Sheremetyevo offered the rights to develop its own runways

Sheremetyevo offered the rights to develop its own runways Moscow’s Sheremetyevo airport is given the opportunity to invest in the construction and renovation of its state-owned runways and taxiways (SVO)

In a groundbreaking move, preceded by at least five years of consultations, the Russian government has finally approved the main terms of a concession agreement with the country’s largest airport covering the financing of the construction and renovation of its runways.

Moscow’s Sheremetyevo is expected to become the first airport in Russia to be granted the right to invest in the construction of state-owned airport infrastructure – namely, runways and taxiways – in return for an agreed share of revenues generated by aircraft movements and parking fees.

In its directive, the government has now ordered the Ministry of Transport, the Ministry of Finance and the Ministry of Economic Development of the Russian Federation to prepare a draft concession agreement in two months’ time, and which will be concluded within three months, without holding a tender.

Under the concession agreement Sheremetyevo International Airport, the current owner and manager of its passenger terminals and other facilities, will also manage state-owned runways and taxiways for the period stretching through 2067.

The revolutionary measure provides a solution to the shortage of federal budget funds, which need to be allocated for such state-owned aerodrome infrastructure construction and renovation projects.

In the Sheremetyevo example, the government had reportedly allocated 120 billion rubles in the timeframe 2001 and 2016 for the purpose, but additional funding is required for the completion of the construction of the third runway project and, once it becomes operational, the renovation of one of the existing active runways.

The limitations and unpredictability of state financing has created a serious and disturbing restriction to the hub airport’s business development plans. This unparalleled concession, which replaces the existing renting mechanism, provides the airport’s managing company with the much-needed flexibility and predictability to expand its runway capacity in line with the anticipated growth of its passenger service capabilities.

In return, Sheremetyevo retains the right to charge customer airlines for using the renewed facilities. The return on investment is estimated at 10 years.

Sheremetyevo expects to invest a further US$451 million into runway reconstruction, expanding ramp areas for additional parking spaces, building high-speed taxiways, a main taxiway for the third runway and other infrastructure, Alexander Ponomarenko, the company’s chairman of the board told Vedomosti business daily.

Last year, Sheremetyevo’s traffic exceeded 40 million passengers, placing it in the ranks of the world’s foremost hub airports, an important milestone for the airport, according to ACI (Airport Council International). Although it posted revenues of $783 million and EBITDA was $348 million, the Moscow airport’s debt obligations at the end of 2017 stood at $707 million. This year, the airport is anticipating a further 14.6 per cent growth to 46 million passengers and it is currently estimating achieving the 80 million mark by 2026, boosted by attracting greater numbers of international transit traffic between south-east Asia and Europe.

The strategic development program through 2026 suggests a total investment of $3.506 billion, including $940 million to be provided by the federal budget for the accomplishment of third runway. Sheremetyevo’s own investment is planned at $2.565 bn.

The airport’s plans to attract an international investor by selling up to 10 per cent of its shares, are an unequivocal proof of its ambitions to be not just the largest in Russia, but a world-class player.

However, another limitation to the airport’s further development is the restriction of airspace capacity over Moscow, the solution to which requires a modernisation of the air traffic management system, and the personal political sanctions currently imposed on Arkady Rotenberg, one of the airport’s owners, may affect the company’s relations with its international partners and suppliers, but are not critical, as the company “is learning to operate under these new realities,” Ponomarenko insists.

As of June 1, 2017, the Moscow hub was owned by a consortium made up of Sheremetyevo Holding (66 per cent-owned by TPS Avia Holding, which is co-owned by Alexander Ponomarenko, Alexander Skorobogatko and Arkady Rotenberg); Russia’s State Property Agency (Rosimuschestvo, 30.43 per cent); Aeroflot (2.43 per cent); and VEB- Capital (1.1 per cent).

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