The Baltic Course

Oil_business

AIR TRAFFIC

Transport

[Life in Motion]

[Gateway to the Sky] Summary

Standing for Open Sky

The questions of the BC were answered by the heads of the Baltic capital airports who gathered in Riga at the end of April - Dzintars Pomers, President of the Riga Airport, Mindaugas Ivanauskas, General Director of Voilnius Airport and Rein Loik, Chairman of the Board of Tallinn Airport

- Does any rivalry exist among the Baltic airports? If it does, how do you evaluate your position in this competition?

Dzintars Pomers: We do not compete with our neighbours; we anticipate their success instead. We pay attention to problems arising in the neighbouring ports. Our good relations have been strengthened by establishing the Baltic Airport Club. Within the framework of the club, we meet twice a year to exchange opinions and experience. If there is any competition, it is a very friendly one. The actual rivalry goes on between the airlines, and it has to do with prices.

Mindaugas Ivanauskas: We do not feel any competition either. Each of the Baltic airports has its own market established long ago. The markets are defined both by geographic location and by airlines, including foreign ones. Our fates are similar. We all separated from a single system of the Aeroflot monster in 1991 and had to solve the problem of transforming city airports into international airports corresponding to all of the turned-on requirements of civil aviation. We had to invest a lot of resources and solve a lot of problems, and we are satisfied with our own accomplishments, as well as with those made by our neighbours.
Despite the fact that we have three international airports in Lithuania today - in Vilnius, in Palanga and in Kaunas - we do not feel as if we were competing with them. Each of the three ports has its own assignment: Palanga provides its services to the resort, Kaunas is located in the centre of the republic and is specialised in freight services, Vilnius, as the capital airport, is more concerned with passenger traffic.

Rein Loik: Of course, we do feel competition with our neighbours, especially with Riga, which is situated between Tallinn and Vilnius. Right now, we have moved into the final phase of developing Strategy-2003. We have completed a competition analysis, which shows that all ports within the range of 200 to 300 km are our rivals. Riga and Tallinn are divided by approximately 300 km, and the inhabitants of Southern Estonia find it easier to get to Riga than to Tallinn. We are also competitive in the field of transit.
Tallinn is the smallest of the Baltic capitals, while its airport is the largest one. Curiously enough, the number of passengers is greatly dependent on GDP. In 1999, GDP fell down by 1.4%, and the number of passengers at the Tallinn airport diminished by 2.3%. Anyway, our most serious rival is the Helsinki airport, located just 80 km from Tallinn, and taking into account that ferry traffic goes to the Finnish capital once every half hour.

- Which routes and which airline services do you consider to be a priority for your airport?

Pomers: I am interested in achieving as many direct flights from Riga as possible, which would distinguish our airport from Tallinn and Vilnius. We have set the German direction with all of the four airports (Frankfurt, Munich, Hamburg and Berlin) as our priority. It is necessary to increase the flow of passengers in the other important direction - to the east.

Ivanauskas: The airport cannot set priority flights. We are glad to have all of the eleven airlines collaborating with us. For us who have stepped out of the USSR, it is hard to compete with European companies of international importance. As regards to Aeroflot, Air Lithuania is gaining more parity as time passes. Sixty per cent of all flights are provided by Lithuanian airlines today. Our main partners in the West are Lufthansa, SAS, LOT and Finnair. It is a pity that British Airways have stopped their flights to our airport.

Loik: We expect liberalisation in the field of civil aviation. At the moment, we have concluded bilateral agreements with various companies. The situation is changing, and we expect to join the Open Sky before joining to the EU, thus finding ourselves in the free competition area. Today, two major air alliances are represented at the Tallinn Airport. One of them is Star Alliance comprising Lufthansa, SAS and Estonian Air. The other - One World - unites British Airways and Finnair. The two alliances are strongly competing. Tallinn stands against monopoly, so we are interested in cooperation with both of them.

Riga

Life in Motion

How is the airport Riga nowadays and how is it developing? That was the basic question for the discussion of Olga Pavuk, Deputy Editor-in-Chief of the BC and Dzintars Pomers, President of Riga Airport, who has been in charge of the main air gates of Latvia for eight years now

- What does Riga International Airport mean to business today?

