Russian carriers have not, so far, made much of an impact on the rest of the world. Volga-Dnepr's Alexey Isaikin is trying to change all that
Mention Russian air cargo and two images come to mind. One is of a ragbag collection of Tupolev and Ilyushin aircraft in exotic liveries lining the tarmac of an Arabian Gulf or Indian sub-continent airport. The other is of some impossibly large load - a railway locomotive, perhaps, or a power-station turbine - being edged into an Antonov An-124.
They sum up the origins of Russian air cargo: the sudden decommissioning of military aircraft after the end of the Cold War. That spawned up to 400 different cargo carriers, many operating ramp-loading Ilyushins or Antonovs. Large numbers turned to so-called Ê"shop-tourism" business, accompanying passenger flights full of opportunistic traders who descended in hordes on the markets of Delhi or Dubai in the mid- 1990s to take Western (or Far Eastern) goods home. In the late 1990s, much of this trade moved to China - but it still keeps secondary Middle Eastern hubs such as Sharjah, in the United Arab Emirates, pretty busy.
The other more serious business was created by the enormous capacity of one particular aircraft - the An-124, with its front and rear ramps, huge cross-section, and room for up to 150t of goods, more than a Boeing 747 freighter. The large-load market owes its beginnings to Christopher Foyle, chairman of the UK's Air Foyle, who saw the An-124 on its first Western outing at the 1987 Paris Air Show and went to the then-Soviet Union to persuade the authorities to allow it to be used for commercial charters.
The result was a partnership between Air Foyle and the Ukrainian Antonov Design Bureau which opened a whole new area for air cargo, moving huge industrial equipment and other large loads that would once have had to travel by train, road or sea.
A rival partnership soon followed, between HeavyLift, a UK airline already specialising in smaller outsized loads, and Russian carrier Volga-Dnepr the other major operator of An-124s. Throughout the 1990s, both partnerships saw rapid growth, but with the HeavyLift/Volga-Dnepr teaming slightly ahead with up to 60% of the An-124 market. Then, in January 2001, came a shock. Volga-Dnepr ended the partnership and announced plans to set up its own worldwide operation.
At the time, Volga-Dnepr general director Alexey Isaikin spoke of HeavyLift's lack of vision, and hinted at big plans for his airline. Antonov saw the opportunity to expand, and quickly persuaded HeavyLift to join Air Foyle in a joint venture to market its aircraft.
In the year that followed, Volga-Dnepr argues that it has raised its market share against the Air Foyle HeavyLift operation. Isaikin quotes figures that show his carrier climbing steadily from a share of only 25% in February 2001 after the break-up, to take at least half theAn-124 market. He says that since September, when it finally established offices in Stansted, UK and Houston, Texas, (the latter for the all-important oil-equipment market), Volga-Dnepr's market share has taken off, returning to its a level of 60% in November.
Global vision
This is more than a story of a Russian carrier dumping a Western partner and emerging as an operator in its own right, however. What makes Isaikin interesting is that he has a much larger agenda. Quite simply, he wants to bring Russian air cargo out of its useful, but limited, niche in the outsize market, and to establish Volga-Dnepr as a major world cargo airline. He is perhaps the first example of a Russian airline head with a truly global vision.
Statistics would certainly suggest that there is a potential to be exploited. Isaikin points out that despite having 1,700 freighters (around 25% of the world fleet), Russian cargo airlines account for just 1% of world cargo revenues. Isaikin estimates revenues of only $1.3 billion for Russian air cargo in 2000, which is little more than half the size of a Western giant such as Lufthansa Cargo.
The problem for Isaikin is that to be a global player would require his airline to have the same Western aircraft as a Lufthansa Cargo or a Cargolux, with its fleet of 13 Boeing 747s. While praising "the unique qualities" of Russian ramp-loading aircraft (they are ideal for aid flights to Afghanistan, for example, or delivering oil-drilling equipment to a rough airstrip in Central Asia), he makes no secret of wanting to get into 747 freighter operations.
There are two barriers to this. One is financial: as a Russian company, it is hard to raise investment in the West, even if - as with Volga-Dnepr - your accounts are audited to Western standards and you have a good credit history. Isaikin has reportedly been on a charm offensive in London and the USA in recent months to try and overcome this drawback.
