Talks over Shannon-based airline at advanced stage (515 words)

Published: 7/25/2001

Aeroflot has confirmed that it is in discussion with a consortium of Irish-based investors on the creation of a start up airline, probably based out of Shannon. This would potentially give the Russian flag carrier unfettered access under the Open Skies agreement to the European Union (EU), given that the airline, based in Ireland, would have 51% EU ownership. It would also appear from reports that the Irish and Russian governments have already agreed to such a development, although the new carrier would have to seek an Irish operator's licence. The reports have also suggested that an announcement may be made in the next three weeks. The Irish media has speculated that the consortium will include Irish-based US hotelier Tom Kane, formerly Managing Director of operations for General Electric Capital Aviation Services and part of the management team at GPA before its acquisition by GE. Prior to that, Kane was an executive with Aer Lingus. Aeroflot executives have only said that as many a dozen investors have expressed an interest in investing in such a venture. At present, there are no details of where the airline would fly, or the nature of its business, but reports from Ireland have suggested that it will be a low cost carrier, operating a fleet of 10 new aircraft, including Boeing 737-400s and 737-700s. Possible routes are also unclear, but it seems likely that the airline will operate in close cooperation with Aeroflot. This would offer the state-controlled airline additional new aircraft capacity without having to deal with the politically sensitive issue of acquiring the aircraft directly and the cost of paying large import duties. Discussions are reported to have been going on for the least six months, overlapping with the ill-fated negotiations by the Russian carrier to buy Shannon-based low cost carrier, Virgin Express. According to sources within Aeroflot, a business plan for the airline has been produced and will be submitted to the airline's board in August, with reports that, if approved, the new airline will be up and running with two 737s by the summer of next year. Officially, Aeroflot while acknowledging the discussions, is being much more cautious about the details, commenting that the talks are just one of several it is having, with the objective of improving its access to Europe and creating a strategic partner for the airline within the EU to feed the Aeroflot network as part of its overall strategic plan. The total costs for Aeroflot of such an investment are difficult to estimate in the absence of more information. However, Shannon, a historical base for the airline, would offer sufficient ground support facilities and the primary costs would be leasing the aircraft and employing the crews. Given the lease cost of $350,000-$400,000 per month for 737s and the potential traffic offered by a link in to Aeroflot, a relatively small start up would appear to be entirely viable, since the airline is unlikely to be directly competing in the low cost European air travel market, at least initially.

Article ID: 2663