KIERAN DALY / LONDON
Company president sees activity tripling over next decade, as 747s are added gradually to its new freight operation
Almost three years after dissolving its joint venture with Heavylift, Volga-Dnepr is branching out under president Alexey Isaikin.
If all goes well, Isaikin is very likely to reach retirement age as chairman of the biggest airline in Russia - which by then will no longer be Aeroflot. The 51-year-old native of Kyrgyzstan, who has already grown outsize freight specialist Volga-Dnepr into a $240 million business, sees activity tripling in the next decade, but still being less than half the size of the group's new scheduled freight operation.
The new unit - Air Bridge Cargo (ABC) - will launch next April with two Boeing 747-200Fs and Isaikin expects to add about one more 747 a year over the decade. Those will gradually be joined by 20 Ilyushin Il-96s and Tupolev Tu-204s for Russian feeder services.
Isaikin concedes that the move raises the stakes for a company that enjoys a stable 50% share of a market with formidable entry hurdles. But he has set about creating ABC in a measured way that inspires considerable confidence.
The key to the project was realising that Volga-Dnepr had only a weak understanding of scheduled freight and consequently hiring Stanley Wraight and, more recently, Peter Yap - both former senior executives at Atlas Air with vast experience in the field.
Isaikin explains: "The scheduled freight sector does not exist in Russia, so there were no experts. We are very happy that we managed to hire Stanley Wraight - with his presence it became a reality. One of our challenges is to form and train a real management team. But we also have advantages and we have to use them."
Key among those is Russia's location, enabling ABC to offer competitive journey times between Asia and Europe, but the operation will also benefit from already having a strong sales and marketing operation for the core business and that most customers are expected to use both services.
Isaikin says: "This new business is more risky than our core business but I would say that currently the risk of entering that market, which has seen difficult times, appears quite minimal."
Volga-Dnepr projections show the global outsize market being worth upwards of $2 billion by 2030 - and Isaikin estimates the sector will account for only 30% of the airline's revenues within 10 years, the rest coming from ABC.
Meanwhile, however, life goes on and Isaikin is determined to add to the 50% core market share that Volga-Dnepr has managed to preserve since the break-up of its 10-year joint venture in outsize freight with Heavylift Airlines of the UK.
Looking back at his hopes in the aftermath, Isaikin now says: "I would say we have actually managed to achieve more than what we had planned at that time. There are two factors: the market developed according to the optimistic end of our forecast and we managed to operate high quality services. One of the great achievements is that we managed to establish a really global sales and marketing network."
This blend of entrepreneurism, financial conservatism, and focus on business fundamentals has proved attractive to investors. Volga-Dnepr is robustly capitalised, has secured financing for construction of the Antonov An-124s and Ilyushin Il-76s it needs, and is content to wait another five years before going to the money markets with an initial public offering (IPO).
Isaikin says: "One of our primary goals is to increase market share to get more profit to use to produce more An-124s. We have a 15-year loan from Ilyushin Finance and before increasing the amount of financing we have to know whether we are able to relaunch production of the aircraft.
"Certainly we have to answer to the investors because we plan an IPO and nobody will buy shares if the product's life is limited."
Around 60% of the outsize market is driven by unpredictable relief agency and governmental operations following natural and man-made disasters or wars - the Afghan and Iraq campaigns, for example, being largely responsible for Volga-Dnepr's highly profitable 2003.
Isaikin is confident that there is little prospect of demand ever substantially dropping, and he forecasts that as many as 100 of the Ukrainian-designed An-124s may yet be built. Those will feature technical improvements demanded by Volga-Dnepr and its competitors.
Isaikin is a board member of Aviastar, which builds the aircraft, and makes clear that the programme is of such huge importance to the struggling Russian and Ukrainian aerospace industries that its future will largely be decided at inter-governmental level.
He explains: "If we are talking about increases to our own fleet then we will finance those aircraft, but if it is for other customers then it will be done by the special group formed to finance Aviastar."
Source: Flight International
