The Baltic Course

Aviation after 9/11

By Inna Rogatchi
© Rogatchi Productions & Communications, 2002 (Helsinki)


Baltic air space teeming
The 9/11 factor may have jammed a wrench in the spokes of global aviation for a good time coming, sparking job cuts, less flights and higher costs due to increased security measures and tougher border control along with a frightened tourist market, but continuos economic development on the Baltic state markets may be rubbing off on the aviation sector. With global gloom only just passing, developments in the Baltic region are kicking in, with only the EU friendly flying requirements still jamming the few companies effected.
One positive aspect for the Baltic states is that Denmark's Maersk Air has decided to shift its Boeing repairs and maintenance facilities to Estonia. Servicing the jets from Maersk Air and Estonain Air, partly owned by the former, will be a new turn for Baltic engineering, while Maersk has also made steps at transferring its revenue accountancy unit to Estonia for covering both companies, giving us another good example of how Europe's free market and Estonia's open economy are working together.
Finnair's Aero Airlines set up in Estonia is launching new flights from Tallinn to Helsinki as part of a cost-cutting strategy. Meanwhile, Sweden's Trygg Flyg has launched flights to Latvia's capital Riga from Jonchoping in Sweden, stating that the small jet flying this route will be mainly aimed at business people rather than tourists.
Latvia's national carrier airBaltic has opened the summer season with a bang through new routes and quite a campaign boasting cheap flights to European capitals. First the company, partly owned by SAS, has renewed its flights to Moscow. A new route never flown from Riga before, destined for Berlin has also been launched, with airBaltic advertising rock bottom prices for this route on tickets ordered via the Internet.
Not so rock bottom, but still on the cheap end are also flights launched for the Austrian capital Vienna. This was unliked by Austrian Airlines, followed by Austria announcing it would not let any airBaltic planes land in Vienna. Helsinki authorities made similar moves, also stating the cheap pricing policy of airBaltic unfavorable. So much for a free market. Europe is promoting a free market economy, but it looks like as soon as anyone's particular pocket is put under question, counter measures from national authorities are quick to step in. Many would say the same for US steel import dues.

The aviation sector in all its directions and functions has undergone changes most dramatic under the "September 11th factor," or what's been coined as 9/11. The airlines suffered first, and then the consequences developed in a domino-effect: aviation construction and engineering companies had to diminish output, sales, and slow down new projects; next came the suppliers, including major metal plants world-wide, who in some cases had to stop the work of entire departments ,because nobody needed their product for a substantial while ahead. Tourism was the next victim, followed by the sharpest drop in sales for decades in show business, galleries and museums, etc. Assuming the global character of current economic functioning, and the inter-connections and multi-dependencies of modern industry, as well as an open air concept accepted by the vast majority of the major aviation players, we are now facing one of the most significant and complex issues of the modern economy facing new challenges after September 11th 2001.

One of the core-issues here is financial support for airlines and to the aviation industry as a whole. This matter very strongly illuminates political components in the supposedly pure business-like area, as emergency funds for recovering damages provided by the states and various other funds for supporting the industry for several years ahead all comes from money paid by tax-payers. There are several quite opposing opinions on the allocation and use of funds, varying from unconditional support, to questioning how much the airlines and aviation industry corporations are actually playing on the situation by possibly exaggerating possibly the loss and trying to use the opportunity to fix problems actually unrelated with the 9/11 factor.

Nevertheless, in any case, from now on the state-factor has a whole new role in the largely private and independent Western aviation sector; this opinion is shared by virtually all experts with whom we spoke to for this report.

Alexander Neradko, head of the Russian Federal Civil Aviation Service,  also the first deputy minister of transport of the Russian Federation, emphasized: "Sometimes one hears that aviation in Russia is regarded as too regulated, and the state still plays too big a role in the civil air-transportation sector. But let's look at virtually all Western countries today, and we'll see what grand support the companies get from their states - in the US, in France, in Germany. Just these past days the German Bundestag has agreed for a package of 750 million euros to support Lufthansa. All that we are witnessing after September 11th world-wide indicates very clearly that no one, even the mightiest of airlines and aviation companies can survive, nor function on their own. One of the most definite consequences of the September 11th events is that the role of the state in aviation has risen substantially for all major players in the world aviation sector. As far as I am concerned, this first of all means a modern and competitive concept for the aviation sectors development, which the state should have and implement. Fortunately, we in Russia can now responsibly say that our government has such a concept; and this concept has become a basis for the aviation sector  development program till 2010. The program was presented to president Putin, and after his approval was adopted as the main direction for the intensive measures we are now undertaking in the sector."

Well, it's about time. Russian aviation officials and experts have been openly saying that for the past ten years Russia's aviation sector, especially the civil aviation industry, has been almost ruined. The degree of collapse for the previous flagman industry, well-known to insiders and specialists, has become quite an unpleasant surprise for president Putin, who after being briefed about the actual situation has become so concerned that he personally lead two special high-level meetings on the sector during a six month period. No other business or industrial issue has got such personal attention or involvement of the Russian president recently. By coincidence, the first meeting on problems of the aviation sector held by Vladimir Putin took place on September 12th last year. Today even most realistic of people might find some kind of symbolic timing to this seeming coincidence.