- It is one of the most important infrastructure objects in the country, as nearly all business people visiting Latvia come through Riga airport. The perimeter of the territory is 10 kilometres, the staff comprises 450 people. Moreover, it is the state border with all the necessary attributes - border guards and customs control.
In 1999, Riga airport, the largest one in the Baltic States by the number of passengers, airlifted over half a million people. Railway can take passengers only to the east. There are six flights per day to Copenhagen alone. At the same time, there is only one to Moscow, and that is not good. Two years ago, flights to Moscow took off three times a day. The fight between companies, the so-called globalisation and the political situation resulted in cut-off of flights in the eastern direction. I hope that the situation will improve in the nearest future.

- What is the role of state in the operation of state joint-stock company (SJSC) Riga International Airport?

- State owns a hundred per cent of Riga airport. I believe it is all right. We are not able to survive without state support yet. For all these years, state has not given a single cent to us. Nevertheless, it ensures stability as regards to taxing and infrastructure, which has a positive impact both on the company and on our clients. Since 1993, the airport has been gaining profit and developing intermittently.

- What is your opinion of privatisation of establishments like the airport?

- Generally, I stand for privatisation. However, it has to be performed very carefully. I consider that it can be done by selling shares through stock exchange, under condition that no more than one per cent of the shares are sold to one natural or legal person. They may be airlines or other shareholders. It is extremely important that there should be no strategic investor and the joint-stock company would become open to public. Dividends, paid to the shareholders, have to exceed the average bank deposit interest at least. That is why privatisation of the airport would only be possible after reconstruction and giving the airport a turned-on look, as well as after achieving competitive level on the market. According to my estimations, it could happen no sooner than in four to five, or even more years.

- And what is the dividends of the state as the shareholder today?

- In 1999, the fee for the use of capital (that is how dividends is called in SJSC) amounted to 15 per cent or 119 thousand lats of the net gain. Is it much or not? Of course, it is much. 80 per cent of the profit was invested in development. Generally speaking, it is not right. The money given to the state should also have been channelled to development. However, the state made a different decision.

- What is the unused potential of the airport from the point of view of flow of passengers and cargo transportation?

- At present, we are able to service up to 600 thousand passengers. The renovation project would increase our service potential to 1.3 million people.

- What is the relationship between the airport and flight security services?

- The airport is not only operating as a business structure but it is also the border. Security of passengers is provided by the airport itself with the help of passengers' control, baggage control, territory guards and fire emergency service. Flight security is managed by the 'Latvijas gaisa satiksme'. In some countries, security on land and in the air is provided by a single company. Our system is different. Both our security companies co-operate very closely.

- Where do you get money for development of the airport?

- We get the money both from our revenue and from the loans granted by international financial institutions.

- What would be your argument in order to get the biggest credit possible?

- In 1993, we got a 12 million credit from the EBRD for renovation and development of the runway. We had to fight for this credit for two years.

- Is there any considerable difference among the airports of the three Baltic States?

- It is a tricky question. The airports are all very similar. The Tallinn airport is the newest. It was built before the Olympic Games in 1980. The Riga airport is 30 years old. The Vilnius airport is the oldest. However, the conditions in nineties were equal for all three airports.

- How many international airports do you think are necessary for Latvia?

- We should have one big airport. Daugavpils, Liepaja and Ventspils can service only the small aircraft. It is complicated to establish regular international flight service there.

- What can you say about the modern Riga airport project?

- Five years ago, we had an idea to move further out of Riga (maybe to Adazi) and to build a new airport there. However, Latvia can not afford a new airport. It is too expensive. For instance, building of a new airport in Athens (Greece) cost 4.3 billion dollars. We do not have such money. We decided to keep the old airport terminal and just renovate it substantially with the help of constructors consultants from Amsterdam Schipol airport.

- To what extent do you think the idea of turning the Riga airport into the main air bridge between the CIS and Western Europe can be implemented?

- We would certainly like to be a kind of a bridge like, for example, Amsterdam or Copenhagen. However, most likely, this idea is going to remain just an idea. There is no such single Baltic company that is big enough and that is able to service flights in any direction. It is just a fantasy. The European airline market has already been established. In addition, the biggest airports never stop their development. They are constantly growing.

Riga

Gateway to the Sky

Olga Pavuk, Vidmantas Kairys, Tatyana Merkulova

All three Baltic airports mostly deal with passenger carriage. Every year more than one and a half million passengers use the services of these three airports. There is no cargo aircraft as such (except for Latvia), although the passenger planes also carry mail and other urgent freight. Most cargo is carried through the Baltic seaports. Even fresh fruit and flowers are delivered to the Baltic States via refrigerated containers, because air transport is not profitable.
Most aeroplanes fly to Western Europe and some service the CIS countries.