There also have been unconfirmed rumours that Volga-Dnepr is planning a listing in New York or using its new UK subsidiary as an off-shore fund-raising base. That alone could explain the split with HeavyLift, which may have preferred to stay with its familiar niche in outsize cargo. However, HeavyLift had denied this at the time of the split, saying it had been open to Volga-Dnepr's development plans.
The second obstacle is that, to protect its aerospace industry, the Russian Government places crippling taxes on the import of foreign aircraft. Volga-Dnepr therefore cannot simply go out and buy 747 freighters, as any other aspiring global cargo airline might do.
Even before the split with HeavyLift, Isaikin was exploring a way round this, however. There were rumours that he had talks with Michael Chowdry, founder of US 747 freighter wet-leasing company Atlas, shortly before the latter's death in January 2001. The meeting was, doubtless, an interesting one, but it seemed to yield little in the way of concrete results.
Isaikin confirms the meeting took place. "I had great respect for Chowdry and am proud to have known him," he says. He also insists that the companies are still exploring some kind of joint venture. "We are working to realise the ideas that I discussed with him, and I am pleased that the new Atlas management is following them," Isaikin adds.
The basic idea would be to use "a two-firm structure" to market An-124s in the USA, and use Atlas aircraft for general cargo flights. Isaikin identifies a big opportunity in a trans-Siberian cargo route to link the Far East and Europe. This would appear a sound idea, since it is one of the world's main cargo trade routes. But the downside is that it is one on which there is plenty of competition.
One key market where Volga-Dnepr could have a comparative advantage is China, as it could offer a shorter, more direct route. It might also be in a position to obtain desirable traffic rights. The deal would require a change of attitude towards leasing Western aircraft by Moscow, but Isaikin is hopeful that he can get the regulations changed. "The current Russian government is very pragmatic, so we are optimistic," he says.
Meanwhile, China is also the focus of another Isaikin initiative that would complement the Asia-Europe idea - namely to turn the current shop-tourism trade between China and Russia into a proper, formal general cargo route, introducing "civilised logistics" as Isaikin puts it, although he would continue to use Volga-Dnepr's ramp-loading fleet of 10 An-124s and three Ilyushin Il-76s.
This is sticky territory. Volga-Dnepr had a disastrous foray into this market as a shop-tourism operator in the mid-1990s, as Isaikin acknowledges. "It is no secret that parts of this market are fully or partly criminal," he says, referring to smuggling on the routes. He admits this is why Volga-Dnepr pulled out.
But he now has hopes of legalising the trade. "We continue to have meetings with other Russian airlines to prove to them that working legally they could achieve the same or better results as they do now," he says. He has also had indications that the authorities might simplify complex customs regulations governing imports from China in return for more regulated trade. "For example, there would be safety advantages, such as less overloading of aircraft," Isaikin adds.
Against the idea is the reality that many have tried to formalise Russian shop-tourism trade before - and failed. On the other hand, if Isaikin can pull it off, he will have created a powerful base from which to expand his global airline.
Diversification
The aim of all these initiatives is simple - diversification. While Isaikin sees further growth in the An-124 outsize market, he is keen to reduce Volga-Dnepr's dependence on it. "If you look at our 2000 results, you will see that not more than 10-15% of our revenue came from general cargo. We think that this year we will increase that because we have already done some test flights from China to Russia and contacted Chinese customers," he says.
Though he admits that the events of 11 September have not helped the investment climate for his proposed new ventures, he also sees a silver lining in the performance of the Russian market since. He cites figures showing a 5% rise in Russian freight tonne kilometres in September, compared with a fall of 8% in the world as a whole. "We are one of a very few segments in air cargo that is still growing," he says.
He also points out that Russian air cargo outstripped world cargo growth in 1999 and 2000, growing 14% and 13%, respectively against world growth of 9% and 7%. That followed a 21% fall in Russian traffic during the economic crisis in 1998, however, while world traffic merely remained static.
Isaikin clearly sees these figures as showing that Russian air cargo is on a roll, demonstrating a robustness which will attract investment and help it to escape from its current limiting shell. "For Russian aviation, this is a rare chance to take a major role in the global air transport industry, and rise above that 1% market share," he says.
Source: Airline Business
