Air Transport: 2002-2004
Indicators for air and rail transport also increased steadily, averaging 10% per
year. Domestic and international airlines carried 31 million people in 2003,
which according to data of the RF State Statistics Committee (Goskomstat) is
10.7% more than in 2002. In 2003, Russian railways transported 1.161 billion
tons of freight (7.1% more than in 2002) and 1.3 billion passengers (an
increase of 2.6%).
At the same time, even according to official information, the condition of
transportation facilities and infrastructure leaves much to be desired. For
example, there are 18 291 vessels used in Russian inland water transport but
only 354 of them are less than 10 years old. And only half of the 3830
airplanes and 1967 helicopters are actually used. Depreciation of railway rolling stock is nearly 60%.
History of Aviation on the Ground
At present, there are 423 airports in Russia, almost all of them state-owned. Despite the fact that the government
promised last year to get out of the airport business in the near future (this is stipulated in Russia's transportation
strategy) and transfer airports to private hands, Vladimir Putin's first presidential term showed that this process will
be neither quick nor easy.
In June 2000, Aeroflot (51% state-owned) announced plans to construct a third terminal at Sheremetevo
International Airport (100% state-owned). Aeroflot is Sheremetevo's main carrier and knows better than anyone that
the airport's traffic capacity and infrastructure have not met real needs for a long time. However, things have not
progressed beyond leasing 50 ha of land in Khimkinsky District and a pompous laying of the cornerstone. Aeroflot's
management and the bureaucrats disagree on who should build the new terminal and manage the existing one.
Last year, Alfa Group, which had previously never owned any transportation assets, lobbied in Mikhail Kasyanov's
government for a tender to select Sheremetevo's management company for three years and won it, beating out a
consortium of Aeroflot and the National Reserve Bank. At the time, Valery Okulov, Aeroflot's general manager, even
threatened to change the company's base airport, but the winner (OAO Alfa Sheremetevo, 100% owned by Alfa
Group affiliate Alfa-Eko M) produced a group of foreign partners with whom it planned to tackle Sheremetevo Airport.
According to Igor Baranovsky, the head of Alfa Sheremetevo, the amount of investment required to reconstruct and
modernize the airport and construct a third terminal is estimated at $1.5-2 billion.
However, the tender results were not approved. Under pressure from Aeroflot, Mikhail Fradkov's government
effectively disavowed them. In early June, the prime minister instructed Aeroflot and Alfa Group to reach an
agreement on joint management of the airport. So far, they have only determined the legal aspect of Aeroflot's entry
into the management company. On July 6, Aeroflot's board of directors approved the following plan in principle: Alfa-
Eko M and Aeroflot would set up OOO Airport Management, to which they would transfer 100% of the management
company's shares. The ratio of the partners' stakes in the new company remains an open question. The negotiations
will probably be protracted, and it is not inconceivable that the partners will use their lobbying resources more than
once to turn the situation to their own advantage.
Vnukovo, Moscow's third-largest airport after Sheremetevo and Domodedovo in terms of passenger flows, was the
first to actually be privatized and was handed over by the federal authorities almost without a fight. Until November
2003, 60.88% of the shares of AO Vnukovo Airport (owns the Vnukovo 1 terminal) belonged to the RF Ministry of
State Property, but the Aviation Oil Company (ANK) had actually been controlling all of Vnukovo's airport business
for a long time. ANK refuses to disclose the ownership structure, but according to some reports, the largest co-
owners are the father and son Anatoly and Vitaly Vantsev. The Vantsevs maintain that they only own the manager's
block, the exact size of which is unknown.
ANK owns ZAO Vnukovo Invest [the owner of a second large block (38.2%) of AO Vnukovo Airport], 75% of AO
Vnukovo International Airport (the remaining shares belong to the Moscow government), 60% of ZAO Fuel Supply
Complex (Toplivozapravochny kompleks;TZK), 50% of ZAO Fuel Supply Company (Toplivozapravochnaya
kompaniya), and more than 50% of AO TZK Prima Fuel.
