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What is the relation of AEON Corporation and Novaport, and where does their shared interest in airport business come from?

AEON Corporation became involved in the aviation market when a shareholder, a bank, decided to sale its stock in Tolmachevo airport a few years ago as a measure to prevent financial losses. AEON Corporation started to manage those assets, and eventually came to the conclusion that this business direction had potential. After that, Novaport was created to concentrate on airport projects within AEON Corporation.

Novaport is specialised in complex airport development. What is appealing about this activity?

The interest lies in the fact that in Russia the demand for air transport service has very high prospects. Mobility of the population is still less than in Europe. Pre-crisis transportation dynamics in Russia were ahead of the growth rate of the world industry, but had not yet reached the level of 1991 when the demand was high. Lastly, Russia has very big distances, and we believe that on the market there are no better alternatives for remote territories than air transport: nobody would like to spend 4 or 5 days on a train trip from Chita to Moscow. As time is costly, the demand will grow.

What criteria were used to choose between different assets?

We analyzed the macro situation and did internal analysis. The airport in Novosibirsk, at the time we started, which was around 2003, was in a very poor condition, firstly because ownership was divided among many shareholders who pursued different interests, and assets were managed inefficiently; plus, the profit was distributed and not re-invested in the airport. The exhaust level of core assets was also very high. So, there were real possibilities to make quick changes to improve the operation and its profitability. Thirdly, airports in Russia were formed in Soviet times and they did not correspond to modern requirements, such as availability of commercial spaces, hotels, restaurants, parking lots, etc. All this made the airport an unappealing enterprise for banks in terms of credits as it generated a very low cash flow. For us, however, it’s very important to invest in our own assets to kick-start a reconstruction program. This is what happened with Novosibirsk airport. After the reconstruction of the terminals and an internal reorganization, the airport showed positive financial results. Now it’s one of the most interesting lenders in the Novosibirsk region.

Major private shareholder owns 38% and the Federal Government owns 51%. Is it feasible to combine forces of the State and private investors?

Both federal and regional authorities are interested in the dynamic development of the airport. This common interest lies very deeply. For the region, the airport represents a convenient infrastructure for the arriving businessmen, politicians and people who are vitally interested in having a good airport with a good infrastructure. It’s the gateway to the region. Moreover, the regional authorities support the airport development, especially in Novosibirsk where the authorities for example subsidize the interest rates. The federal power - primarily, the Ministry of Transport and the Federal Air Transport Agency (Rosaviatsia), - implement the development programs for the crucially important assets, like Novosibirsk airport runways, taxiways and other airfield equipment. Aerodromes have always been state-owned. As we have said, the state is investing a lot in aerodrome reconstruction. This year a new runway is being launched in Tolmachevo airport (Novosibrsk), capable of receiving all types of aircrafts. It is a similar pattern in other airports that we are working with. For instance, about 2.5-3 billion rubles have been invested in the Astrakhan airport, where we’re extending the runway to accept all types of aircrafts. Taxiways are also being reconstructed.

What is the key criterion for choosing an airport for development and investment? Koltsovo Invest, for example, says the airport should be at least 1,000 km away from the nearest one…

In fact, airports will always have their own passenger flow that is tied to the region where the airport is located. We believe that the cheaper the basic flight from the region, the higher the economic benefit for the airports and their passengers. So, the key criterion is the potential demand that is formed by two components: the population and dynamics of the economic development of the region. Travelling 260 km in winter from Novosibirsk to Tomsk, where we are working as well, by car is hardly the highlight of your life, so if people have the option of flying to Tomsk directly, they will go for it. If these direct flights also have convenient connections with the neighboring airports, the overall appeal of the region will increase, and, therefore, the passenger flow. We also appraise the quality of the personnel and the state of the airport assets.

How did the value of the existing assets change by the time you had to re-invest?

The approach has changed, and now it’s about the cash flow. The value of airports has dropped several times, and, today, people are much more guided by real economy. The economic bubble that was there before the crisis blew up, and investors are now using a more pragmatic approach based on the net cash flow.

Does Novaport raise funds through short-term obligations like many heavily indebted Russian companies do?

We have no short-term obligations or credit risks. Funds are mainly at the expense of the shareholders.

We were under the impression that Tolmachevo airport (Novosibirsk) was to be the door to Siberia… Is that the case nowadays?

Yes. Tolmachevo airport is the biggest and the most convenient one n Siberia. Are you looking for other investors? Could Asian investors be interested?For projects like cargo processing for the cargo terminal in Chita, it would be good to have representatives of the Chinese business. This would give both the Chinese investors and us confidence in a long-term partnership and generally cut down expenses for cargo servicing.

What kind of partners is Novaport looking for and what are you offering as a partner?

I think that our advantages and what we’re looking for is professionalism in the business. We have learnt to develop regional airport projects: we have learnt to build a remote control system, we have developed standard projects to save costs using standard cargo, standard projects for passenger terminal reconstruction, fuel projects. We have standard solutions for equipment purchase so it’s important to have one-type line of equipment. It is possible that the range of the mass suppliers will be extended through Chinese companies; here it is important that the sales program is supported with a technical maintenance program.

Are you looking for partners who may be specialised in other, more sophisticated areas?

We are interested in functional synergy and specialization. Each airport demands a specialization. For instance, Chita is the basic airport for cargo; Novosibirsk, a hub and cargo transit centre; and Chelyabinsk is the key airport for technical aircraft servicing system. Besides, there’s a very good engineer school providing an excellent technical base in the airport. I’m speaking about both airport specialization and business specialization. We also plan to develop an independent hotel management business in the airport chain. In the same time now we’re in a joint project with GazpromNeft Aero for development of a fueling chain in airports.

That is a solid partner… Who else do you work with?

You are right: we do choose good partners. For instance, our key partner in airport development design is Aéroports de Paris; we actively work with Lufthansa Consulting. We are interested to work with professional Companies.

When we interviewed Mr. Vasilenko from Sheremetyevo airport, he explained that the return on investments (ROI) in Sheremetyevo was much faster than in any European airport. What is the situation in regional airports?

Generally, the ROI of regional projects is not high. Our pre-crisis estimations of the basic program of Tolmachevo reconstruction were, on average, 12 years. This involves implementation of some simultaneous programs: a new on-board meals facility, a fueling station - highly profitable projects involving infrastructure development. Now the terms have changed, of course.

What would you say to the readers of www.RussianAvia.net?

I am glad to meet you because China has been a closed sphere for us in terms of access to information, experience and partnerships. So, I’m glad to share our views on airports and aviation as something that connects territories, and it would be interesting to maximize our cooperation with a dynamically developing country like China.

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