We’re investing heavily in developing the domestic aviation refuelling sector

Vladimir Egorov

Interview with Gazpromneft Aero CEO Vladimir Egorov

Aviation industry portal ATO.ru

Better-skilled personnel, and higher quality and service standards for Russian and international aircraft, have been playing an ever more important role in the aviation refuelling sector in recent years. Increasing competition among market players is forcing refuelling companies to develop infrastructure and introduce international standards in aviation refuelling services.

Gazpromneft Aero CEO Vladimir Egorov talked to us about the potential for the Russian refuelling industry’s integration into the global market, the implementation of cutting-edge technologies, and the potential for market development.

— Vladimir Egorovich, what’s your assessment of the development of the Russian aviation refuelling market in 2015?

— The Russian aviation refuelling market showed pretty rapid growth between 2009 and 2014 — about 10 percent per year. Demand for fuel also saw similarly rapid growth. Impacted by independent macroeconomic factors and a reduction in the range of tourist destinations this year, the volume and geography of air transport has changed. We’re seeing a reduction in direct flights by Russian and, in particular, foreign aviation companies, from destinations abroad. According to official data from the Federal Air Transport Agency (Rosaviatsiya), total fuel consumption in Russia dropped 11 percent in the first half of 2015. We expect that this trend will persist to the end of this year, and that total market volumes will ultimately stand at around 9.1 million tonnes. At the same time, consumption of aviation kerosene across the Moscow aviation hub is traditionally high, and remains at the level of 2014 — around 4.2 million tonnes. I can say, Moscow has improved its position as the main East European hub.

— How has the market situation changed in relation to ‘tax manoeuvre’? What’s happening with regards to the price of fuel, and its availability?

— As is well known, with the introduction of this ‘tax manoeuvre’, export duty on aviation fuel was reduced. This has had a significant influence on the fuel price index (netback), which is the basis on which the domestic fuel price is calculated. On that basis, the cost of kerosene in Russia has moved closer to European levels, but is still significantly lower than in major EC airports. The lower oil price, without a doubt, has reduced aviation companies’ fuel costs. The Platts fuel price index — one of the key indices — has dropped 40 percent in a year. We don’t currently envisage any fuel shortage in Russia.

— Against this background, what results is Gazpromneft Aero showing for 2015?

— Gazpromneft Aero has shown some of the best results among Russian aviation refuelling companies. On the basis of 2015 year-end results we expect to achieve the same volume of retail sales as we did last year — about 2.7 million tonnes, meaning that we retain our market-leading position here — in “wing-tip” refuelling. The company also extended its international sales network by a further 10 airports (to 160 internationally), mainly thanks to expansion in Asia, commencing supplies to Russian aviation companies at new airports in China, India, Japan, Bangladesh, Vietnam and Myanmar. We’ve been able to achieve these results thanks to developing partnerships with major fuel suppliers in local markets, as well as by utilising the latest equipment and ensuring full compliance with international standards in aviation refuelling.

— How are aviation companies coping with fuel payments? Is their indebtedness growing, and might this reach critical levels?

— We’ve been working very closely with aviation companies over the past year. Monitoring of payments is done pretty much online and we can, where necessary, work together with an airline to develop various mechanisms to ensure payment. We’re talking here about financial instruments, such as bank guarantees. The situation is, generally, under control, and we’ve never had to detain a flight.

—Tell us a bit more about your experience in implementing international standards in refuelling.

— Since commencing operations in 2008 we have pursued a strategy of developing an international company, refuelling not just Russian but also international airlines, as well as systematically increasing access to international markets. In the eight years since the inception of Gazpromneft Aero we have invested more than RUB18 billion in modernising and developing aviation refuelling infrastructure in Russia. The most significant such project being the construction of Moscow’s only alternative refuelling complex, at Sheremetyevo International Airport. All of our investments are directed at developing infrastructure consistent with IATA requirements.

Subject to regular inspections by representatives of the IATA International Fuel Quality Pool (IFQP), the company’s refuelling complexes throughout major Russian airports hold the highest of three IATA quality classifications, known as “green”. We have perfected operating procedures at our refuelling complexes and implemented control and logging documentation consistent with international standards. A uniform integrated “technical policy” is in force throughout all of the company’s facilities, taking into account not just Russian but also international fuel-quality standards and aviation refuelling processes. Added to which, the quality management system in place at Gazprom Neft was, in 2015, certified as being fully compliant with international ISO 9001:2008 standards — external evaluation (audit) of this having been undertaken by a group of assessors from the St Petersburg branch of Lloyd’s Register EMEA.

— Haven’t you encountered problems in resourcing personnel to work on cutting-edge refuelling complexes?

— You’re absolutely right, difficulties do arise in resourcing highly qualified specialists, particularly in remote areas. Gazpromneft Aero currently has one of the most significant networks of directly owned refuelling complexes in the CIS — 39 in Russia and another in Kyrgyzstan. We’ve taken a systematic approach to addressing the HR issue, concluding a partnership agreement with the Ulyanovsk Higher Civil Aviation School. Under the aegis of this institution a specialist auditorium has been equipped and a re-training programme developed. Since 2011 more than 300 employees from 28 regions throughout Russia have completed further professional training in Ulyanovsk.

Our collaboration with the Ulyanovsk Higher Civil Aviation School was further extended in 2015. This new stage envisages the development of integrated training and employment opportunities for course graduates studying Aircraft Refuelling in Air Transport and Operations. The first class in this specialism will graduate from the Institute in 2016.

