INSIGHT: Severstal, the airline from the land of steel
Severstal Airlines, one of only a handful of privately-owned regional airlines in Russia, sees its mission as pioneering the further development of air connections in the otherwise underserved north-western region, and continues to show little eagerness for the lucrative Moscow market.
With that in mind, for the last several years, the airline has been investigating a new aircraft type that would viably support its mission and breathe new life into its business. It has finally settled on the Superjet 100 (SSJ100) and, whilst being generally positive about the choice, the management of the airline entertains no illusions about operating the Russian-made regional jet. That is why, as a contingency plan, it has also Bombardier regional jets in mind, which is not surprising given that the airline has more than a decade’s experience of the Canadian aircraft.
Undoubtedly, although there are always some individual characteristics that singularly define every airline, Severstal Airlines is unique in so many ways. To begin with, it is one of just four commercial airlines in Russia that is owned by leading industrial companies. The other three corporations that employ their own passenger carriers are diamond miner Alrosa (Alrosa Airlines), oil and gas giant Gazprom (Gazprom Avia) and nickel and palladium producer Norilsk Nickel (NordStar). In the case of Severstal’s aviation subsidiary, the entity is tasked with not just supporting its parent’s interests, but also with being a profitable business in its own right.
Secondly, Severstal Airlines owns and runs both the passenger terminal and the entire airport infrastructure at its base airport at Cherepovets. Furthermore it employs its own in-house air traffic management (ATM) service, including radio and communications equipment whilst, elsewhere, such ATM services are provided by Russia’s State Air Traffic Management Corporation.
On top of all that, Severstal Airlines is one of a very few operators of western-built jets which are registered with the Russian aviation register. And, finally, it is run by Nikolay Ivanovsky, an active airline pilot.
Severstal Airlines owns its very existence to the Cherepovets Steel Mill, which is one of the world’s largest producers of steel, and is the key asset of PAO Severstal. Up to the early 90s the enterprise’s air travel needs had been satisfied by the Vologda United Air Squad but, in the dark times immediately following the demise of the Soviet Union and together with the nation’s entire civil aviation industry, it went into a nosedive. That is when the Cherepovets steel producer decided it needed to become directly involved with commercial aviation as a side business in order to maintain and protect its own air connection needs. In 1992, Cherepovets airport became the structural division of Cherepovets Steel Mill, and the first Yakovlev Yak-40 tri-jet was purchased from the Minsk Aircraft Repair Plant.
The economic might of the metallurgy giant played its part in the coming years so that, by the middle of the next decade, Severstal Airlines, which was officially registered as a subsidiary of Severstal in 2001, had seven Yak-40s in its fleet. In time that decision was vindicated because, in 2017, Cherepovets airport outperformed its close neighbour Vologda airport (just 109 km away) by a factor of 28, its annual traffic reaching 149,000 passengers.
Then in 2011 Severstal Airlines opened a new chapter in its history with the arrival of the 50-seat Bombardier CRJ200 aircraft type so that by 2014 it was operating six of them produced in 2000, 2001 and 2005. Two were purchased with the backing of Apatit (Phosagro group), one of the world’s leading producers of phosphate-based fertilisers and another Cherepovets-based company.
Finally, in early 2019, Severstal launched commercial operations of the 93- and 100-seat Superjet 100s.
DIRECTIONS AND DESTINATIONS
Moscow remains Severstal Airlines’ busiest destination, as it operates up to five daily return flights to the Russian capital. The duration of the flight is 50 or 55 minutes depending on whether the arrival airport is Sheremetyevo (a distance of 370 km) or Domodedovo (430 km). The alternatives to air travel from the region to Moscow are railways (almost 11 hours by a sleeper train) and bus (about nine hours). The rail ticket in a comfortable sleeper carriage, including an on-board meal, will typically cost a couple of thousand roubles less (US$30) than the corresponding airfare.
According to the IATA 2019 summer schedule, Severstal Airlines now operates 24 routes, 13 from Cherepovets and, notably, Severstal is the sole operator on all of them. Most serve the interests of the parent company, which has assets in Moscow, as well as St Petersburg, the republics of Karelia and Komi, and other locations. That is why a big share of the airline’s passenger numbers come from its business travellers, many of whom are clients and partners of PAO Severstal.