Riga: a Capitalistic Situation

Some time ago, the Riga airport used to work only for the domestic traffic. When Latvia regained its independence, the Riga airport turned into an international airport.

According to the President of the airport, Mr. Dzintars Pomers, there is only one difference between a national and international airport - border and customs control. There are other technical criteria, such as the length of runway, navigation, and lighting etc.; however, these criteria refer both to national and international airports.

Since 1993 Riga airport has operated independently. In the beginning it was a state-owned company, but now it is a State Joint Stock Company.

Mr. Dzintars Pomers, who is a professional builder and an amateur pilot, has managed this large company since 1993. It is obviously his professional background as a builder that has led him to always think of improvement of the airport by changing its looks both from the inside and outside.

According to the vice-president of the airport, Mr. Guntars Sprogis, the entire reconstruction project of the airport terminal presently underway will cost about 20 million lats (about 34 million dollars).

In accordance with the concept set out by the Dutch company Schihol Project Consult BV, no new Riga airport terminal will be built. Instead the existing terminal will be substantially reconstructed and extended.

In 1999, the initial stage of reconstruction was completed. Its total cost was 5 million lats. Passengers have already been able to appreciate the new passengers' arrival terminal, which has a capacity of 1.3 million people per year.

The company PBLC performed construction work. Dzintars Pomers pointed out that construction was financed from the special Passenger Departure Duty included in the air ticket and paid by every departing passenge.

Thirteen building companies from 6 countries are planning to take part in the tender for the second stage of reconstruction of Riga airport. This stage includes building a new extension, modernising the passengers' departure terminal and improving the international communication network. In addition, the central platform and the side drives will be reconstructed, thus enabling passengers to get to the planes directly from the terminal building. The project will cost about 13.1 million lats.

The architect bureau Arhis (Latvia), which handled the passengers' arrival terminal project, and the company COVI (Denmark) are the authors of the second reconstruction stage. Building work is to be completed by the summer of 2001.

Where does the airport get money for such extensive building work? Mr. Guntars Sprogis explained to BC that there are two sources of financing. The first source is internal financing acquired from the revenue the company has earned since 1992. Net profit in 1999 was 795,000 lats, 82% of which were spent on the reconstruction. The second source is a special budget that consists of a 12-dollar Passenger Departure Duty, which is paid by each departing passenger.

In 1999, 1,9 million lats were collected and the airport expects to collect about 2 million lats in 2000. This Duty has been collected since 1997 and during this period, 5 million lats have been spent on the development of the airport.

The airport has acquired the rest of the necessary financing through loans. They are proud of the first big loan from the EBRD (12 million lats) which was received in 1993. Societe Generale granted a second loan of 6 million francs with a four-year term which bought two fire emergency cars from France. A third loan of 10 million Euro (7 million lats) is planned to obtain from the European Investment Bank for reconstruction of the airport. Riga airport is also negotiating another loan of 10 million Euro with a bank in Germany.

The airlines also contribute to improving service. In February 2000, the Latvian company Air Baltic opened a hangar for plane service at Riga airport, which is the biggest in the Baltic States. Air Baltic invested 339 thousand lats in the new 'aircraft service' covering 2 925 sq. m. Using their own 'aircraft service' will save about 300,000 lats per year.

Today, the company has to send their AVRO PJ 70 and Fokker 50 to England, Switzerland or Denmark. According to the president of the Air Baltic, Mr. Christian Kircheiner, when the hangar is not busy, other airlines will be able to use it.

Last year, when the number of passengers increased, the number of flights slightly dropped. This is due to refusal of some airlines to continue non-profitable routes or flights.

Presently, 16 airlines offer regular passenger flights connecting Riga with 22 European cities, most of which are located in Western and Central Europe. Flights to the East mostly service Moscow, Minsk and Dniepropetrovsk. There is also a direct flight to Tel Aviv.

Lithuania: Paying Its Own Way

The Vilnius airport was built in 1954 and is a typical example of post-war architecture. The airport building is a complicated construction with a perimeter of 14 km. The Vilnius airport was the first airport in the Baltic States, where renovation was started by Yugoslavian specialists in 1993.

This year, basic reconstruction, including side drives and construction of a hotel and square will be completed. The modern terminal building is constructed in the so-called high-tech style.