Gazpromneft Aero specialists are involved in the development of educational programmes, delivering lectures on specific disciplines and working as part of the State Examinations Board. A key element of this initiative involves the practical training of course participants. As early as next year industrial placements at Gazpromneft Aero enterprises across 12 regions throughout Russia will be organised for the first 22 pre-selected graduates from the Institute. Training will be undertaken at modern refuelling complexes, including at major Russian airports — Sheremetyevo (Moscow), Pulkovo (St Petersburg), and Tolmachevo (Novosibirsk). Those course alumni showing the greatest aptitude will be able to compete for employment within the company.

Technical regulation — developed by Gazprom Neft, governing innovative industrial technologies and fully compliant with Russian industry standards as well as IATA’s — is also envisaged under the auspices of this project.

— Talking about the refuelling industry as a whole, how far is this ready for global integration?

— Applying European standards to the Russian market completely is complicated. There are, as you might expect, considerable differences in fuel quality control technology, as well as logistical problems. For example, in the EU, pumping more than two fuel consignments into a reservoir requires testing — by an independent laboratory — against 24 quality indicators. Whereas refuelling operators in Russia undertake expert analysis against 12 indicators, usually within their own laboratories.

This system is established under federal legislation and regulation governing civil aviation. This is a longstanding situation, arising from the insufficient number of independent laboratories in Russia, and the sheer geographic size of the country. But, as Gazpromneft Aero’s experience has shown, the overwhelming majority of international requirements and standards familiar to international aviation companies can be applied within the Russian market.

Together with IATA we are now promoting the development of the country’s aviation refuelling industry.

— What does your collaboration with IATA involve, and how does it impact other market operators and aviation companies?

— The implementation of international quality standards in aviation refuelling in Russia is one of our company’s key priority objectives. Gazpromneft Aero has been a strategic partner of IATA since 2008. In all the years of collaborating at our refuelling complex in Novosibirsk, IATA has led annual training courses for specialists representing all stakeholders — airlines, airport operators, fuel suppliers and equipment producers. Delegates on training courses throughout 2015 have included representatives from flydubai, airBaltic, Azerbaijan Airlines, and Yakutia Airlines; aviation refuelling specialists from Vnukovo airport; and representatives from Shell & Aerofuels and Aviaservice. Specialists study the problems of ensuring international quality standards in aviation fuels, as well as fuel storage technologies and fuel filtering procedures. Particular attention is paid to centralised aircraft refuelling systems and the use of modern airfield fuel tankers on Volvo chassis.

In addition to this IATA will, at the invitation of our company, be holding its international Aviation Fuel Forum in St Petersburg in 2017. This is the first time such a major event has been held in Russia, bringing together 500 representatives from the international refuelling industry’s most important airlines and suppliers. We are confident that the forum will see active engagement on the part of Russian companies and leading figures from the aviation industry in studying international experience in the development regulatory rules and standards.

—Just this summer (2015) new amendments under the Law on Changes to the Civil Aviation Code came into force, abolishing the mandatory certification of aviation fuels, regularly undertaken the Federal Air Transport Agency (Rosaviatsiya). What impact has this had on aviation refuelling operators?

— All of the company’s refuelling complexes use existing certification governing refuelling services, and changes to Federal Law No. 253-FZ have not, thus far, had any bearing on our enterprises.

If we’re talking about the market in general, then these regulatory amendments give airlines the right to determine their own requirements regarding fuel and service quality. And although the Federal Transportation Inspection Service (Rostransnadzor) has reserved the right to inspect refuelling complexes, the basis on which they can do this is still to be determined. Uncertainty regarding operators’ activities could result in lower flight safety levels, overall. Our view is that only unified regulation, governing all market players worldwide, can guarantee flight safety. Current trends in the development of the refuelling industry worldwide, the introduction of high-technology equipment, and new types of aircraft, make the centralised adoption of regulation and certification procedures for refuelling complexes essential.

What I can say is that the abolition of state certification marks the first step in the development of a single independent system in Russia governing the operation of refuelling complexes and the quality of service offered by refuelling operators.

— On what basis, in your view, might such a system be put in place?

— We could turn to the experience of our colleagues in Europe, where there is no mandatory state regulation of refuelling activities either. The oversight of aviation refuelling operators’ service quality is undertaken by an independent organisation — the IFQP, which I’ve already discussed. All of the world’s major airlines are permanent members of IATA — more than 300 carriers, including Russian ones, as well as the most important aviation refuelling operators. Experts from the IFQP undertake regular inspections of refuelling complexes and supply proprietary data to member airlines of IATA. The results of these inspections are the determining factor for international airlines in selecting an aviation fuel supplier.

Any independent regulatory framework for the domestic industry must match IFQP standards as far as possible and involve all interested parties — airlines, producers, fuel suppliers and independent refuelling complexes. Only the establishment of a single independent pool of market participants can ensure any change in the existing situation and Russia’s full integration into the international refuelling market.

—What is the company’s development strategy, given current conditions? Gazpromneft Aero had previously planned to achieve a 30-percent share of the domestic market by 2025. Are these plans being amended in any way?

— We’re sticking to our stated growth plans, no question, and are assuming continued growth in the Russian aviation fuels market. Company strategy was updated to 2025 in 2015, with an increase in the target number of networked retail outlets, to 240 airports worldwide. Gazpromneft Aero plans to retain its market leadership vis-à-vis retail fuel sales in Russia, increasing the volume of “wing-tip” deliveries to 4.4 million tonnes, and market share to 30 percent. We also plan to continue investment in aviation infrastructure in the order of more than RUB7 billion by 2025.

Making use of Gazpromneft Aero’s competitive advantages in its wide-ranging retail network and high service standards will allow the company to become a world leader on the aviation refuelling market.