Will they come to Rostovís new field of dreams?

20 Feb '09
Oleg Kouzbit, Online News Managing Editor

Prospects for one of Rostov Regionís most ambitious projects, the Yuzhny airport, are now brighter since the RF Ministry of Defense handed over 620 hectares to the local government to build the complex. The estimated cost of what is nicknamed the Bataisk Hub is around $695m.

If completed, the airport will make Rostov a key regional transportation hub. But two big hurdles remain before the project can truly take off: will investors be found, and will there be enough passengers and cargo to justify such a hefty investment?

The military clear the way for investors

Rostov regional authorities recently announced that all the paths have been cleared for potential investors to buy into what is one of the South Federal Districtís most ambitious projects, Yushny airport.

Doing the heavy lifting to remove the long-standing problem of land allocation was the RF Ministry of Defense. To local officials, it was the last big obstacle to making the new airport a reality.

The Ministry of Defense gave the region 620 hectares of land just outside the town of Bataisk where an abandoned military field is still located. As a result, interested investors literally have something more solid to bank on.

Big shots, big plans, big discrepancies

A conservative estimate for the cost of the airport and its infrastructure is about $695m. As Kommersant reports, citing sources in the Rostov regional administration, the RF government has pledged around $250m, the region will have to come up with another $21m and the rest is to be raised from private investors.

Plans for the airport complex call for two runways 4-km-long each capable of serving all types of modern long-range aircraft, according to Kommersant. The project is supposed to kick off next year and be completed by 2015.

The projected annual passenger traffic is between 6 and 8 million people and cargo traffic between 70,000 and 80,000 tons a year. The estimated international passenger count is 1.5 million people a year.

But according to Aviaport.ru, Rostovís current passenger traffic for the first 8 months of last year was only 879,746 people of which 309,503 were international passengers. Cargo freight was a puny 3,151 tons during the same period. If the new airport becomes a reality, the existing Rostov-on-Don airport is to be closed, Kommersant says.

On the lookout for money

Experts have different opinions regarding the coming of investors into the project.

Oleg Panteleev, head of analytics at agency Aviaport, is feeling upbeat about private investors taking interest in the project.

He was recently quoted by Kommersant as saying he primarily expected large firms with substantial expertise in similar projects to be interested. However, in a separate interview with RBC Daily South he admitted that it was premature to talk of any sizable deals yet.

ďFor an airport to earn the status of a transportation hub a host air company is required. Aeroflot-Don has a pretty solid market share but itís not a powerful international carrier,Ē he said.

Reflecting an opposite stance, Bazel-Aero CEO Sergei Likharev is skeptical about any international hub project not only in Bataisk or Russiaís South but even in the Volga area. ďAs regards Rostov, Krasnodar or Samara we can hardly speak of a hub.

Itís more truly a regional transit pivot, of which there are few in todayís Russia,Ē Mr. Likharev said to RBC Daily South, adding that his company was eyeing such a transit base at the Krasnodar airport.

For RBCís analysts one thing is very clear: as of today, with very little time left before the project is supposed to start, there are no investors. Basic Elementís subsidiaries had been viewed as the most likely investor, RBC reports, but Bazel-Aeroís Likharev has made it clear Basic Element isnít buying.

RBC also reports that officials wonít even comment on possible timeframes for the promised federal and regional funding.

Little cargo, few passengers

What any investor wants to know is whether or not Yuzhny will be able to generate all those passengers and all that cargo.

Echoing RBCís concerns, Kommersant recently quoted an anonymous source at Rosaviatsia as saying project promoters were unlikely to find additional cargo to match the projected capacity of the prospective airport.

Although Rostov-on-Don Airportís CEO Oleg Chernov was more upbeat, telling Kommersant that the existing airport has no trouble at all handling passenger and cargo flow of about 1 million people and 30,000 tons, respectively, no one has explained why the region needs a mammoth new airport for twice as much cargo and six to eight times the number of passengers.

Whatís the deal?

Marchmont interviewed several sector players to get their views:

Onik Aznauryan, the CEO of the LITER management company that is building its logistics network and has business interests in Russiaís South, told Marchmont his company was in favor of air transport development and regarded multi-modality as key for its future decision-making regarding the airport.

Sergei Shkarupa, the CEO of Mr. Aznauryanís strategic partner, Moscowís GK SANNA-LITER that also operates in the Rostov regional market, was more blunt about Yuzhny prospects:

ďIf we take this information seriously, we need to understand who needs this construction and why. Letís look at civilian cargo. Transportation by plane is expensive; costly freight is usually transported by small batches. There are few cargo items bound for the South Federal District that require fast delivery.

Perishables, especially expensive food imports, are not in heavy demand in the south. Therefore, from the standpoint of consumer goods transportation (especially with the crisis raging) the prospective Rostov hub is of no interest at all.

Increased passenger traffic is possible, he said, but it will take time to establish the image of the new airport as a transit nucleus or a major destination.

What is less clear is where will all these people come from and why it is being assumed that the whole world will want to arrive in the South Federal District? The Olympics-2014 and a planned gambling zone may be weighty arguments.

However, the Olympics wonít last more than 10 days, and the event will be in Sochi that has its own airport. The gambling zone? Well, itís so remote, and who knows if this is to materialize at all?

A much likelier reason could be the use of the airport as transit for refueling passenger and military cargo planes bound for Asia. There is even speculation that the airport will be constructed to exclusively serve military interests.

With Turkey nearby, plus the Caucasus and Ukraine as potential NATO members, the new airport could have considerable strategic importance. Rostov is just ten minutes by air to a Southern European destination across the sea.

The airport could also serve as a base to intercept notorious ďIranian missilesĒ or be used as a transit point for foreign military aircraft on their way to Asia.

In addition, the existence of a transit airport on Russiaís southern edge would lower the number of foreign civilian planes flying above Russiaís central regions, as well as Belarus, where Russia plans to deploy future air defense systems.

To make a long story short, the likelihood of construction is fairly high. The projectís main function will be to serve strategic purposes, passengers and cargo will just be ancillary.Ē
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