In April 2002, Moscow mayor Yury Luzhkov sent Vladimir Putin a proposal to transfer shares of Vnukovo Airport
against repayment of arrears on subsidies to Moscow for carrying out its metropolitan functions. A year later, the
parties agreed in principle to transfer the shares, worth an estimated $1.74 billion; and Vladimir Putin signed the
corresponding decree in November. According to Vitaly Vantsev, OAO Vnukovo International Airport's general
manager, there was no redistribution of the shares or their transfer to the management of a single structure, as
Vnukovo's owners had originally planned; however, OAO Vnukovo Airport was chosen as coordinator of the
modernization plan for the entire Vnukovo Airport complex with the rank of management company. A total of $300
million is supposed to be invested in Vnukovo by 2007 and another $200 million by 2008.
ANK also wants to buy the state-owned terminal at Sochi Airport, where the company already has a fuel supply
business. According to Vlast's information, the deal could be worth $70-80 million, with provision of a further $30-40
million of investments. This will probably be by tender, and we're planning to participate, says Vitaly Vantsev.
The Russian government's transportation strategy assumes that redistribution of airports will continue. Up to now,
the airports have not been separated from the 71 airlines (24 of these are joint stock companies, and 47 are state
unitary enterprises). Given that sometimes the state owns only the runways and airport buildings but business runs
the private structures, the restructuring will not be easy.
History of Aviation in the Air
There have been some overall changes in air traffic in the past four years. As before, more than 200 companies are
involved in this business, but only five airlines account for half of all passenger traffic: Aeroflot Russian Airlines, Sibir,
Pulkovo, Krasnoyarsk Airlines, and UTair (formerly Tyumenaviatrans). Interestingly enough, the state has stakes
ranging from 25.5% to 100% in each of the five leaders except UTair. In the experts' estimation, this coupled with the
effect of more progressive private management has allowed the carriers to become leaders.
Sibir, controlled by a couple from Novosibirsk, Vladislav (general manager) and Natalya (his deputy) Filev, has been
expanding its business more aggressively than the others in the past four years. Sibir's expansion on the air
transport market began with Vnukovo Airlines (VAL), which was in second place in traffic volumes in the mid-1990s,
but by 2000 was virtually bankrupt. In 2001, Sibir's management announced the start of a merger of the companies.
But when it was discovered that VAL had debts of nearly 1 billion rubles and creditors blocked the merger several
times by legal means, Sibir simply bought 37 of the Moscow carrier's airplanes, which had previously been moved to
subsidiaries set up by VAL's management. Vnukovo Airlines was declared bankrupt in 2003.
In summer 2002, Sibir became a co-owner of Armavia Airlines founded by a group of Armenian businessmen using
leased Tu-134's, Tu-154's, and a leased Airbus-A320. Sibir has still not officially confirmed this information, calling
cooperation with Armavia a strategic alliance.
Finally, in May of this year, Sergei Yashin, a co-owner of Chelyabinsk Airlines (ChAP), sold 54% of his company's
shares to structures owned by Vladislav Filev. As a result, Sibir acquired Chelyabinsk Airport, a fuel-supply facility, a
fleet of 16 Tu-154, Tu-134, and Yak-42 airplanes, and the means to increase passenger flows by at least 500 000
people. Experts estimate that the deal was worth $10 million. Yashin's former partner and minority Chelyabinsk
Airlines shareholder, Evgeny Razumov, opposed the sale and the arrival of new owners. The confrontation between
the parties is proceeding in the finest traditions of shareholders' wars: reciprocal lawsuits and seizures of
Chelyabinsk Airport and the Moscow office of ChAP subsidiary Enkor. Nevertheless, in early July, Sibir's
management officially announced the start of operations at ChAP, and the company has begun flights between
Moscow and Chelyabinsk.
UTair, one of the world's largest helicopter operators (184 machines), changed owners at the end of June when the
Administration of Khanty-Mansi Autonomous Area (KhMAO) and the mayor of the city of Surgut, who owned nearly
45% of UTair's shares, sold their holdings. The new owner has not been disclosed, but sources closely connected
with the deal say it is the oil company Surgutneftegaz. In fact, oil companies make up a large proportion of UTair's
clients, and the company has a well-developed infrastructure in a number of Russian oil towns. Aleksandr Filipenko,
the governor of KhMAO, strongly recommended to oil companies that they buy the airline. Neither UTair nor
Surgutneftegaz has officially confirmed the deal, but according to Andrei Martirosov, the airline's general manager,
the owner is a company well known in the autonomous area and outside.