As the Director General of Vilnius International Airport, Mr. Mindaugas Ivanauskas, explained to BC, at the worst period in 1993 there were only 630 people working in the airport and the airport serviced only 230,000 passengers. In 1999, the number of employees was 680 and 11 operating airlines serviced 482,000 passengers. According to Mr. Mindaugas Ivanauskas, about 700 airport employees are able to service up to 1 million passengers.

The structure of the Lithuanian air service is slightly different from that in Latvia. It consists of three state-owned companies: The Vilnius airport and the Flight Service Management Board are state-owned companies. In addition, Lithuanian Airlines is a state Joint Stock company and also the biggest national company. In total, there are 8 national and 5-6 foreign air service companies in Lithuania.

Lithuania is still not planning privatisation of its airports. However, since 1992, privatisation of the national company Lithuanian Airlines is negotiated.

Today, the company owns a Boeing 737-200 and rents a Boeing 737-300 and two aeroplanes SAAB 340B and SAAB 2000.

For Lithuanian Airlines, a suitable strategic investor should meet certain requirements: it should be a large airline well known for the high level of its flights, and it should not be a large competitor of Lithuanian Airlines regarding any of its European flights. Unfortunately, attempts over past seven years to find such an investor have been futile. Only SAS seriously considered investing, but they were not satisfied with the deal. Looking back to 1990, it is easy to remember that SAS planned to become an air company covering the entire Baltic region. Following this strategy, SAS acquired the form of Air Baltic Corporation and intended to invest in Estonian Air. However, 66% of the Estonian Air shares were sold to Maersk Air for USD 5 million. Despite that Maersk Air still intended to invest in Lithuanian Airlines as well, but this item was not on the agenda in Lithuania. At present Lithuanian Airlines has been negotiating with KLM and this may be regarded as the first step towards closer cooperation in the future.

As Lina Usaviciene the Financial Director of the Vilnius airport told to BC, Vilnius Airport has survived using its own financial resources. Last year's entire profit, consisting of approximately USD 0.5 million, was invested in expansion of the airport. The government encourages this practice by offering favourable tax breaks; if the airport invests its earnings in the development, the 24 percent tax (previously - 29 percent) is not imposed on the profit. During the previous decade, according to the financial director, only one credit was drawn upon - USD 15 million from the European Investment Bank.

Tallinn: Built Up By the Whole World

Tallinn airport has been in operation since 1932. In 1980 the Olympic regatta was going to take place in Estonia, and the airport building was built anew. However, there were so many defects that local experts made jokes by offering to write a manual entitled How the airports should not be built. The main shortcoming of the passenger terminal was, for instance, the impossibility of rebuilding it in parts, step by step.

The long-term development plan of the airport consisted of phased reconstruction. The first phase (1993-1996) included reconstruction of the airstrips' coating (today practically all the types of the aeroplanes used in the world can be accepted), reconstruction and renovation of the rescue equipment, and improvement of the lighting and meteorological systems. This phase cost EEK 235 million (about USD 17 million). The second phase dealt with the construction of a modern cargo terminal, a new building for the rescue service centre and a passenger terminal platform.

The last major project was finished last year, costing an estimated EEK 390 million (about USD 28 million). Eighty per cent of the total amount consisted of loans from Western banks, EU Phare program, the airport and state budget resources. The Norwegian government provided EEK 16 million. French capital was invested in designing of the terminal project, and smaller amounts were borrowed from the national budget and a part from the company's own funds was invested as well (totally EEK 60 million from Estonian side).

At the end of April the passenger terminal reconstruction of Tallinn Airport was successfully finished. Now airline passengers arriving in Estonia will be received by the most modern terminal in the Baltic countries. Sven Ratasepp, Deputy Director of the Development of the state-owned company Tallinn Airport, informed BC that only the outer shell of the old building was left, but the whole content (and the complete systems) had to be built anew according to the French project. Consequently the effective area of the passenger terminal was extended from 12 500 to the current 14 500 sq. m.

In 1997 the state-owned enterprise Estonian Airports was reorganised and the five airports which made up Estonian Airports were transformed into independent Joint Stock companies, in which 100 percent of the shares were state owned. An international certificate was issued to all the airports. The largest among them is Tallinn airport. At present the state holds all the shares of the stock company Tallinna Lennujaam. The terms and period of its privatisation still are not specified.

