Aeroflot Faces a Politically Connected Rival
By ANDREW E. KRAMER
Published: November 27, 2008
MOSCOW — Aeroflot, the national airline of the Soviet Union and now Russia has had its rough edges, including a reputation for safety lapses and scowling flight attendants. In 1994, a pilot allowed his teenage son to fly a passenger plane, with tragic consequences. But its status as Russia’s flag carrier never seemed in doubt.
In the current financial crisis, however, Aeroflot has suddenly fallen from first place among Russian state-owned airlines, at least as measured by the number of aircraft in its fleet.
A series of bankruptcies of regional airlines brought the change. One formerly large player, Kras Air, for example, ran out of money so quickly its airplanes were grounded on the runways for lack of fuel, while crowds of passengers fumed.
In response, the government of Prime Minister Vladimir V. Putin orchestrated a merger of 11 regional carriers under a state-owned conglomerate, Russian Technologies, to form Russian Airlines. It now has more than 300 aircraft, versus 149 for Aeroflot.
“They will try to create a competitor for Aeroflot,” said Elena Sakhnova, a transportation analyst at VTB Bank in Moscow.
After the 11 companies were merged, Russia still retains about 100 private air carriers initially spun off from the Soviet Aeroflot in an overhaul in 1992 and referred to as “babyflots.” The new reform, the most sweeping in Russian aviation since that breakup, recombines the largest babyflots into a carrier that will now compete with the parent, which still dominates international routes and, for now, receives subsidies other Russian carriers do not.
Both Aeroflot and the new company are majority-owned by the state but appear to be backed by different factions in the government. Otherwise, Aeroflot would have seemed a natural magnet for any state-orchestrated consolidation. The company is closely associated with the out-of-favor administration of former President Boris N. Yeltsin; the chief executive, Valery Okulov, is a son-in-law of Mr. Yeltsin, and a 25 percent shareholder. The tycoon Aleksandr Y. Lebedev, who owns 30 percent of Aeroflot, has a prickly relationship with the current government.
Not surprisingly, the new company has powerful backers.
It is 50 percent owned by the city of Moscow and 50 percent by one of the heavyweights of the new blend of state and private business that emerged under Mr. Putin, Sergei V. Chemezov, a former K.G.B. colleague of Mr. Putin. The two served together in Dresden in the 1980s.
Mr. Chemezov’s company, Russian Technologies, has been surging lately. Its core holding is Rosoboronexport, the multibillion-dollar arms exporting monopoly, but it has expanded into metals, automobiles and high technology.
And in a sign of the new owners’ influence — and an ominous portent for Aeroflot — Yuri M. Luzhkov, the mayor of Moscow, and Mr. Chemezov have asked state regulators to halt fees of $300 million a year paid to Aeroflot by foreign air companies for rights to fly over Russia, contending the fees provide the flag carrier an unfair advantage.
The rivalry is also personal; Mr. Lebedev, a critic of Mr. Luzhkov’s management of Moscow, has run against Mr. Luzhkov for mayor.
It may be too early to write off Aeroflot, but the emergence of a state-backed competitor is a first for the airline, which was founded in 1924 and has always enjoyed insider status. It was once the largest in the world and owned virtually every civilian airplane in the Soviet Union.
So far, officials at Aeroflot have been mute about the newcomer.
Russian Technologies did not respond to written questions about its business plans. Industry analysts say it will most likely focus initially on domestic routes before challenging Aeroflot on international destinations.
The consolidation reduces airline competition domestically but may have a silver lining: Ms. Sakhnova said state control is expected to bring improved safety, easing a pervasive problem for Russian airlines.
In October, for example, at the end of a long flight from Barcelona, pilots of KD Avia, a regional Russian airline based in Kaliningrad, circled their home airport for a second landing attempt and touched down, without lowering wheels. The Boeing 737 screeched to a stop; no passengers were hurt. KD Avia is not part of the new state company.
Investigators have yet to complete their study of the accident but released a preliminary report pointing to pilot error. Igor K. Obotkov, an expert at Russia’s pilots’ union, said investigators were examining whether the crew, distracted by complicated air traffic instructions, had forgotten the wheels after first switching off a warning system.
“The wheels were not down, but all the passengers were safe,” said Elena V. Pinkovaya, a spokeswoman for the airline. “That says something about Boeing airplanes.”