History of the Ports
The last four years have been notable for the mass arrival of new owners at Russian ports metallurgical, oil,
chemical, coal, and even agricultural companies have bought their shares. ZAO Severstaltrans (SST) started the
trend Aleksei Mordashov, head of the Severstal Group, and Konstantin Nikolaev, the head of Severstaltrans, set up
the company on a parity basis in 1996. The peak of the new transportation company's activity happened to coincide
with the past four years.
In 2001, SST began buying up shares of OAO Eastern Port (Vostochny port), the largest port in the Far East, which
had been controlled for eight years by American businessman Kenneth Dart and his partner Andrew Fox (they
owned 36% of the shares). By the end of the summer, SST had acquired nearly 60% of the shares; today it controls
Eastern Port is fourth in Russia's hierarchy of ports. It is located in deep-water, ice-free Wrangel Bay in the Sea of
Japan and is capable of handling large-capacity vessels (up to 150 000 tons). The oil company Rosneft came here in
April of last year. Rosneft's board of directors approved the acquisition of 100% of the shares of ZAO Eastern Oil-
Loading Terminal (Vostochny neftenalivnoi terminal; VNT) from OAO Eastern Port. The deal is worth an estimated
$18 million, and Rosneft will have to invest about another $30 million to finish building the terminal. After
commissioning the first phase of VNT, the company plans to export up to 4.5 million tons of petroleum products per
year through it.
In January 2002, Severstaltrans was the winner at a Russian Federal Property Fund (RFFI) auction for the sale of
34% of the shares of Taganrog Commercial Seaport (TMTP). The company paid 75.14 billion rubles for one-third of
TMTP, one of the so-called small ports on the Sea of Azov with potential freight turnover of 1.5 million tons per year.
As a result, Severstaltrans became the largest port owner after the state by consolidating 39% of the shares (51% of
the voting shares). A new 400 000-ton capacity grain berth went into operation in the same year, and construction
began on three more. But at the end of the year, Severstaltrans sold its share block to grain trader Karavai Plus
Agroindustrial Corporation (APK Karavai Plus).
This year, SST got rid of another port asset acquired two years ago. At the end of June, the company sold 69.4% of
the shares of Tuapse Commercial Seaport [Tuapsinsky MTP, on the Black Sea] to Novolipetsk Iron and Steel
Corporation (NLMK). The amount of the deal has not been disclosed, but analysts believe the shares cost NLMK
twice as much as Severstal, which spent about $45 million on consolidating the shares in 2002. Severstaltrans (port
assets make up a fifth of all of the holding's assets) explained that it had sold the shares in order to shift money to
the railway sector, specifically towards the purchase of rolling stock and locomotives.
NLMK in turn had been the only remaining Russian metallurgical company without its own transportation assets.
However, it quickly got down to business and bought a controlling interest in OAO Port of St. Petersburg (Morskoi
port Sankt-Peterburg) from Nasdor Anstalt (controlled by State Duma deputy Vitaly Yuzhilin and his partner Andrei
Kobzar). The amount of the deal has not been disclosed, but market participants estimate it was worth at least $100
Other companies also became port owners between 2002 and 2004, including Magnitogorsk Metallurgical Plant
(MMK, or Magnitka), which bought about 23% of the shares of OAO Vladivostok Commercial Seaport
(Vladivostoksky MTP), Evrazholding [owns 91.5% of the shares of Nakhodka Commercial Seaport (Nakhodsky
MTP)], Mechel [80.2% of Poset Commercial Port (Torgovy port Poset)], and AO Alliance Oil Company [NK Alyans;
owns a 65.84% share in the capital of Nakhodka Commercial Petroleum Port (Nakhodsky neftenalivnoi MTP)].
Norilsk Nickel (Nornikel) increased its stake in Archangelsk Commercial Seaport (Arkhangelsky MTP) to 53%.
History of Shipping
Of Russia's four largest shipping companies Novoship, Sovkomflot, and the Primorye and Far Eastern shipping
companies only the last two have undergone changes. In June 2002, offshore companies closely associated with ex-
Minister of Fuel and Energy and ex-State Duma deputy Sergei Generalov consolidated a 60% block of shares of Far
Eastern Shipping Company (DVMP), which specializes in worldwide container traffic. The shares were acquired from
a number of small private investors.
