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Virgin In Talks To Create New Russian Airline


Will Virgin fly in Russia?

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Jan 31, 2008

MOSCOW - Virgin Group is in talks with a Russian company to set up a new local airline, Virgin owner Richard Branson said on Thursday, but analysts doubted he could overcome political obstacles to make it a reality.

"Now is the time for Virgin to come to Russia," Branson told reporters. "We are in discussions with a Russian partner. We will announce in three months who that partner will be."

Branson said he would prefer for the airline to be a greenfield project.

"If you do something from scratch, you can make sure of the quality and avoid all of those cobwebs you might otherwise get," he said.

Virgin has had talks about purchasing a stake in Sky Express, a low-cost commercial carrier, Sky Express owner Boris Abramovich told Russia's Interfax news agency.

"Talks are ongoing. No decision has been taken," Interfax quoted Abramovich as saying. Branson declined to say whether the airline was his intended partner.

Analysts said Branson, a flamboyant British entrepreneur, may be getting in above his head.

The Russian government considers aviation a strategic industry, where the law in principle restricts foreign companies from owning more than a 49 percent stake.

In practice, only one foreign firm has been allowed to buy a major stake in a Russian aviation firm and that deal -- the purchase by Italy's Alenia Aeronautica of a 25 percent stake in plane maker Sukhoi -- was approved by President Vladimir Putin personally.

"Such ventures have to go through an extremely politicised process, and require serious lobbying power to achieve," said Oleg Panteleyev, head of research at Aviaport, a Mosow-based aviation analytics firm.

Virgin America, partly financed by Virgin Group, only began service last August after a protracted battle with regulators. U.S. law prohibits overseas control of U.S. carriers, and the government required concessions from the low-cost airline such as the replacement of its chief executive to ensure Virgin Group would not be calling the shots from across the Atlantic.

IMPROVING SECTOR

Branson said what attracted Virgin's attention to Russia was its booming economy and the fact that Russians travel by air on average 10 times less than Britons or Americans.

"A lot can be improved upon" in the sector, he told a business conference organised by investment bank Troika Dialog.

He also suggested it would be easy to lure travellers away from rail routes.

Russia's railways are controlled by state monopoly Russian Railways, or RZhD, whose chief executive, Vladimir Yakunin, is a close Putin ally with a strong political power base.

Taxes may also prove burdensome, Panteleyev said, as they amount to almost 40 percent on foreign planes brought in for use in Russia, including a 20 percent customs duty and 18 percent value-added tax.

"He would probably have to strike some kind of deal with the customs officials, or use a local fleet," Panteleyev said.

reuters.com

Will Virgin fly in Russia?
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