Encor protests as region takes action against fleet transfer (715 words)

Published: 8/2/2001

On 25th July, Valery Okulov, General Director of Aeroflot and Peter Sumin, Governor of Chelyabinsk region, signed an agreement potentially giving Aeroflot more access to the Chelyabinsk market through the development of Chelyabinsk's Balandino Airport, by opening international charter routes from the airport later this year. The agreement is despite the fact that the airport is currently operated by Chelyabinsk Airlines (CA). However, according to Victor Timashov, Deputy Governor of the Chelyabinsk region, the administration is now reviewing the air company's entitlement to operate the airport. The regional government is particularly unhappy over the legality of the transfer of the airline's aircraft to associated entity, Encor, which now operates from Moscow. It considers that this move restricts the development of air transport in the region. The regional government also claims that it committed the majority of funding for the airport: a sum, according to Timashov, of around $40m, in order to construct the runway in 1996. It is keen to recover its investment through control of the airport. Currently, however, this is not the case, as the agreements signed at the time reportedly did not give the government a controlling equity holding to reflect its investment. The government has taken action against the current and previous management of the company, with Peter Sumin requesting that the regional prosecutor examine the legality of the May transfer of the CA fleet to Encor, which is controlled by Sergei Yashin, former General Director of the holding company, ChelAl. He has also requested that the Ministry of Transport conducts further investigations into Encor. The transfer of the fleet led to the closure of CA's air operations, although the airport's operations continued. However, former ChelAl aircraft in Encor livery were reported to be carrying over 80% of the passengers formerly carried by ChelAl. At present, the region's primary concern is that ChelAl is using its control of the airport's slots to limit the development of competitive air transport in the region. This view is shared by Vyacheslav Tarasov, Major of the city of Chelyabinsk, who has commented that the region would benefit from additional airlines besides Aeroflot and Encor operating out of Chelyabinsk. For Yashin, however, the competitive environment at Chelyabinsk Airport is already improving with KrasAir, Komi-Avia, Uzbeck Airlines flying to Chelyabinsk and, in early 2001, the airport started servicing transit flights of cargo airlines, including Rus Airlines.The concept of a more competitive enviroment is also confirmed by Alexander Smolin of ChelAl who reports that traffic at Balandino Airport is up by 22% in the first six months of 2001 at 1373 movements.The number of cargo movements in July were 30 over 11 in the previous year and the company has a target for 100 by the year end. According to reports, the region will also assist Aeroflot in increasing the number of Moscow - Chelyabinsk flights, from three to seven a week, using a Tu-134. Timashov added that this might increase to as many as 14 weekly flights a week. In the forthcoming winter schedule, Aeroflot plans to have daily flights to Chelyabinsk and to replace the Tu-134 with a Tu-154M. According to Okulov, Aeroflot is currently flying the route with load factors of 80%, which he believes reflects that there is additional demand for flights and the agreement with Chelyabinsk region will help Aeroflot to increase the utilisation of the airport's capacity. According to Okulov, Balandino is under-utilised, as is neighbouring Ekaterinburg's Koltsovo Airport but, in his view, Balandino is better placed to attract transit flights. The Chelyabinsk region's and Aeroflot's plans are not welcomed by Encor. Sergey Yashin is reported to have argued that the charges by Chelyabinsk region against Encor are unfounded. Yashin says that Encor is a part of Chelyabinsk Airlines Holding, employing 1800 people from ChelAl and paying taxes to Chelyabinsk region budget. He claims that this is in contrast to Aeroflot, which he accuses of trying to put regional carriers out of business. Encor and Yashin, however, are more than a little disingenuous over the issue of the association between the now Domodedovo-based Encor with CA and have recently denied that Encor is part of the holding company, which is 15% owned by the state, but administered by the GSGA. Encor has also made it clear that its ambitions are on the national stage and this is evidenced by its move to Moscow. Aeroflot's increased presence in the market is also unlikely to be welcomed by Encor, burdened as it is with the marginally profitable routes inherited from ChelAl, while Aeroflot reduces prices on the profitable Moscow routes.

Article ID: 2678