The shipping company changed its general manager in September, when Aleksandr Ambrosov from Sovkomflot
replaced government representative Aleksandr Lugovets, who until 2000 had been the deputy of former Minister of
Transport Sergei Frank. This can be considered a defeat for the bureaucrats, since Frank had always zealously
defended the presence of government officials in large shipping companies. At the last shareholders' meeting,
disputes broke out between the representatives of majority shareholder S.V.G. Holding S.A. and the government
(20%) over the amount of dividends on the results of 2003. The government insisted on increasing them, but the
principal shareholder thought it was better to direct profits to the reserve fund and to upgrading DVMP's fixed assets.
Primorye Shipping Company (PMP) did not change owners. Its management headed by Aleksandr Kirilichev, which
controlled nearly 70% of the company's shares, tried to protect it from a hostile takeover in January 2003. In 2003,
the entire block was transferred to a nominee holding of depositaries of ZAO ING (Eurasia) and ZAO Depositary and
A year later, Kirilichev, who had been at the helm of PMP for more than 10 years, also faded into the background.
His first deputy, Aleskandr Popravko, became general manager in May of this year, and Kirilichev decided to
concentrate on solving strategic problems of expanding shipping as chairman of the board of directors. According to
Natalya Mironova, the head of PMP's press service, the general manager himself initiated the lateral move, because
he believed that there are already good managers in shipping. PMP stubbornly denies the theory that the staff
changes were made just before a major change of owners.
Changes may also affect Sovkomflot and Novoship during Vladimir Putin's second presidential term. Several months
ago, rumors appeared that Sergei Frank, now an aide to the prime minister, is hatching plans to merge the
companies and is ready to head the new structure. Of course, there is still no confirmation of this information. The
mechanism of the merger is also unclear. Unlike wholly state-owned Sovkomflot, Novoship is only 50% state-owned.
People Who Have Left the Scene
Nikolai Aksenenko's career advancement, uncommon for a railwayman, began during the
decline of Boris Yeltsin's regime. As minister of railways, he endured five changes of
government from Chernomyrdin to Kirienko to Primakov to Stepashin to Putin and finally to
Kasyanov. He became first deputy prime minister at the same time as Stepashin was
appointed prime minister and retained this position in Vladimir Putin's government. However,
after Putin became president, he quickly got rid of one of the last of the family's proteges.
Nikolai Aksenenko lost his job as deputy prime minister in May 2000 and the post of minister
of railways in early January 2002.
After leaving LogoVAZ to take up the position of commercial director of Aeroflot in 1995,
Aleksandr Krasnenker might well have had a brilliant career in the airline business. However,
he and deputy general manager Nikolai Glushkov, as well as several other senior Aeroflot
executives, became hostages of a power struggle with Boris Berezovsky and the personal
ambitions of the head of the company, Valery Okulov, Boris Yeltsin's son-in-law. The
managers got caught up in the split within the family. This led to the so-called Aeroflot affair
in 1999, and the disgraced managers quit the company under a cloud of scandal. Krasnenker
subsequently became head of Vnukovo Airlines, but lost this job in September 2000. The trial
in the criminal case of Aeroflot's managers was going on during Vladimir Putin's first
presidential terms, and Nikolai Glushkov spent these years in Lefortovo Prison. The court
reached a verdict in March of this year, but it was reversed in June on the application of the Prosecutor General's Office.
The case has been referred for retrial.
For many years, head of Rosaviakonsortium Tatevos Surinov was one of the most
charismatic figures in the Russia airline business. He controlled Vnukovo Airlines, which
inherited virtually the entire domestic air transport network from the unified Soviet Aeroflot.
Vnukovo Airlines was the country's second-largest airline, but under the leadership of
Surinov and his partner Aleksandr Klimov, it rapidly headed for bankruptcy. Sibir acquired the
airline in 2000. At the beginning of 2001, Sibir took over control of nearly all of the Moscow
carrier's commercial operations, and several months later announced the merger of the
companies. Surinov has tried to set up small new airlines, but he will probably not be able to
regain his previous standing in the airline industry.
State Duma deputy Vitaly Yuzhilin has not entirely left the transportation business, but he has
drastically curtailed his presence in it. After Nasdor Anstalt (an offshore company controlled
by Yuzhilin) sold half of OAO Port of St. Petersburg in June of this year, Yuzhilin announced
several other deals. These involved the sale of 50% of Nasdor Anstalt's holdings in the
stevedoring companies Neva Metal and Baltic Bulk Terminal (BBT) to Severstaltrans and
Uralkalii (today the two companies own only half of both stevedoring companies). Thus, all
that is left to Nasdor Anstalt at the St. Petersburg port is 50% of the shares of the company
First Container Terminal (Pervy konteinerny terminal).