Copyright 2008 The New York Times Company
By ANDREW E. KRAMER
Published: November 27, 2008
MOSCOW — Aeroflot, the national airline of the Soviet Union and now Russia has had its rough edges, including a reputation for safety lapses and scowling flight attendants. In 1994, a pilot allowed his teenage son to fly a passenger plane, with tragic consequences. But its status as Russia’s flag carrier never seemed in doubt.
In the current financial crisis, however, Aeroflot has suddenly fallen from first place among Russian state-owned airlines, at least as measured by the number of aircraft in its fleet.
A series of bankruptcies of regional airlines brought the change. One formerly large player, Kras Air, for example, ran out of money so quickly its airplanes were grounded on the runways for lack of fuel, while crowds of passengers fumed.
In response, the government of Prime Minister Vladimir V. Putin orchestrated a merger of 11 regional carriers under a state-owned conglomerate, Russian Technologies, to form Russian Airlines. It now has more than 300 aircraft, versus 149 for Aeroflot.
“They will try to create a competitor for Aeroflot,” said Elena Sakhnova, a transportation analyst at VTB Bank in Moscow.
After the 11 companies were merged, Russia still retains about 100 private air carriers initially spun off from the Soviet Aeroflot in an overhaul in 1992 and referred to as “babyflots.” The new reform, the most sweeping in Russian aviation since that breakup, recombines the largest babyflots into a carrier that will now compete with the parent, which still dominates international routes and, for now, receives subsidies other Russian carriers do not.
Both Aeroflot and the new company are majority-owned by the state but appear to be backed by different factions in the government. Otherwise, Aeroflot would have seemed a natural magnet for any state-orchestrated consolidation. The company is closely associated with the out-of-favor administration of former President Boris N. Yeltsin; the chief executive, Valery Okulov, is a son-in-law of Mr. Yeltsin, and a 25 percent shareholder. The tycoon Aleksandr Y. Lebedev, who owns 30 percent of Aeroflot, has a prickly relationship with the current government.
Not surprisingly, the new company has powerful backers.
It is 50 percent owned by the city of Moscow and 50 percent by one of the heavyweights of the new blend of state and private business that emerged under Mr. Putin, Sergei V. Chemezov, a former K.G.B. colleague of Mr. Putin. The two served together in Dresden in the 1980s.
Mr. Chemezov’s company, Russian Technologies, has been surging lately. Its core holding is Rosoboronexport, the multibillion-dollar arms exporting monopoly, but it has expanded into metals, automobiles and high technology.
And in a sign of the new owners’ influence — and an ominous portent for Aeroflot — Yuri M. Luzhkov, the mayor of Moscow, and Mr. Chemezov have asked state regulators to halt fees of $300 million a year paid to Aeroflot by foreign air companies for rights to fly over Russia, contending the fees provide the flag carrier an unfair advantage.
The rivalry is also personal; Mr. Lebedev, a critic of Mr. Luzhkov’s management of Moscow, has run against Mr. Luzhkov for mayor.
It may be too early to write off Aeroflot, but the emergence of a state-backed competitor is a first for the airline, which was founded in 1924 and has always enjoyed insider status. It was once the largest in the world and owned virtually every civilian airplane in the Soviet Union.
So far, officials at Aeroflot have been mute about the newcomer.
Russian Technologies did not respond to written questions about its business plans. Industry analysts say it will most likely focus initially on domestic routes before challenging Aeroflot on international destinations.
The consolidation reduces airline competition domestically but may have a silver lining: Ms. Sakhnova said state control is expected to bring improved safety, easing a pervasive problem for Russian airlines.
In October, for example, at the end of a long flight from Barcelona, pilots of KD Avia, a regional Russian airline based in Kaliningrad, circled their home airport for a second landing attempt and touched down, without lowering wheels. The Boeing 737 screeched to a stop; no passengers were hurt. KD Avia is not part of the new state company.
Investigators have yet to complete their study of the accident but released a preliminary report pointing to pilot error. Igor K. Obotkov, an expert at Russia’s pilots’ union, said investigators were examining whether the crew, distracted by complicated air traffic instructions, had forgotten the wheels after first switching off a warning system.
“The wheels were not down, but all the passengers were safe,” said Elena V. Pinkovaya, a spokeswoman for the airline. “That says something about Boeing airplanes.”
Copyright 2008 The New York Times Company