Qatar, Russian LCC Look Forward to Vnukovo Concession

 - October 26, 2018, 9:50 AM

Moscow and Doha hope to close a concession deal early next year on Vnukovo Airport that would provide a long-term investment opportunity for Qatari backers and a boost to Russia’s national air transportation system. Located some six miles southeast of the Russian capital, Vnukovo served 18 million passengers last year, compared with Moscow Sheremetievo’s 40 million and Domodedovo’s 30.7 million. In 2013, the Kremlin ordered management of the three capital city airports to prepare for concessions, preferably in partnership with foreign investors. Earlier this year, Qatar Airways emerged as a potential investor in Vnukovo. The airline’s CEO, Akbar Al Baker, said the airline seeks to acquire a 25 percent stake in the airport.

Under Russian legislation, runways and equipment for their proper functioning belong to the state and cannot be privatized. “Because of this, we are going into concession,” Vnukovo general manager Vasily Alexandrov told AIN. “Right now, we are at the stage when the documents are submitted to the authorities for approval.”

After several years of strained relations over Syria, Moscow and Doha have recently managed to find common ground, evidenced by the Kremlin’s overture for Qatar to participate in high-tech projects on Russian soil promising a good return on investment. The matter arose as a subject of discussion between President Vladimir Putin and Qatar Emir Sheikh Tamim bin Hamad Al Thani during their personal meetings in March and July this year. Doha showed interest in Russian Helicopters and St. Petersburg city airport. Qatar Investment Authority (QIA) acquired a 25 percent stake in VVSS, the concessioner for St. Petersburg’s Pulkovo Airport since 2010.  

A similar deal on Vnukovo will take longer to arrange. “The uniqueness of that deal is that it is about foreign investments into capital city airports,” Alexandrov explained. And yet, “the process has been progressing steadily in the right direction...Much has been done so as to enter the concession agreement by the end of this year.”

Still, the first half of 2019 appears “more realistic” in view of the decision-making process in Moscow and Doha. “All major issues have been worked out. There are only a few small things that still need to be settled,” said Alexandrov, who also noted that all parties involves found documents submitted to the decision makers acceptable. “In my view, this is going to be a good deal for the airport and for our nations,” he added. “It highlights a growing interest among serious investors in Russia and her air transportation system.”

Today, the Russian government holds 25 percent of the airport; several companies controlled by Vnukovo chairman Vitaly Vantsev and his business partners own the remainder.

The current team took control of the airport in 2004, and since then traffic rose from 2.4 million to an expected 20 million passengers this year. Infrastructure expansion efforts necessitated credits, which proved difficult to repay. Last year, Russia’s largest savings bank purchased Vnukovo debts and restructured them into a 9 billion rouble ($137 million) 10-year loan. Alexandrov insists the airport generates enough money to serve that loan.

“The traffic has been rising, the infrastructure developing, quality of services improving,” he said. “This is why Vnukovo is attractive to foreign investors. For the airport itself, extra funding is the key to future growth.” Alexandrov said. Stakeholders expect to see traffic increase to 30 million passengers annually, the maximum capacity for the existing terminals.

Further expansion would require more terminals and a third runway. “At this stage talks on it are somewhat premature,” said Alexandrov. “In my view, this is a theme to begin considering some five years from now. Should we choose to construct a third runway, it would require serious effort and funding.”

Vnukovo serves as home base for Russia’s only surviving low-cost carrier, Pobeda. Together with Rossiya and UTair, it ranks among the top three carriers there, generating more than 80 percent of the airport’s traffic. “The gist of low-cost carriers is that they attract people who never flew before,” explained Alexandrov. “Flying becomes more affordable; competition grows. This is of interest to Vnukovo, since every new passenger means at least half a thousand roubles extra to our income. We are ready to serve more LCCs since the airport still has some excess capacity.”

In a more distant future, the airport could not accommodate more LCCs without massive investment into additional infrastructure. Alexandrov hopes that the partnership with Qatar Airways will help not only raise the money, but also lure more carriers. “When the agreement with the foreign investor is finalized, it will give an additional boost to Vnukovo’s attractiveness with airlines,” he concluded.