Alexey Sinitsky, a leading Russian aviation experts, has analyzed the vicious circle formed by the reasons and consequences of misfortune for Russian aviation: "First of all, historical tradition and peculiarities of the Russian economy going back to Soviet times, the building of civil aircraft has always been an orphan compared to the mighty military aviation industry. It has been a very closed country without much choice for customers, comparison factors for engineers and producers, not to mention business competitiveness; and everyone was satisfied with the product they got. That's why Russian civil aviation is hopelessly far behind the Western aircraft industry. Then, after the collapse of the Soviet Union, people could not afford the very high prices of using air-transportation even at the pre-1990 levels. By quite a conservative estimate, Russians today fly four times less than they did before 1990. An acute shortage of money coming form an absence of air-passengers leads to a paradoxical consequence: since existing airplanes are not at use, their resource limits are not expiring. That means that airlines are not going to renew their fleets however morally old or out of time they are. And this leads to the situation where passengers grow more reluctant to fly on the old fleet being worried of their safety. That's how the vicious circle in Russia's aviation sector is formed."

Lithuanain airlines struggling
Lietuvos Avialinijos recently stopped flights to Riga and Warsaw, but has launched new routes to Stockholm and Amsterdam, but the Lithuanian national air carrier is facing a serious shortage of planes as its Boeing 737-200 aircraft make too much noise to be operated on European flights under new E.U. regulations that came into force on Apr. 1, reported BNS.
With negotiations over the lease of compliant aircraft dragging on, the executive board of LAL allowed the company's administration sign lease contracts without having properly analyzed them first, but is now negotiating the lease of more compliant Boeing and SAAB aircraft.
Last year the airline posted posted an unaudited loss of around 8.7 millio euros, basing the loss largely on costs incurred from major repairs, as well as increased insurance after 9/11.
In recent week s the debt-stricken carrier sold a slot for landing at Heathrow in London to British Airways, as the company is short in circulating assets. The company will be landing in Gatwick from now on, where it will save precious air time and pay less for airport taxes and maintenance.
Nevertheless, this year the company is slated for privatization and its management has even forecast profits for the coming years. The Lithuanian state intends on selling part of the carrier before the year is over and is intent on keeping the airline's status as a national carrier, probably by selling a 49 percent stake to a number of Western investor candidates
Privatization of the Lithuanian national carrier looked doomed for only six months ago, as no one looked eager on buying any new stales in the sinking business for a while after 9/11, but recent developments regionally and worldwide, may perk potential bidders for a share in the last if the three Baltic state carriers, with Lithuanian authorities are even willing to speed up the privatization process, fearing investors will lose eve more interest in Lithuanian Airlines following the liberalization of the EU air market.

Recent activities, accelerated by the 9/11 factor, indicate that the Russian government under personal supervision of the prime-minister Mikhail Kasyanov, is alarmed and committed to make a break through out of this vicious circle as soon as possible. As expert Andrey Ivanov from Troika-Dialogue pointed out: "There are some views that Russia shall quit its program for building internationally uncompetitive, outdated civil aircraft, and put efforts towards producing a wide range of spare parts, thus eventually becoming a part of the international integrated consortiums producing new and modern aircraft. But how on the earth can the Russian government and president Putin take such political risk by halting a substantial part of an industry employing up to 500 000 people? That's why, most likely, Russia will go on with the new program of restoring, re-organizing and modernizing its civil aviation sector, and the Russian government has already committed itself to quite a big financial package of 300 million rubles for the year 2002 to give the program a start."

New trends

The 9/11 factor has not become the only staggering point for the further development and functioning of the global aviation system, but the European convention for safe and environmentally friendly aviation has is doing its fair share. According to the convention first drafted in 1990 and adopted by a vast majority of the European states in 1992, April 1st 2002, was set up as the dead-line for banning flights for all aircraft not meeting EU standards. In the case of Russia, none of its domestically produced aircraft meets these standards. Many specialists pointed out, the decade period was set by the European Commission "precisely for the purpose that all parties involved had enough time to prepare their fleets by the dead-line". In the case f Russia, it just so turned out that during the past ten years nobody paid any attention to this, and modernization of the fleet had not been carried out. Maybe this strange indifference might be explained by the fact that the leading national air carrier Aeroflot does have a mixed fleet including foreign-made planes, and is not facing any problems regarding sanctions imposed by the EU. Some other Russian carriers that fly abroad, like Transaero, also have western planes in their fleet. But there is very serious reason for concern in the fact that thousands of Russian charter flights abroad (only from Moscow and only to Barcelona there are as much as 12 charters are departing daily) are unable to make their flights starting from April 1st, 2002.

