Rosavia: still sitting on the runway

10 Mar '09
Oleg Kouzbit, Online News Managing Editor

In 2008, the idea of incorporating 11 regional carriers into a new state-run airline, Rosavia, made headlines and inspired Moscow Mayor Yury Luzhkov, one of the movers and shakers behind the idea, to christen his “unborn baby” “a solid competitor to Aeroflot.”

But early this year word came of Rostekhnologii dumping half of its stake in the company; then the founders broke the news saying the project wouldn’t kick off until late 2009 at the earliest. With all but a handful of well-established airlines suffering huge losses, experts are now wondering if Rosavia will ever take off.

Just last month hopes were high that Rosavia was ready to take to the skies when RF Prime Minister Vladimir Putin announced the transfer of 100% of Dalavia, 52.17% of Vladivostok Avia and 100% of Sakhalin Airlines to state technology company Rostekhnologii.

These three companies were reportedly to join eight others in the new Rosavia to be set up by Rostekhnologii and the Moscow City government.

Proponents of the new carrier cited the combined 2008 passenger turnover statistics for the prospective Rosavia members, as more reasons to be optimistic. According to Aviaport and Kommersant, the 11 airlines served 7.7 million people last year.

Moscow Mayor Yury Luzhkov also was bullish, claiming Rosavia would make a solid competitor to Aeroflot.

Some supporters went ever further, predicting by 2012, Rosavia would carry 20 million passengers.

High-flying hopes

The original concept for Rosavia was born in September 2008 after the AiRUnion alliance of companies went belly up and was eventually transferred into Rostekhnologii’s ownership. The new company, Rosavia, was officially registered in January 2009.

In addition to the AiRUnion companies, the largest of which are still in bankruptcy proceedings, Rostekhnologii is expected to acquire Orenburg Airlines, Kavminvody Airlines, Vladivostok Avia, Dalavia, Sakhalin Airlines, and GTK Rossiya.

According to the plan, the state corporation owns 50% plus one share of the new company; the Moscow City government has the rest, but is also committed to handing over 100% of its controlling stake in Atlant-Soyuz Air Company.

However abruptly last month, RF Minister of Transport Igor Levitin told Kommersant Rostekhnologii announced its intention to sell half of its stake in Rosavia.

This prompted many observers to completely re-evaluate the deal.

To Aeroflot CEO Valery Okulov, the announcement was no surprise. He called the new air company “a bubble” saying it was unlikely to ever start operating efficiently. But some took his words just as “competitor’s jealousy.”

Buckle your seatbelts, turbulence ahead

Adding more doubt was Kommersant’s report just a week ago, citing Rosavia sources, that the launch of the new air carrier was being put off until late fall of 2009 at the earliest.

The most plausible reason for the delay is the obvious difficulty Rosavia is having integrating so many different carries into a single system. According to some sources, the companies that are to join Rosavia won’t be “harmonized” until the end of the year.

Media reports also claim that half of Rosavia’s prospective fleet is not ready due to ownership issues. GTK Rossiya, for instance, is not publicly traded yet. There are private minority stockholders in Vladivostok Avia and Atlant-Soyuz (the Alliance group and Kaskol’s former top manager Viktor Grigoryev, respectively), and their stakes have not been bought out yet.

As early as last November Vice-premier Sergei Ivanov vowed to make sure the Rosavia members got state-guaranteed credit. It’s not that simple now. Of the 11, only Orenburg Airlines has received a loan so far. VTB agreed to give $5.6m against “deferred government guarantees.” So many partners are carrying so much debt that it will be impossible for Rosavia to make ends meet without more RF help.

“Business interests were ignored”

Experts are divided about Rosavia’s future, but the general sentiment is pessimistic.

Aviaport’s Oleg Panteleev doesn’t understand who needs this company and why.

“If the integration of all these very different companies is aimed at “shoring up the drowning,” the project will have a short life without huge government grants,” Mr. Panteleev said to Kommersant. He’s sure Rosavia will lose ground to Aeroflot and Transaero if it starts living on loans.

Infomost Consulting’s Boris Rybak says an average Russian air company normally takes up to 10 years to mature. But with Rostekhnologii’s government connections he believes Rosavia may shape up within two or three years.

The Time2Travel portal posts an opinion by Anatoly Lisitsyn, a member of the State Duma’s Transportation Committee, who feels Rosavia’s companies were drawn into the firm “by political forces.”

“In this particular case, business interests – I mean those private companies that were plugged into Rosavia – were simply ignored. Private businesses should at least have been asked if they wanted to join a big state corporation.

This new giant entity was being created with an aim to secure large government loans. But credit could be given instead to companies that have real prospects for development.” Mr. Lisitsyn concluded.

In other comments, he even raised the possibility of misappropriation of funds.

Rosavia is just one more example of how the economic crisis in Russia is affecting more and more sectors and how difficult it is for the Russian government to avoid the increasing turbulence.
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