Tuesday, 22 July 2008

Sheremetyevo flies into the 21st century

Financial News

Jason Corcoran
21 July 2008

Letter from Moscow

Marathon queues, stony-faced immigration officials, lost baggage and creaking infrastructure may soon be a thing of the past at Moscow’s main international airport, Sheremetyevo.

The airport, which hasn’t altered much since the Soviet era, is sprucing itself up and trying to improve its image as it prepares for a possible flotation.

Travellers no longer have to face up to three hours snarled in traffic on the Leningradsky highway into the city following the introduction last month of a direct rail link.

State-run Russian railway operator RZD invested more than $200m in the project, an amount matched by private investors. The public-private partnership is thought to be the biggest of its kind in Russia.

The shuttle train into central Moscow will depart from the new business district know as Moscow City, the equivalent of London’s Canary Wharf.

In a recent note to investors, Peter Håkansson, chairman of Swedish fund manager East Capital, said: “It will feel like a real luxury to have an exact travel time, compared with the current situation. The journey to the airport can take anything from 30 minutes to three hours.”

Håkansson is not the only relieved Russia cheerleader. Domestic investment banks regularly bus thousands of investors into Moscow and will be pleased to see a welcome mat being laid out and the demise of the local taxi mafia.

Sheremetyevo, the home of state carrier Aeroflot, has been losing business for years to Moscow’s other airports, Domodedovo and Vnukovo, as airline travel has boomed. Domodedovo, in particular, has raised the bar. It is Russia’s largest airport in terms of both cargo and passenger traffic with 18.76 million passengers last year – up 22% from 2006.

The airport is efficient, light, airy, and has had a rail link for a couple of years. Subsidiary companies dedicated to commercial real estate and hotels have turned the airport into a thriving retail operation.

As foreign airlines are presented with more options in the capital’s airports, they are searching for those with the best infrastructure, in the hope of attracting vital passengers in a market with shrinking margins.

German carrier Lufthansa, which flies to nine destinations from Moscow, switched operations from Sheremetyevo to Domodedovo in April.

The new Terminal 3 at Sheremetyevo, which is expected to open next spring, will serve anchor tenant Aeroflot, and other members of the SkyTeam Alliance including Alitalia, Air France, Delta, KLM and Korean Air.

The passenger capacity is 12 million a year and it is expected to reach its maximum capacity in a year after opening.

Sheremetyevo is a state-controlled entity and management hopes the Government will take the risk and sanction the proposed initial public offering, or the sale of stake to a strategic investor.

The company is bringing on board three independent directors as part of a government initiative to overhaul corporate governance at state-owned companies. Ruben Vardanyan, chairman of investment bank Troika Dialog, Anna Belova, deputy general director of Siberian Coal and Energy Company and Vladimir Dmitriyev, chairman of state development bank Vneshekonombank, will join Sheremetyevo’s board.

Sheremetyevo general director Mikhail Vasilenko said last month the company could be ready to float by the end of the year, when investors might be able to buy at least 25% of the airport’s stock.

The airport estimates its current value at $1.5bn to $2bn. If the Government approves the move, Sheremetyevo will be the first publicly held airport in Russia.


Anonymous said...

I think the changes at Sheremetyevo are great but I want to share one little frustration.

A couple of weeks ago I flew in to SVO from Dubai. The airport at Dubai, of course, was over-the-top great.

We arrived at 8:15am and deplaned. When we got downstairs to Passport Control there were NO officers on duty.

So we waited and waited. After 15 minutes of nothing a couple of us popped our heads into the officers room (lounge) and asked "what's the deal?" No answers.

At 9:00am after waiting for 45 minutes at passport Control the next shift showed-up and all went smoothly.

Turns out the prior shift was let off early despite the flight from Dubai. More of a management problem than an officer problem per se.

Anyhow, I've seen the progress at SVO over the past couple of years and I like to fly Aeroflot. Let's hope that, at long last, everyone gets on the same page and Moscow's SVO airport becomes a pleasant place to fly thru.

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