With respect to ground service provided to passengers, Tallinn airport competes with the largest Estonian air carrier company Estonian Air. Its flight park consists of two Boeing 735-500 and two planes of the type Fokker 50. The landing stripes, platforms, buildings and land are the property of the airport. The new a cargo terminal with the total area of 2770 sq. m. is working on a full capacity. There are facilities for its enlargement.

On April 25th, during the Moscow visit of Tomas Peterson, Director of the Department of Air Traffic of the Estonian Transport Ministry, an agreement enabling the re-establishment of air traffic between the capitals of Estonia and Russia was initialled.

Lately, helicopter air traffic has been activated in Estonia. One of the helipads located on the roof of the Forekspank building has already been certified. In the near future, an international certification will also be given to the Finnish private conveyer Copter Action OY. Their helicopters will maintain regular flights between Tallinn - Helsinki - Tallinn and land in the former location of the Gorhall fountain near the passenger port.

Province Open to Everybody

Besides the capital airports, there are several regional airports operating in the Baltic States. In Estonia there is Tartu, Parnu and three island ports. Lithuania has airports in Kaunas and Palanga, and Latvia has airports in Liepaja and Daugavpils.

Lithuania also maintains another airport in Sauliai, which is rarely in operation now. In Soviet times, the Sauliai airport was the largest military airport in Europe and had the widest lane. Today it causes nothing but headaches. Located just 100 kilometres from Riga, Sauliai will not become a market for civil aviation. The government will have to make a decision on the airport's future activities, which has consumed huge resources.

A Free Economic Area (FEA) was established in Sauliai because of the airport. Nevertheless, Mindaugas Ivanauskas considers that a FEA in the middle of Europe without any industry and cargo is a serious problem. Additionally, it is already difficult for Lithuania to exploit the existing three airports to a full extent. Establishing an aircraft repair plant in Sauliai was contemplated at one time, but, serious analysis of the entire Baltic air market is required first. At the same time, people of Sauliai are still dreaming of an airport ensuring transport to Vilnius, Kaunas, Klaipeda, Liepaja, Riga and Kaliningrad and conveying about 4.5 million passengers. The basic problem lies in attracting operators, i.e., airlines, freighters and tourist agencies. In April, the Ministry of Transport replaced the Board and appointed J. Jutkelis as General Director of Sauliai airport. Previously, Mr. Jutkelis had worked for Irkutsk Aviation as the first Deputy Director for Relations with Customers, and for the Lithuanian Airlines as Business Manager.

So far, no regular air traffic has been established in Ventspils - the largest seaport in Latvia. In order to support development of an airport, in April 2000 the City Council of Ventspils decided to join a project on airport information network of the Baltic region Sea bird. The project aims at providing information, developing routes, co-operating in the delivery of equipment and training staff of all the international airports in the Baltic region. Over 20 airports in Germany, Denmark, Sweden, Finland, Latvia, Poland and Russia take part in this project. The project is funded within the framework of the European Union programme Interreg 2C, which has funding of up to EUR 1.3 million. Ventspils was accepted into the project on the condition that regular flights will be started this year.

Buy Cheap

Lately, duty-free trade has become increasingly active in all three Baltic ports. To a certain extent, this has occurred because of a reduction in such activities in European Union countries. Obviously, that is what organisers of the duty free business here, and in other countries further to the east, are counting on. As explained by Guntars Zicans, Rents and Concessions Manager of Riga Airport, since the beginning of 2000, duty-free services in Western European airports may only be used by passengers leaving for non-EU countries. This kind of trade has been banned only within Europe. Therefore, according to Guntars Zicans, no great revival can be felt yet.

Today, the largest duty-free network is located at Riga airport - eight companies chosen on the grounds of tendering are represented in 14 shops. Half of them are local companies. The total turnover of duty-free amounted to USD 4.7 million in 1999, and Guntars Zicans noted that it by far exceeded the turnover of the neighbouring countries.

Certain growth trends in this area can already be observed. At present, 43% of all purchases is alcohol, 24% perfume/cosmetics, and 10% tobacco. Russians prefer to purchase exclusive haberdashery and jewellery. Scandinavians choose cigarettes, which are much cheaper here. Germans buy mostly alcohol and tobacco as well. Salespeople have observed that half of all purchases are made by the passengers of the one Moscow flight who buy all goods of a certain kind frequently.

Unlike Latvia, Lithuanian duty-free shops in all three international airports are operated by a single American company, which was chosen in a competition. Two shops of well-known Western trade companies will be opened in the new Tallinn terminal.

Riga-Vilnius-Tallinn