The Russian ground support industry is on the verge of big changes, amid the ever-growing attention given to the country’s problematic aviation industry.
Recently Aeroflot, Russia's flag carrier and largest airline, and the Sheremetyevo International Airport, Russia’s second largest airport, announced plans to establish the country’s largest ground support company.
The new as-yet unnamed joint venture will specialize in providing ground support services for Aeroflot at SVO, located 18 miles from Moscow, as well as the air carrier’s partners in the SkyTeam alliance. Aeroflot’s partners at the airport include a varied lot: Air Europa; Air France; Alitalia; China Airlines; China Eastern Airlines; China Southern Airlines; Czech Airlines; Delta Air Lines; Kenya Airlines; KLM; Korean Air; TAROM Romanian Air Transport and Vietnam Airlines.
It will no doubt be a busy operation. Aeroflot alone operates domestic and international passenger service to 109 destinations in 53 countries, mainly flown from its hub at SVO.
According to Michael Vasilenko, general director of SVO, the hope is a successful debut at SVO may start an expansion to other Russian airports, most of which currently experience a lack of quality ground support services.
Until the move with SVO, Aeroflot had been providing its own ground support for its aircraft and SkyTeam members.
However, a devastating ice storm that paralyzed SVO during last year’s busiest winter travel period ahead of the New Year’s holiday began to change that.
An estimated 20,000 travelers faced delays of two days and caused some to assault Aeroflot employees. While bad winter weather didn't help, one major factor for canceling some 70 flights from SVO and delaying hundreds of other flights was a shortage of a common winter ground support supply – deicing fluid.
MUCH TO BE DESIRED
Russian analysts believe establishing the country’s largest ground support company as well as recently announced state plans to increase funding for the country’s aviation industry is just what is needed considering that the current state of Russian aviation leaves much to be desired.
The main reason for this is the poor state of infrastructure in the majority of Russian airports, which have not been modernized for the last 20 years.
Today, the majority of Russian airports are not able to provide quality ground support services due to their outdated land bases. In addition, the number of professional companies that specialize in providing ground support services in Russia remains very small.
"The majority of Russian airports, and especially regional facilities, are unable to provide quality ground support services for modern aircraft,” says Anton Koren, CEO, Centre for Strategic Research in Civil Aviation. “In addition, the industry is regulated by outdated legislation, which was developed in the 1990s and does not contribute to the development of competition in the market.”
During the Soviet era, no full-fledged ground support industry existed due to the traditional centralized and planned economy. Fully controlled by the state, there was no reason to expect any competition, innovation or any particular high work level in the market. At that same time, the country had only one state airline anyway – Aeroflot.
After the collapse of the U.S.S.R. in the 1990s, however, hundreds of small airlines were established, which naturally created a demand for ground support services.
At that initial stage, most new carriers preferred to sign agreements with airports. Later, some airlines started working with a handful of specialized operators. Among the country’s largest ground handling operators are such companies as Vnukovo Handling started only seven years ago and RusAero started in 1994.
Meanwhile, despite the shortage of professional ground support operators, the demand for high-quality ground support services has significantly increased recently. One major reason is that the country's airliners are buying new aircraft - and not relying on the country's own brands for their orders.
"Currently the majority of Russian airlines is buying foreign aircrafts from abroad,” says Alex Komarov, chairman of the organizing committee for an international ground support service conference held annually in Moscow. “Due to the fact that servicing Boeings and Airbuses takes place with the use of different standards than Russian aircraft – most of which were designed during the Soviet era – there is a clear trend of the shift to new technologies of ground support throughout the country.”
Last August, Boeing estimated that Russia and the “CIS” countries – former Soviet republics, such as Belarus and Ukraine – would take delivery of more than 1,080 new aircraft over the next two decades, with 32 percent of this figure already in backlog order for the next five years. The aircraft manufacturer estimated the market value at $110 billion.
PROBLEMS ABOUND
Not surprisingly, however, a number of problems are squarely in the way of further developing Russia’s ground support industry. One of the most serious of these problems is the lack of modern ground support equipment at the majority of Russian airports. Most of the country’s airports can only afford to use aged equipment and do not fully meet the ground support requirements of airlines operating foreign-made aircrafts.
On a related note, another difficult situation is currently observed with the sorry conditions of runways, taxiways, aircraft parking position and lighting equipment that further constrain ground support service.
Finally, the level of automatized ground support equipment at Russian airports also remains poor, with the most difficult situations found at regional airports. Baggage handling, for example, is done by hand at these smaller airports.
According to Koren, only a couple dozen of Russia’s some 300 airports provide relatively satisfactory ground support services. Only one Russian airport is included in the international aviation review and ranking site Skytrax. One of the reasons for this could also be related to the country’s low labor productivity, which most experts peg at about 25 percent lower than what you’d expect from ground support personnel at European Union airports.
Amid the lack of strong ground support operators in the market and the lack of funds at most airports, the industry continues to put its biggest hopes for further development on the state. In light of recent air disasters, the Russian government has significantly increased its attention to these problems.
Russian President Dmitry Medvedev has announced plans to modernize his country's airports and pay particular attention to determine how to improve ground support service. Russian Prime Minister Vladimir Putin has also stated government intentions to train qualified ground support specialists. In additon to not having enough ground support workers, the majoritiy of the country's current ground support personnel are trained to support the old Soviet-era aircrafts.
By the end of 2011, the Russian Ministry of Transport will have completed a comprehensive survey of national airports and local airlines in order to estimate the current state of ground support services, and determine the necessary investment needed for improvement.
According to initial estimates, the annual investment needed to implement state initiatives is as much as 70 billion rubles ($2.1 billion) for the next several years. However, according to Russian aviation industry analysts, this amount is understated and could be more than two times as much.
In addition to direct investments, the government may also consider the possibility of subsidizing private banking loans for the airports.
"Russia has very high credit rates,” says Roman Gusarov, editor in chief of Avia.ru, one of the largest Russian analytical agencies in the field of aviation. “Even the most favorable credits are provided by the Russian banks at a rate of not less than 8 percent. The current state subsidies cover no more than a 25 percent of the credit rate, and the main mission of the government is to create conditions that the level of rate will not be higher than 2-3 percent per year.”
Also, passing a long-awaited federal law governing airport operations may be another significant impetus for further developing Russian ground support.
The new law is expected to regulate the mechanism for funding airports, as well as abolish taxes on land and property, which is expected to help airports significantly increase investments in the ground support services.
The new law may also reduce the customs duties on the imports of foreign ground support equipment to Russia, as well as to simplify formalities and reduce administrative barriers during their licensing.
Still, the government is expected to be the main driver to modernize airport infrastructure and ground support serivce since private investors remain reluctant to make investments in the industry. According to analysts at Vnesheconombank, one of the largest banks in Russia, private capital to the industry is difficult to attract because of its low profitability and long payback periods.
The continuing state monopoly in the industry, however, also prevents further development and the inflow of private investments. Unlike the European Union, the whole airfield infrastructure in Russia, in accordance with the local legislation, is owned by the state and cannot be transferred to private owners. This fact scares off potential investors and creates conditions for corruption.
About the author: Eugene Gerden is an international free-lance writer, who covering the global aviation and ground support industry. He writes for numerous industry publications and can be reached at [email protected]
