Aeroflot ‘right-sized’ for the MD-11

With major domestic and international expansion plans Aeroflot Cargo is confident it made the right choice in the MD-11 aircraft to fuel this strategy, despite not being the most fuel efficient aircraft in the increasingly expensive skies. Donald Urquhart reports from Hahn, Germany.

Three of six MD-11 Boeing Converted Freighters are now in service between the Far East and Europe as Aeroflot Cargo has begun implementing its carefully planned expansion that will see its fleet number and capacity grow substantially over the next two years as it combines wide-body, long range aircraft with short-haul feeder aircraft.

The three MD-11s are on lease from Boeing Capital Corporation, while the remaining three have been purchased outright by the 100 per cent owned subsidiary of Aeroflot Airlines and are slated for redelivery in 2009 after undergoing conversion by Singapore-based SASCO.

Speaking to press at its European hub following a ceremony to mark the new five-flights per week (daily from September) service between Hahn, Moscow, Almaty, Hong Kong and return, Aeroflot Cargo director general and chief executive Oleg Korolev said the cargo carrier’s choice of the MD-11 was “the right decision”.

Korolev was some what more circumspect,however, when asked whether he would have made the same choice now,in a vastly different environment than theoriginal decision was made, because of currently surging fuel prices.

“The MD-11 compared with some other type of aircraft, we can’t say it is the most fuel efficient aircraft, but we started the deal with Boeing years ago and for sure the MD-11 will be effective definitely for several years in the future- 10 to 12 years, or something like that,”he said.

“The MD-11 was the right decision,”Korolev said, adding that he was involve dearly days in the planning for the MD-11s. “We investigated a lot of options including the 747-400 but because we started our development in 1994 withthe DC-10 and we had at the moment trained pilots and experience with such aircraft.

“You need not only aircraft in your hand when you are trying to be competitive in the market, you also need sales and service that you can offer to your customer and I suppose right now we are exactly in the size of the MD-11.”

But the Aeroflot Cargo boss acknowledges that, “the whole industry is not in a good situation now – we need a much more fuel efficient aircraft as part of the solution.”With no fuel hedging policy in place, the carrier now sees fuel costs comprising over 60 per cent of total costs he said.

“Ultimately someone has to pay for it; the airline first, forwarding companies second and shippers third,” Korolev said noting that high fuel prices will “definitely” drive some cargo to cheaper alternatives like ocean, road and rail.

More than doubling volume

But the cargo boss is optimistic that the carrier is on target to achieve its goal of 350,000 tonnes of annual cargo by 2010, despite record fuel costs. This is two-and-a-half times the volume it carried in 2007. Citing the fact it will have nine wide-body aircraft in its fleet bythen, “it’s very reasonable,”he added.

The remainder of its immediate-termfleet expansion is coming from a US$450million firm order for six all-Russianbuilt, Ilyushin Il-96-400T, a four-engine long haul wide body aircraft which will bedelivered starting this year through 2009.These slightly larger, modern aircraft will be used alongside its new MD-11s to expand its domestic Russia network, as well as tapping the fast growing markets of the CIS and Kazakhstan.

Korolev said that while the globalair cargo market is forecast to grow at around 6 per cent, the Russian domestic market is growing by 12 per cent and the Central Asian market is growing at 17per cent, year-on-year.

With the same configuration of ULDs(unit load devices) as the MD-11, the IL-96s are highly complementary. “We will use the IL-96s to develop our Russian domestic network in conjunction with westbound flights from China, Japan and South Korea,”he said.

New destinations on table

“Depending on fuel prices and the efficiency of the IL-96s we will investigate and may start operations from Moscow to Mumbai and Moscow to Dubai. “These two destinations are on the table,”headded. Aeroflot will also seek an AOCfrom German authorities in order touse the IL-96 as a reserve aircraft for theMD-11, or for use during peak seasonperiods.

It’s fleet of three, fuel-hungry, 62 tonnepayload DC-10s will be retired at the endof this year.

As to why Aeroflot chose to build afleet based on aircraft of similar specs- the MD-11 with a payload of 82 tonneswith a range of 6,000 km compared withthe IL-96 with a payload of 84 tonnes anda range of 5,500 km – Korolev said it wasa facet of operating in Russia.

“We are a Russian registered airlineand we have to work in accordance withRussian regulations and this means wehave to pay special taxes – so-calledcustoms duties – in case we export toRussia certain aircraft types,”he said. TheMD-11 and the 14.5 tonne capacity, 4,600km range B737s it operates as Europeanfeeders, are both such aircraft.

“This is a big challenge for our networkplanning,”he added. As such the cargocarrier utilises the MD-11s for internationalroutes only, in order to avoid extracosts because of taxes, while the IL-96will be used primarily domestic.

He declined to specify the cost of thetaxes involved, saying it was a “complicated calculation,”but said the MD-11was “not so expensive”compared with the B737 which if exported to Russia would incur roughly 50 per cent of its monthly leasing cost, “and that’s too much,”he added.

Aeroflot is also planning to expandits current DC-10 service into Beijing and Shanghai from two flights a week to three, once it has its full complement of MD-11s in service. Once it has all of its new fleet on board it will also look at increasing frequencies to its other Asian destinations including Tokyo (Narita) andSeoul (Incheon) as well as new routes.

The renewed fleet will also have adramatic impact on the ratio of bellyhold versus dedicated freighter volumes.Currently 60 per cent of volumes are derived from the bellies of Aeroflot’s passenger fleet while 40 per cent is dedicated freighter volume. By year endof 2008, this will already be the reverse, Korolev said.

Bureaucratic hurdles

The process of expanding its fleet has not been a completely smooth ride forAeroflot Cargo. The first MD-11 sat onthe tarmac in Moscow for weeks awaiting approval from the authorities. Because the MD-11 is a new aircraft type for Russia,it has to undergo type certification.That process has not actually concluded,and special permission has been givenby the Russian authorities which enable the MD-11s to operate, but with some restrictions.

“We are working in close contact with Boeing and for sure we will have permission in December to operate MD-11s without restrictions,”Korolev added.

“It was hard work and many thanks go to various regional authorities for supporting Aeroflot Cargo from the beginning,”he added.

On the books are also plans to expand its European feeder network which it operates using B737-300Fs. Currently this network includes Helsinki, Oslo, Manchester, Hahn, Paris, Leipzig and Dusseldorf, with plans to expand to include Bergen, Milan, Madrid and Istanbul.

Also feeding its air network is atrucking network based around three air-truck hubs in Moscow, Novosibirskand Almaty.

As for its Hahn air hub, Korolev said it is “very important for us because of its good geographical location, infrastructure, ground handling, maintenance support for aircraft operations and we have no slot restrictions so we can have 24 hour operation.