Airline bailed out of loss-making situation by unnamed Moscow operator (507 words)

Published: 5/24/2001

According to Andrey Kolesnik, Deputy General Director of Sakhalin Airlines (SAT), an Il-62, currently leased by SAT from the administration of the Sakhalin region, may soon be sold to a Moscow airline. Kolesnik says that, while the administration purchased the aircraft for $1.5m, the unnamed Moscow airline is prepared to pay $2.5-3m.The sale of the aircraft could come as something of a relief to SAT, which has been losing money heavily on the politically motivated route between Yuzhno-Sakhalinsk-Moscow and this might provide a convenient get-out. The Il-62, one of two operated by the airline, was acquired by the region in February 2000, as part of a scheme to assist the airline by compensating for the high cost of operating out of its Yuzhno-Sakhalinsk base. The regional authorities were also motivated by the belief that Domodedovo Airlines - the primary carrier on the route - was using its virtual monopoly in order to charge high fares, while providing a poor service. The dependence on the Moscow-based carrier was highlighted when it temporarily stopped flights to the Far East, in protest over the failure of the Federal Government, particularly the Ministry of Defence, to pay its debts. This prompted Igor Farhutdinov, Governor of the region to assist the regional carrier in acquiring an Il-62 and so compete with Domodedovo. However, having struggled to gain the licence to commence flights, the original objective of competing with Domodevovo has been hampered by the operation of the fuel inefficient Il-62. According to Kolesnik, SAT has incurred losses of almost Rb37m ($1.27m) on the route, although it claims that it still managed to force Domodedovo Airlines to reduce its prices, saving travellers almost Rb50m ($1.7m). The airline carried over 14,000 passengers during the year it operated the route, including 700 individuals with concessions, that were unable to fly Domodedovo Airlines. The airline has said that the sale of the aircraft is "too good a deal to miss", but it coincides with a complaint from the regional government, that the licence for the route was actually held by SAT's Moscow partner and not by the airline, in breach of the original agreement between the region property fund and carrier. Kolesnik says that, while SAT refutes the allegations, since it uses its own crews and codes, the airline, not wanting to spoil relations with the regional authorities, stopped flying to Moscow on 20th May. It may well be the case that the losses on the route were simply unsustainable for SAT and the potential sale of the Il-62 provided all involved with the opportunity to get out. Kolesnik also said that, if SAT successfully completes its negotiations with Boeing for the lease of a Boeing 737-700s, it might resume flights to Moscow. The Il-62 is currently operating out of Yuzhno-Sakhalinsk, on flights to Seoul and Pusan and is due to make a charter flight to Petropavlovsk-Kamchatsky on 28th May.

Article ID: 2555