier TNT.
HeavyLift, owned by Trafalgar House, claims sales of more than $100 million in 1994, of which "perhaps $60 million" was derived from An-124 operations. It says that the Volga-Dnepr tie-up makes the precise profit figure impossible to determine, since it does not know the Russians' costs. Additional HeavyLift income is derived from Il-76 operations and other freight charter work using a Boeing 707, an L-100 and three Shorts Belfasts. The entire operation is based at and directed from a headquarters at London's Stansted Airport.
Air Foyle claims access to six specific An-124s and intends to add two more "by the end of the year". At any given moment, however, it appears that about four are actually available. The issue of who controls which of the limited number of An-124s in existence causes some touchiness in this narrow world. Air Foyle's Bruce Bird says, the six are owned by Antonov, including one, which belongs to the Kiev Aviation Production Association (KIAPO), co-located with Antonov. The issue is confused by Antonov's use of the Ruslan firm identity in some contexts. Bird says the name only refers to that part of Antonov, which runs its commercial business, and is synonymous with the design bureau.
Air Foyle also collaborates with two Ukrainian Il-76 operators - Khors, for which it is a GSA, and Hoseba, with which it has "an excellent working relationship". The list continues and is not exhaustive. Antonov Air Truck, says Bird, is a separate company owned by Antonov, but independently operating a Swiss-owned An-124. Aeroflot has two aircraft, Transcharter one and Ajax two.
HeavyLift commercial director Graham Pearce says, that the six of the joint venture's aircraft are owned by Volga- Dnepr and two by Rossiya. The latter, also known as Department 235, is effectively the Russian Presidential flight. An-124s are still in production, however, at the Aviastar/Ulyanovsk production plant, and the growing number of independently run aircraft is beginning to affect the economics of both the major operations' businesses. Not surprisingly they agree that this phenomenon is undesirable, although they insist that they have the customer's interests at heart.
Air Foyle's Bird, himself ex-HeavyLift, explains: "The more operators there are, the more difficult it is for the customer to have an idea of what is possible. Some of the aircraft have been leased, and promises made by people who will lie through their teeth about availability. Up until a short while ago there were just the two operators and that picture got through to the market, which stabilised somewhat. But with the increasing demand for cargo space and the fact that, during the Gulf War, an impression was created in the CIS that this aircraft was automatically able to earn good profits, the purchasing of used aircraft began, and Aviastar sold several to Russian operators."
Pearce of Heavylift declares: "I have no problem with anything to do with Air Foyle - they understand the numbers and they have to do it the right way. What I have a problem with is the rogue aircraft that just bugger up the process and take the commission, which helps nobody but the operators. There is a fair price to do a fair job and I don't think serious shippers worry about it. There are numerous examples of people going on a short-term thing and then getting cut out."
Nevertheless, Christopher Foyle volunteers that the two-horse race had made it easy for each operator to keep track of the availability of its rival's fleet, and adjust prices accordingly. That, together with the low Ukrainian cost-base, has been a major contributor to the An-124's success. ACMI (aircraft, crew, maintenance and insurance) lease-rates, for example, have fluctuated from little more than $2,000/h to something approaching $8,000/h when demand was high. Furthermore, an An-124 remains profitable when it is used for only 1,500h per year, compared with the 3,000-4,000h needed to keep a Boeing 747 competitively priced.
LOOKING TO THE FUTURE
Clearly, the size of the potential freight market is critical to the future success of the An-124 operators. Both UK operations benefit from the enormous demand from United Nations agencies. It provides a rare activity in which the aircraft's sheer volume is valuable for conventional freight as well as for outsized items. Normally, its direct operating costs make the carriage of the former uneconomical - as some of the newer operators are learning. The signs are that the UN business is likely to continue but, for example, the delivery of Boeing 777 engines to Seattle is almost certain to end when series production begins. Plenty of semi-regular business remains, but the reality is that much future activity will depend on new opportunities.
DIFFERING VIEWS
The operators have different views of the market. Bird suggests that "probably only about 5%" of potential customers have so far been identified and he sees a need to educate the marketplace further. "Anyone wanting to move something of more than 30t or 3.5m width or height are the people we want," he says. "They would have done their business with marine brokers who don't need to know about us". Predicting a bright future, he notes that competitors of companies, which use the An-124 for transport are likely to want it too. He says that outsize items such as pressure vessels or turbines are frequently so crucial to their industrial processes that, if they fail and need to be re-moved, cost is likely to be little object. Additionally, the An-124 is becoming an integral part of some industrial production cycles so that its use is institutionalised.
At HeavyLift, Pearce, however, says: "You can only react when the phone rings. You can't have people out on the road selling this aircraft. We get the best part of 4-500 inquiries per week for this aircraft of which perhaps 30 are serious and of which two or three will actually result in a flight. The aerospace industry is very good for us and, when there is a lot of activity, we get a better strike rate. Otherwise there are a lot of people just doing cost exercises and it [the An-124] is usually a bit more expensive than doing it by surface freight. The people in other airlines and in freight forwarders know of the aircraft, although the people who don't know of the aircraft, such as in heavy industry, may be the people most likely to need it."
The other key to the future of the operations is the development of the aircraft itself - primarily its Progress D-18T turbofan engines. Although its uniqueness protects its niche, it could be a much better aircraft. Air Foyle puts its fuel consumption per kilometre at 24% more than a Boeing 747 for a cruise speed of only Mach 0.72 compared with the 747's M0.84. There are not many 747s available, and even though they have greater useable volume they are not configured to accept outsize loads. Both major operators have learned to cope with the eccentricities of the An-124, but only by constantly transporting technicians around, and routinely resorting to spares cannibalisation backed by occasional epic support flights in sister aircraft.
The prospects of conversion to Western engines are remote, and there is pressure on the Zhaparovsky engine plant to improve the D-18T. The chronic shortage of funds in the Ukraine means major engine-development is unlikely, but work is under way on a Stage 3 hush-kit in some form, and improved hot-section materials have helped stretch engine life. A weary Bird explains: "With a 'reliably unreliable' engine you know what to expect. The problem here is that the [D-18] failures are so unpredictable and, when you are working with lives down in the hundreds of hours, you can't plan. If I do, say, 180h per month then inside three months I know I will lose an engine."
Pearce agrees that engine lives are around 600-800h. HeavyLift keeps a spare engine cocooned at Stansted and makes good use of the An-124's three-engine ferry approval. There is no sign of a real rival to the An-124, apart from more An-124s.
It is those new aircraft that provide the one cloud on the UK duo's horizon.
Source: Flight International