This is also serious problem for all countries using Russian-made planes that do not correspond to European environmental standards, including those countries provide transit routes for the Russian-made and outdated planes. In the case of the Baltic states, experts believe that the issue is even more sensitive and specific: «As the Baltic states are all looking towards their fast and smooth as possible entry to the European Union ( and to some respect in this issue, also to NATO), the attitude of the accepting authority, the EU High Commission, towards them is expected to be stricter and less compromising than towards the good old members. And there is always a risk that under certain circumstances, the EU could use the pretext of Baltic state non-compliance with EU directives or standards in the highly sensitive and even fashionable issue of, aviation for the next delay of the Baltic states» entering the Big European Club,» said Anvar Amirov, a political and economics expert from the Panorama think-tank.

Prompted by both the 9/11 factor and new EU aviation regulations, new trends in the global aviation sector have already become visible. All major world aviation producers are in the process of actively taking root in the Russian aviation sector, an unprecedented development only a couple of years ago. Today Boeing set up a design bureau in Moscow, in close co-operation with the famous Iljushin concern. Several hundreds of Russian engineers working there are now treated as  people of their level of education, abilities and qualities are treated in the West, and specialists like this must be treated at home this way if the government wants to have a competitive industry. "One of the key- problems our aviation sector has is it's employees. Today average the age of an engineer working in civil aviation varies from 57 to 65 years, depending on the field of work. At the same time, to becoming a truly qualified specialist after having graduated from university as an aerospace engineer, one needs up to 15 years experience. Only after 5 years of practical work can any specialist working as a fuselage engineer even start to understand the essence of his profession," explained Igor Ignatyev, vice president of Kaskol, a company specializing in the aviation sector.

Besides carrying out a new design bureau working to world-class standards in Moscow, Boeing has also become a significant partner for the Russian-based biggest in the world titanium plant in Verhnya Salda. Today this Russian plant supplies up to 20% of titanium used in a variety of Boeing plants. Most recently, Boeing has been promoting the idea of sufficient co-operation in jointly creating a new regional plane badly needed for the Russian air transportation. It might be the first time ever when a Russian-made plane may enter the international market on a highly competitive basis.

Another aviation giant, EADS (joint venture between France and Germany with Airbus as a major partner) is also proposing an unprecedented level of co-operation for Russian companies. Other projects include serious talk on producing undercarriages for super- heavy new military planes produced by Airbus.

Yet the third foreign company, Egyptian Sirroco Aerospace, is conducting negotiations with Russia on becoming co-owner of the biggest in Europe and the most modern in Russia Aviastar fixed on the idea of producing a new Russian-built TU-204 plane equipped with Rolls-Royce engines and Honewell electronics. The first several planes of the sort have already been sold to China.


Desire of foreign aviation giants in co-operating with Russia is explained by the experts as long-term policy. "All these companies are trying to set their feet on the Russian soil in order to get eventually towards the aerospace of Russia and that bordering Russia, huge in size, located in the crossing air way between all continents, and this is a very significant geopolitical issue for future business development world-wide", - says Alexey Sinitsky.

But how is the Russian aviation sector responding to such new trends? Vice president of Kaskol Group, Igor Ignatyev sees it as follows: "Some officials are still quite stubborn, they don't yet realize the objectivity of the process, which inevitably leads towards international co-operation. It is important now to realize for ourselves and to state it quite clearly and openly to our foreign partners, the areas in which we can contribute with top quality and results: we have strong cost advantages, a plentiful material base, world class designer skills. Today we can already supply Western companies with certain components, including hydraulic systems, and we can realistically start to produce some important sub-systems, like landing gear and wings, all for Western planes in a few years time. But the most important thing in our sector at the moment is to become realistic and responsible, and to stop proclaiming the next great achievement when in fact not even a prototype has been built yet."

The importance of an international dimension in aerospace is illustrated best in a very current issue for new members of existing major airline alliances. For several years Russian Aeroflot has conducted negotiations with the SkyTeam alliance, including its strongest member, American Delta Airlines. Interestingly enough, since last Autumn, after September 11th, Lufthansa, a key-representative of rival alliance Star Alliance, started important negotiations with Aeroflot trying to persuade the national Russian carrier to join the biggest airline alliance in the world . "If this happened, it will mean that the most powerful airline alliance in the world would become an indisputable and unreachable leader dominating global aerospace for years and years ahead," - emphasized Andrey Ivanov from Troika-Dialogue. The role of membership in alliances is getting more and more important, especially for the newcomers - like the relatively recently established independent airlines of three Baltic states. Alexey Sinitsky explains why: "It is very important to harmonize air space traffic or you compete with rivals, this is especially true in such a tense and crowded space as over Northern Europe, including Northern and Western parts of Russia, Scandinavia, and the Baltic region. To create and implement the right politics in this issue at the moment can be compared with calculating the foundation of a new building. Sustainability of the entire house will depend on these calculations for many years to come."

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