Interview of I.V. Konkov, Ministerial Aide of the Ministry for Economic Development and Trade of Russia, by Novosti RIA: "Federal Budget Cannot and Must Not Finance Modernization and Maintenance of All Aerodromes", 11 October 2005.

Federal Budget Cannot and Must Not Finance Modernization and Maintenance of All Aerodromes

11 October 2005

Aide to the RF Minister of Economic Development and Trade Igor Konkov was interviewed by the Novosti RIA correspondent Natalia Byrkina

- Igor Vasilyevich, the government is now discussing the strategy for development of Russia's airports. How many big airports will there be left in this country and when do you think the relevant decisions are going to be made?

- The option now under discussion is for some airports to be taken over by regional and local authorities. This means that the federal budget cannot and must not finance modernization and maintenance of all aerodrome facilities in this country. The Ministry of Transport has drafted a white paper to put forward a concept for managing federal airport assets, which provides for Russia to have 7 to 8 hub airports and 16 federal airports in the regions. The remaining, smaller airports are to be sold off or given to local authorities free of charge. Relevant amendments to the privatization legislation have already been introduced into the State Duma. These are now being reviewed and possibly going to be enacted as early as at the autumn session.  

I want to qualify it right away, though, by pointing out that under the current legislation the runways and taxiways, as well as aircraft parking facilities are federal property and may not be privatized. Naturally, it will take time to complete the process of devolution. It stands to reason that not all regions will welcome the move. Many feel apprehensive lest they fail to secure private investments for development of local airports on concession terms.

- Does it mean that the airports in certain regions may be shut down or taken out of service?

- Such an eventuality cannot be excluded. And the decision in this case is to be taken by regional and local authorities. At the same time, it is necessary to preclude the eventuality that the residents of this or that region may be left without any transportation facilities whatsoever available to them. After all, there are regions in the north of the country, in Siberia, without any means of transportation, except by air, there being no roads or railway tracks in place. Such cases are expected to be classified as "social airports" and provided for in the legislation, with such airports to be financed by the federal budget.

- What is the current state of the airport infrastructure in this country?

- Russia has some 500 airports. It is safe to say that a vast majority of them are in need of upgrading. The Transport Ministry's strategy through 2010 provides for allocation of funds to modernize and engineer new runways at 38 aerodromes in this country.

- And what kind of money are we talking about here?

- Modernization of a runway is not all that expensive; it costs, based on its state, 300 to 600 million roubles. Construction, on the other hand, may require, in some cases, greater expenditures. But this would involve upgrading of the runway engineering practices as well. The world over it has long become standard practice to engineer not only cemented but also asphalted concrete runways, the latter being cheaper and easier to maintain.

It is expected that a partnership between the state and private business will build runways and aircraft parking facilities using budgetary funds while private investors will provide funds for building new passenger and cargo terminals. Private investors will be granted concessions to run aerodrome facilities, with the state to supervise the concessionaire's performance according to the terms, and entitled to cancel the concession agreement in case of failure to comply with the terms.

- Now everybody is talking about setting up hubs in this country, that is, international transit passenger and cargo airports. These are to be set up using federal budget funds so all the major airports have suddenly developed the urge to become hubs. How many hubs do we actually need?

- Absolutely, hubs are the talk of the town. First of all, let's get our facts straight. What is a hub? It is an airport which is assigned the role of a hub in a hub-and-spoke traffic-routing diagram, with the major traffic routes, inter-regional and inter-continental, converging on it. The spokes are the regional and local routes to connect the hub airport with the airports in the region's other towns where no direct service by major carriers is available, not being economically feasible. An airport being chosen as a hub gives it enormous advantages over others in terms of through traffic in passengers and cargoes.

For some reason or other a hub is imagined by many to be a vast airport, with aeroplanes landing and taking off every minute. This is a misconception. A hub can also be an airport with a traffic of about 0.5 to 1 million passengers a year, the bulk (30% or more) being transit passengers. In the Soviet times, hubs were actually major regional airports such as Khabarovsk, Chita, Irkutsk, Krasnoyarsk, Tashkent and many others.

In the USA, for example, a major hub is an airport with a large number of passengers served (with over 7 million passengers put onboard aircraft a year).

We set ourselves the task of boosting through traffic. But this involves having large carriers to provide through traffic for hub airports. The country must have at least 2-3 super carriers rather than Aeroflot only as is currently the case. Efforts are being made to set up a major holding by merging the Krasnoyarsk, Domodedovo, Samara airlines, Omsk air carrier and Sibaviatrans. The Federal Property Management Agency is currently appraising the assets of the companies involved and looking into the economics of the decision under review. The proposals are to be produced by 11 December. The Yemeliyanovo Airport in Krasnoyarsk will become the headquarters of the major super carrier being set up, the location likely to evolve into a hub. Yemeliyanovo is a likelier prospect than other Siberian airports because Krasnoyarsk is a focus point for cross-polar and trans-Siberian routes.

- Does it make sense to set up a hub in Moscow?

- The Ministry of Transport proposes to set up a hub to integrate the facilities of all three Moscow airports - Domodedovo, Sheremetyevo and Vnukovo. I do not find it a viable option as they are too far apart, with the through passenger service flow exposed to disruptions as a result. Moving passengers from one airport to another will play havoc with customs control, the whole transfer procedure likely to take up too much time anyway. None of the transit passenger will submit to the ordeal. International experience shows the transfer procedure to take not more than an hour.

A hub status also implies airport expansion, with more runways and aircraft parking facilities to be engineered. The current situation being what it is, no such expansion is necessary. All metropolitan airports are currently underperforming in terms of their available passenger throughput capacity. This does not mean that they do not need to be upgraded. Construction work is already under way on new terminals in Sheremetyevo-1 and Sheremetyevo-3. International traffic is to be rerouted to SVO-1 while SVO-2 is being upgraded. Sheremetyevo is Aeroflot's flagship airport. Taking into account the company's capabilities, enhanced as they are now that it has partnered up with the Sky Team alliance, the airport can even today be regarded as a hub in the making.

But in my opinion, it is the Domodedovo airport that has better chances of becoming the largest hub in the Moscow air traffic system because it is the only location with expansion prospects, i.e., real estate for construction of new runways and parking facilities. But the Domodedovo airport has yet to find a carrier to sponsor its bid for a hub, or secure support of a major alliance of air carriers. The noise impact of Sheremetyevo and Vnukovo, even as they are, without any expansion factored in, extends over population centres, with people there suffering as a result. What is more, Vnukovo is a government airport, which is also at variance with the hub philosophy. Besides, for a hub to be brought on line, it needs to support massive incoming and outgoing aircraft traffic, which requires radical rethinking of the air traffic control arrangements. Historically, we have lots of restricted air space not only around Moscow, but also throughout the entire European part of Russia. So we have our work cut out for us. Now we are just looking into the arrangements which will have to be put in place.

- Thank you.