Local producers not listening to the customer (1200 words)

Published: 9/18/2000

Andrey Martirosov, General Director of Tyumenaviatrans, speaking at a meeting in Moscow on 14th September commented that, after its recently released traffic figures for the first half of 2000, the Surgut based airline had become the fourth largest domestic carrier behind Aeroflot, Pulkovo Airlines, Vnukovo Airlines. This is a significant improvement, according to Martirosov, on the 10th position held in the first half of 1999. Martirosov attributed this to: · The carrier improving its pricing structure and services and attracting passengers from other airlines · The increase in the oil price that boosted revenues for both the charter business and carrying oil workers to the fields as oil companies began to reinvest after a long period of low investment in field development and exploration. · The regions within which TAT operates benefiting from the generally more favourable economic climate In terms of future plans, Martirosov reported that the airline is growing the number of international flights, now that the airports at Surgut and Nizhnevartovsk have joined Tyumen in being certified to handle international flights. TAT believes that the focus of the international traffic from the new points of departure will be on charter flights and plans to make its first international flight from Surgut in November this year. With the opening of the new capacity, TAT believes that it can increase international flights five fold within the next year on the grounds that Surgut's new airport compares favourably with the Moscow airports such as Domodedovo, through which passengers travelling internationally from the region have routed. According to Martirosov the condition of the ailrline's fixed wing and helicopter fleet has shown little sign of improvement in the last twelve months. Out of 6 Tu-154, 22 Yak-40, 10 An-24, 2 An-26, 52 An-2, 16 Mi-26, 7 Mi-10, 8 Mi-6, 125 Mi-8T and 16 Mi-8MTW only 30% of the fixed wing aircraft and 34% of the helicopters flyable, although the major aircraft servicing passengers flights including the 7 Tu-154s (including a leased aircraft) and the 3 leased Tu-134s are flyable. The company currently leases 1 Tu-154, 3 Tu-134, 1 Mi-8T, 1 Mi-8AMT, 2 Mi-8MTW. During 2000 TAT has added additional aircraft 1 Tu-154, 1 Tu-134, 1 An-24, 1 Mi-26, 2 Mi-6, 2 Mi-8MTW and written off an Mi-8T. Own Leased Flyable Flyable rate Tu-154 6 1 7 100% Tu-134 0 3 3 100% Yak-40 22 0 7 32% An-24 10 0 7 70% An-26 2 0 0 0% An-2 52 0 5 10% Mi-26 16 1 6 35% Mi-10 7 0 1 14% Mi-6 8 0 3 38% Mi-8T 125 1 35 28% Mi-8MTW 16 2 14 78% Mi-8AMT 0 1 1 100% Total/average 264 9 89 33% Aircraft 92 4 29 30% Helicopters 172 5 60 34% Source: Tyumenaviatrans As the leading civilian operator of helicopters, Martirosov comments relating to the replacement of the current fleet will give nocomfort to the Russian helicopter producers. TAT is currently considering buying non-Russian light helicopters to add to their fleet and replace the Mi-8s in many of the roles performed within the oil industry, due to the significantly higher operating costs for the substantially heavier helicopter. In TAT's view, the various current programmes to produce Russian light helicopters as potential Mi-8 replacements are unlikely to succeed. The primary reason being in the view of Martirosov, their attitude to customers, expecting as they do, airlines to approach them to specify a product instead of aggressively seeking out the customers and answering their requirements as foreign producers are currently doing with TAT. This lack of market savvy in the opinion of Martirosov will lead foreign producers to dominate the Russian market in the future, as their light helicopters meet the operational requirements of operators in terms of reliability and cost of operation. In heavy helicopters however, Martirosov believes that foreign producers cannot provide an economical alternative to the Mi-26, which Martirosov views as “the best heavy helicopter in the world”. For TAT the 5-6 operational helicopters out of a fleet of 16 Mi-26s, despite flying only 4% of total hours generated 29% of revenues derived from helicopters in contrast to the Mi-8T, which while flying 85% of hours contributed 49% of revenues. The airline also believes that the recent recovery in helicopter charters will be sustained given the oil sector buoyancy. According to Martirosov TAT's own research has led them to believe that the growth in demand for helicopters in the oil industry for the support of prospecting will continue to grow through to 2003. The main customers of TAT for helicopters are Surgutneftegaz, Surgutgazprom, Gazprom's subsidiaries in Yamal-Nenez Autonomous District, Tyumentransgaz, Onbneftegazogeologia, Sibneft, Tyumenenergo, Khamntymansiiyskgeofizika, and Tyumenburgaz. On international contracts Martirosov said that they expect that the 50% of the business attributable to UN work is likely to remain constant, but flow of work remains volatile and subject to the requirement of the organization to provide airborne support to its missions is areas such as Seirra Leone, where the carrier has deployed Mi-26s and Ethiopia. stay at the same level. TAT for its part is improving its liaison with the UN by appointing a dedicated representative. The helicopter market however, despite the upswing in demand at home and internationally remains competitive with the Ukrainians and the Belorussians posing a substantial competitive threat to TAT on UN missions. In the domestic market Martirosov commented that the ability of the various state agencies to charter out their helicopters was also presenting problems, as it is in other parts of air transport market. The fact that organizations such as the Ministry of Emergency Situations could charter out to defray its maintenance costs, made it extremely difficult for the commercial operators to price their charter rates competitively, given that they carried all the costs involved in operating their fleets, in marked contrast to the government bodies. With regard to the consolidation of the sector Martirosov believes that it will continue and TAT itself may consider potentially acquiring other carriers that may be struggling. The airline sees itself as a survivor in a market clearout given that Martirosov believes the two sides of their business insulate them from weakness in one or the other. A surprising view given that the experience of the airline over the last few years has been that the oil price impacts both sides of the business and the only element outside has been the contracts from the UN. For the meantime however, there is little doubt that the rising oil price will serve TAT well, but any falls in line with the view of analysts forecast as recently as the end of last year will impact this most oil sensitive of operators.

Article ID: 2076