“We never cancel flights, even those with low [seat] load [factors]. So passengers trust us. We love and appreciate our passengers for using our airline. With the new [SSJ100] aircraft in our fleet we will finally [be able to] offer real business-class service. With the CRJ200 it wasn’t possible, although we [always] kept our standards high,” Nikolay Ivanovsky tells Russian Aviation Insider from his office at Cherepovets airport, some 18 km distant from the Cherepovets Steel Mill.
Having graduated in 1985 as a pilot from the Aktyubinsk Flight College of Civil Aviation, Ivanovsky started his flying career as a first officer at the Vologda United Flight Squad, where he later became captain. In 1993 he was transferred to Cherepovets airport from where he continued his career as captain and then as an Instructor pilot for the Yakovlev Yak-40. In 2008 he was promoted to flight director and head of the airport at the same time and, finally, general director. In the meantime he remotely completed his further studies at the St Petersburg State Economics University and obtained a master’s degree in financial loans.
In a somewhat sad development, the era of Yak-40 tri-jets at Severstal Airlines finally ended in February of this year. Now the 1976-produced 32-seat aircraft are grounded at Cherepovets waiting forlornly to be sold. “The Yak-40 is a fabulous aircraft, which has helped us out a lot. We used it as reserve aircraft, but also operated scheduled flights to Veliky Ustyug and Vytegra (in the Vologda region) and Kotlas (in the Arkhangelsk region). Regretfully, when the airport in Veliky Ustyug was closed for reconstruction in January this year, the continued operation of the Yak-40 became unjustified. The costs of maintaining the type predictably became too high, so we phased it out,” Ivanovsky explains.
The future of the CRJ200 is also quite predictable. In 2018, in advance of the Superjet 100 deliveries, the airline retired its first aircraft of the type, the 2001-produced RA-67231 and it is now used for rescue training, and partly for ground-based training of cabin and flight crews.
“The CF34 engines, just like the CRJ200 itself, are out of production. Lately, maintenance providers in Spain, Germany and the USA have stopped repairing these engines, so there are just a couple of decent organisations [left] in the world. Therefore, because of reduced competition and unavailability of new spare parts the cost/repair ratio for the engines has skyrocketed,” says Severstal Airlines’ technical director Ruslan Kharlamov, explaining the management’s decision to part with its first CRJ200.
The rising costs of unscheduled engine maintenance in 2018 dragged the airline into negative financial results for the first time in years. This year the airline is preparing to phase out another CRJ200, which may find rest as a [static] monument at the square adjacent to the airport next to the Yak-40 and Ilyushin Il-103, as a tribute for its steadfast contribution to the aviation history of Cherepovets. How long the remaining CRJ200s will continue flying depends on how well the Superjet 100s will perform in their place.
Severstal Airlines acquired three SSJ100s (model RRJ-95B-100) on a finance lease contract from Russia’s State Transport Leasing Company (GTLK). The first commercial flight was operated on February 7th by RA-89117 from Cherepovets to Moscow’s Sheremetyevo. Both this aircraft and its sibling RA-89118, which entered service the next day, are configured with 93 seats, eight in business and 85 in economy class. The third SSJ100, the 100-seat RA-89119 had a problem with a Liebherr-produced component and was cleared to fly only on March 7.
Through all of this, the management of Severstal is looking forward to the SSJ100 with hope. Referring to the new type, Ivanovskiy first of all notes that its entry into service required a major effort compared to the CRJ200, so he himself has had no time to achieve the new type rating yet. “Regretfully, I have to start with the sad part. Although more than 150 SSJ100s have been already produced, the sales and leasing procedures are not yet as smooth as [they are] for western-built [aircraft],” he complains. “We spent an enormous amount of time on preparing the agreement and spent even more time figuring out how we are going to operate these aircraft, as there are so many service and support agreements [that come with them]. There were many things that were difficult to understand, even though we’ve been dealing [smoothly] with western-built aircraft for a decade and a half. Whereas obtaining a type rating for a western-built aircraft, together with the required simulator training, would take about 30 days, for [the SSJ100] it takes up to two months. This is something we couldn’t understand,” he shares.
Severstal Airlines has been deciding on its next aircraft type for several years. It was initially closely looking at Canadian aircraft, primarily the 90-seat CRJ900s that are noticeably lighter than the SSJ100s, a factor that would contribute to savings of airport and air traffic management service fees. But ultimately, there were several strong arguments in favour of the SSJ100. Above all, the airline wanted to mitigate possible risks posed by economic sanctions imposed on Russia by the US and the EU. “Even with the CRJ200 we realised that, potentially, we could face restrictions on spare parts deliveries or something like that at any moment and although that probability may be low, the risk is still there,” Ivanovsky reveals.