People Who Have Arrived on the Scene
The business interests of Sergei Generalov, who has already been a vice-president of YUKOS,
Minister of Fuel and Energy, and a State Duma deputy, have always been noted for their breadth:
coal, engineering, and distilling. In spring 2002, he also became the co-owner of a shipping
company. Several offshore companies managed by the Industrial Investors (Promyshlennye
investory) group succeeded in consolidating nearly 60% of the shares of Far Eastern Shipping
Company. Now Generalov has decided to expand his sphere of influence in transportation by
setting up a joint venture with OAO Russian railways (RZhD), which will begin container service on
the Transsiberian Railway in the fourth quarter of 2004. They have already invented a name for the
company Russian Troika (Russkaya troika). The partners plan to invest about $80 million each to
build up its capacities after buying nearly 10 000 flatcars and 40 000 containers.
No one could call Aleksandr Lebedev a newcomer to the airline business: the former diplomat,
secret service man, and co-owner of the National Reserve Bank (NRB) was one of the founders of
the airplane leasing company Ilyushin Finance Co. (IFK) in 1999. Today, National Reserve
Corporation (NRK, manages National Reserve Bank's nonbanking assets) owns 45% of IFK, which
manages a controlling block of shares in the Voronezh Aircraft Manufacturing Association (VASO;
long-distance Il-96-300 airplanes). However, Lebedev's most important move in the airline industry
was the NRB group's purchase of 26% of Aeroflot's shares from Millhouse Capital owned by
Roman Abramovich. Today NRK holds nearly 30% of the airline's shares. Moreover, despite
announcements of a strategic partnership between management and the state (which owns a
controlling interest in Aeroflot), NRK representatives on the board of directors frequently oppose
Until recently, Novolipetsk Iron and Steel Corporation headed by Vladimir Lisin was the only
metallurgical company without its own transportation assets. Lisin more than made up for this
deficiency with two purchases in the first half of 2004. First, Severstaltrans sold NLMK 69.4% of the
shares of Tuapse Commercial Seaport. With a freight turnover of 17.9 million tons, the terminal is
one of Russia's five largest ports. NLMK explained the purchase by the need to cut expenses
NLMK annually exports more than 3 million tons of products to China, European countries, and
Asia and plans to expand the stevedoring business. Second, at the end of June, the Liechtenstein
offshore company Nasdor Anstalt controlled by Duma deputy Vitaly Yuzhilin and his partner Andrei
Kobzar sold a controlling block of shares in OAO Port of St. Petersburg to the Danish company
Jysk Staalindustri, a friend of NLMK, for an estimated $100 million. The Port of St. Petersburg is
second in importance after Novorossiisk.
Konstantin Nikolaev, a graduate of the philosophy department of Moscow State University (MGU),
made no mistake when he proposed the formation of a transportation company on a parity basis to
Severstal's management. Based on the results of 2003, revenues of Severstaltrans, which he
heads, were nearly $1 billion. At the present time, the company transports by rail 18% of all ferrous
metals, 16.8% of all iron ore, and 11.4% of all oil and petroleum products; it also accounts for more
than 19% of freight turnover at Russian ports, including 62% of container freight. The holding's
assets are divided into three main parts: rail transport (Severstaltrans, OOO Sevtekhnotrans, and
OOO Balttransservis), port services (OAO Eastern Port, ZAO First Container Terminal, ZAO Neva
Metal, and OOO NUTEP), and transport engineering [OAO Kolomensky Plant (Kolomensky
You can't quite bring yourself to call career railwayman and president of OAO Russian Railways a
minion of President Vladimir Putin. In actual fact, he was born and educated in the Far East and
began his working life there; before the start of his administrative career, he was an engineer and
never had anything to do with state security. And during the several years that, as fate would have
it, Fadeev headed the Oktyabrskaya Railway (Oktyabrskaya zheleznaya doroga), Vladimir Putin
was serving in East Germany. Gennady Fadeev became Minister of Railways for the first time in
1992 under President Boris Yeltsin, who later replaced him with family loyalist Nikolai Aksenenko.
Nevertheless, Fadeev again became head of the Ministry of Railways (MPS) in 2002 on the eve of
the industry's historical restructuring. In 2003, he became president of OAO Russian Railways, and
although rumors of his dismissal are constantly circulating, he has so far managed to keep his job.