Air transport in the Ukraine has been in the doldrums since the collapse of communism, but a revival has begun, as the country sets its sights on the West, and membership of the European Union

When communism collapsed in the early 1990s air travel in the Ukraine virtually ceased to exist. Connections with Western Europe ceased altogether until the formation of Ukraine International Airlines (UIA) with financial and technical input from lessor GPA. Passenger throughput at Kiev-Borispol, the nation's principal gateway, had plunged from 5 million to barely one million and that lost traffic has yet to be regained. But there are strong signs of a recovery, led by Aerosvit.

Since developing its European network and, in 2002, taking over long-haul flights previously operated by the defunct Air Ukraine, Aerosvit achieved double-digit growth in each of the last four years and has been in the black for the last three. The carrier now accounts for one-third of all passengers carried by Ukrainian airlines, although at just over 1 million, this is still a modest total. But, says co-chairman of Aerosvit's supervisory council Gregory Gurtovoy: "We have passed our first target of $100 million revenues and one million passengers, and the stage is set for further growth." Preliminary results for 2004 show a 67.9% growth in revenues to $178 million, with a net profit of around $2 million, up from $471,000 in 2003. Last year's profit was affected by the high oil price, with fuel costs up 61%.

The networks of Aerosvit and UIA do not overlap, a fact which has given rise to discussions between the two airlines about a potential merger. Such a merger would make economic sense, remarks Gurtovoy, as neither company has the necessary critical mass to mount an effective challenge to foreign carriers flying into the Ukraine. The State Property Fund has a stake in both airlines, which could make it easier to receive the necessary permission from the government. "We continue to have an open line with UIA," says Gurtovoy, "but have made little progress so far."

On the domestic front, which hardly existed until 2002, Aerosvit has also achieved just over one-third of the market, according to domestic network director Oleg Levchenko, and serves 11 destinations. About half are operated in a codeshare with other local airlines. Under these arrangements, Aerosvit rents, and pays for, 40 seats on each flight, whether or not these are occupied. Levchenko agrees that this is a high-risk strategy, but says that Aerosvit does not yet have regional aircraft suitable for these routes.

Aerosvit operates a mix of Boeing types on operating leases, including eight Boeing 737 Classics and two 767-300ERs. It will be acquiring two more 737s on operating leases this summer and is looking for a third 767 for introduction at the end of this year or early in 2006, primarily to increase frequencies on long-haul routes. In the medium term, Gurtovoy hopes to implement a wholesale replacement of the used aircraft by 2008/09 and confirms that discussions have been initiated with Airbus and Boeing.

Regional jet

Aerosvit's shopping list involves up to five Boeing 787s or Airbus A350s, and 10-15 new 737s or A320s. The airline has also been actively involved with the Antonov Design Bureau in formulating the design parameters for the Antonov An-148 regional jet. "We need to have a smaller capacity aircraft for short-haul routes up to two hours' flying time," says Gurtovoy, "and the An-148 would enable us to offer more frequent flights." Negotiations with Antonov cover the acquisition of 10 aircraft.

While Gurtovoy has a clear view of the path he wants the airline to take in the next few years, the new government's vision is more ambiguous. It has hinted that it is in favour of setting up a new national carrier, probably through the resurrection of the defunct Air Ukraine, which has not been flying since 2002, but remains a legal entity.

It is highly unlikely that the old Soviet fleet previously operated could be made airworthy again, nor would such a move create the right impression of an administration that is looking to the West to boost Ukraine's economy, and has ambitions to eventually join the European Union. But the money for a new fleet is simply not there, and it is significant that no provision has been made in the government's 2005 budget. Whether this signals a tacit approval of the merger overtures of Aerosvit and UIA, which would create a de facto national airline, remains to be seen.


Source: Airline Business