Secondly, the airline has thus far not managed to negotiate deliveries of new CRJ900s. “We are hopeful that until the end of this year we’ll succeed in convincing lessors that it is possible to operate these aircraft in Russia. The thing is, that one of our main requirements is placing aircraft on the Russian register. So far foreign leasing companies have felt uneasy about this stance, partially due to political tensions,” he reveals. The CRJ900 still remains as a contingency plan in case the SSJ100 doesn’t perform to expectations. “The Superjet 100’s economy is tricky. It is quite a challenge to operate the aircraft as it is now without counting on state support. But in general, we are optimistic about this aircraft,” says Ivanovsky.
During 2019, each of the airline’s SSJ100s is expected to log between 2,000 and 2,200 flight hours. Such utilisation rates should be adequate to make ends meet for operating these aircraft, taking into account that Severstal Airlines typically has lower than the Russian average seat load factors. In the last five years it reached its top level of 63.1 per cent in 2017, when the industry average was 20 percentage points higher.
LAUNCHING NEW ROUTES
Until now, Severstal has not entered the 50-plus seat aircraft market and the airline’s management team is not bothered by the significant growth in its available seat capacities. Pointing at the map of Russia’s northwest region, Ivanovsky explains the reasons for the slow growth of the seat load factor. “Working in the regional and local segment, I can’t name any other airline which has a much higher figure. Flying to large cities from Moscow is where you would get high loads, but that’s where we’re consciously not going. In the north-western region the best we could ‘push’ to is 64-66 per cent. But to reach even these levels, we would need to develop new routes from an initial 40 per cent for a year or year and a half. In the last five years we have been adding new flights, which brought the average [seat load factor] figure down. Nevertheless, we will continue with our chosen strategy of developing as a key carrier in our home region. We know exactly what we need, and where the passengers are going to fly in two or three years. It is their need that we keep in mind when building our route network.”
Flights to leisure destinations in the south of the country typically demonstrate high occupancy loads, up to 96-98 per cent. Flights to Moscow are also ‘not bad’ in terms of number of passengers, despite high fares. It is to Moscow, where Severtal Airlines started operating its first SSJ100s.
“Calculations show that the SSJ100 might be profitable and I hope everything is going to work out for us,” Ivanovsky emphasises. One of the ways to improve the financial performance is to equip the aircraft with ‘saberlet’ blended winglets. Technical director Ruslan Kharlamov is hopeful that Sukhoi Civil Aircraft Co (SCAC) will complete the certification of that option this summer, after which the airline will be able to retrofit its aircraft with them during the A-checks scheduled at SCAC facility in Zhukovsky in the autumn.
THE SECOND TERMINAL
Severstal plans to analyse the first results of its SSJ100 operations after the high season ends. Now that it has larger aircraft in its fleet, the target is to reach annual traffic levels of 500,000 passengers in three years. “With a population of 1.2 million people living in the Vologda region, [such targeted levels] are quite realistic. Half a million passengers is a good performance figure for a regional airline and with our six CRJ200s we would have hit the ceiling, because with this fleet of 50-seat aircraft we couldn’t carry any more than 240,000 passengers, and that’s what we achieved. Our decision on the SSJ100 was a tough one, and we are thankful to our shareholders for their support. I think we’ll manage. In December we are planning to take delivery of the fourth aircraft, and by 2023 we should have six 90-100 seat SSJ100s in our fleet,” Ivanovsky projects.
These new targets will force Severstal to develop the airport infrastructure at Cherepovets and there are plans to build a spare-parts storage facility and a second passenger terminal. The existing terminal building, which entered service in the summer of 2005, is nearing the extremity of its capacity limits. In the future it will be reserved for international flights, whilst a new terminal will be constructed for domestic operations. “The design project has already passed the expert evaluation phase. I think we will complete the construction before the end of 2020,” Ivanovsky comments. In the last five years the company has completely renewed the airport’s equipment and ground vehicles, and in 2015 the airfield surfaces, including the runway were replaced. But although the airport is approved for the most popular aircraft types, no other airline flies here. “We welcome everyone, but Moscow-based airlines are not interested in flying to Cherepovets, because we [already] completely cater for the existing demand,” Ivanovsky concludes.
By Artyom Korenyako
Russian Aviation Insider
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