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Large-scale renovation of Ukrainian airports: Will we fly cheaper or lose millions?

Author : Anna Peshkova

Source : 112 Ukraine

On the one hand, the need to repair the aviation infrastructure is obvious: weeds are already breaking through the runways of some airfields. On the other hand, not everyone appreciated the idea of ​​large-scale investments during a pandemic
16:18, 17 November 2021

Open source

Volodymyr Zelensky was concerned not only with the reconstruction of regional airports, but also with the creation of new ones in Zakarpattya and Donbas. The project in the vicinity of Mukachevo is already being called presidential. And in the recently adopted draft budget for 2022, 400 million UAH (15 million USD) was allocated to update the aviation infrastructure.

On the one hand, the need to repair the aviation infrastructure is obvious: weeds are already breaking through the runways of some airfields. On the other hand, not everyone appreciated the idea of ​​large-scale investments during a pandemic.

What's wrong with Ukrainian airports?

Ukrainian airports have experienced a boom in passenger traffic in recent years. This was facilitated by visa-free travel, the gradual signing of an "open skies" treaty with the EU, labor migration and entry of low-cost airlines into the Ukrainian market. The outlook was very bright, but a pandemic struck and passenger volume plummeted by 65%.

In the West the companies of the aviation industry received significant state support, but in Ukraine it was not happen. Only domestic flights through regional airports saved the industry from a total fall in conditions of closed borders.

These are totally broken objects that were built back in the 40s and 60s. Five of them were lucky enough to undergo modernization for Euro 2012: Lviv, Kharkiv, already destroyed Donetsk and capital Boryspil and Zhulyany. The rest continued to die slowly, taking one or two regular flights a week. The degree of deterioration of the airfield infrastructure of some facilities is 95%. In 2019, its quality brought us to 101st place in the corresponding ranking of the World Economic Forum.

Now the sphere is gradually recovering: UkSATSE reported that in October our airports served 84% of the volume of 2019 and twice exceeded last year's figures. Thus, the need for repairs is growing. In addition, one must understand: since the airports were built in the Soviet Union, they were designed for Soviet aircraft. It is impossible to use modern giant planes in small airports.

"Taking into account the signing of the Open skies Treaty with the European Union, a plan was announced that Ryanair is ready to base up to 20 aircraft in Ukraine, Wizz Air - also at least 10. But due to the inadequate condition of most airfields today, these and other airlines with a fleet of Airbus and Boeing aircraft can only consider the airports of Lviv, Kyiv, Kharkiv, Zaporizhya and Odesa, "says an aviation expert with 24 years of experience, founder of the Aviaplan consulting company, Yevgen Treskunov, in a comment on 112ua.tv.

The current expansion and lengthening of the Kherson airport runway, for example, will allow it to accommodate such large aircraft as Boeing 737-800/900 and Airbus 320/321.

Statements about the renewal of aviation infrastructure have been made for several years in a row. In 2018, the head of the responsible department, Volodymyr Omelyan, spoke of his intention to create and modernize 50 airports. If everything went according to plan, our airports would be renewed in two years, by 2023. But until 2019, only the Odesa airport received funds. Industry experts attribute this to political reasons.

Since for the regional authorities having their own airport is a matter of prestige, and most of this infrastructure is in communal ownership, the regions allocated tens of millions of hryvnias for situational spot repairs from their budgets. This was not always successful, especially at the Khmelnytsky airport, where the runway was full of potholes after the renovation.

Whether it was generally correct to give ports to communal ownership is a debatable question. For example, Serhiy Khizhnyak, a transport expert at the Office of Effective Regulation, considers this to be a mistake, since local authorities do not know how to manage air hubs. And Yevgen Treskunov believes that at the time of the transfer, the decision was determined by the analysis: if we had not done this, there would no longer be 22 airports in Ukraine.

Now they want to change the ownership structure of airports. In 2020, at press briefings, it was announced that 14 objects were included in the list of priority investment projects - in Cherkassy, ​​Ivano-Frankivsk, Chernivtsi, Kherson, Odesa, Dnipro, Zakarpattya, Poltava, Rivne, Sumy, Kryvyi Rih, Mykolaiv, Zhytomyr and Vinnytsia. And, according to the target program for the development of airports until 2023, there are tasks for Lviv, Kharkiv, Zaporizhia and Ternopil. True, already at the beginning of November this year, the Ministry of Infrastructure started talking about the reconstruction of only 10 airports.

However, the public is concerned about the economic feasibility of investing heavily in small ports, especially after the numerous scandals associated with the Big Construction.

Will the repair be profitable?

The risk that the direct investment will not be paid off is really very high. If, after repairs, the passenger traffic of airports turns out to be low, the ports will be unprofitable. According to the Airports Council of Europe International, 77% of ports with less than one million passengers a year are expected to be in this group. In low demand environments, maintaining new infrastructure can be very costly.

Former general director of the Master-Avia company Oleksiy Yakovets is pessimistic: he believes that the average figure for the renovated airports will be below this level of passenger traffic. UIA President Yevgen Dykhne also expressed concern about "burying money" in airports with low traffic volumes.

But Laurent Germain, CEO of Egis, which operates 17 airports in seven countries, disagrees with the link to passenger traffic and is optimistic about the renewal of Ukrainian infrastructure.

"Airport Bergerac in France has a passenger traffic of less than a million passengers per year, and it is profitable. In Ukraine, we know airports that even with 300 thousand passengers a year had no losses and even paid dividends to the owner... We believe in success regional airports in the country ".

The justification for small airports should also be viewed not only through the prism of direct payback, but also in the context of the growth of the well-being of the entire region. The growth of inbound tourism to the regions leads to an increase in investment attractiveness. Experts say one dollar invested in infrastructure generates $ 2.50 of economic growth. So dreams of making Sharm el-Sheikh out of Kherson can become a reality - of course, if you invest in more than just the airport.

"The approach" no passengers means no demand, no need to invest money "is amateurish, - Treskunov believes. - The signing of the Open skies Treaty removed external barriers. Now it remains to implement the success formula: invest in aviation infrastructure, in tourist services then sell it all together correctly. At most airports, all three of these components are not at the proper level. "

Thus, in Poland, after investments in regional airports, the passenger traffic has grown 15 times over 8 years. And the Kharkiv airport, which was almost excluded from the list of strategic ones, after financial investments also began to serve dozens of times more passengers.

Also, investments in aviation mean the creation of jobs not only in this industry, but also in related ones, which is especially important in a pandemic.

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“As the European methodology shows, a small airport can handle 380-500 thousand passengers a year within 5 years, and with such volumes its economic contribution to the region will exceed the investment in the airfield. According to this principle, it will pay off faster than in five years. At the same time, it will create thousands of jobs. And the demand for flights will grow: when there is an opportunity for a low cost to fly somewhere, then you will definitely fly, even if you have not even considered such an opportunity before, "says Treskunov.

And, of course, we must not forget about the direct benefits for the passengers themselves. A good airport, which the airline has entered, is an opportunity for citizens to quickly and cheaply get from the region to the capital. For example, you can get from Kryvyi Rih to Kyiv by air in half an hour instead of 6 hours by car.

It is especially important that the modernization of airports will open up opportunities for low-cost airlines, which means that the cost of a seat will be minimal. The air stransport will have the opportunity to compete with land transport, especially on the most distant routes. A trip to Europe by air, not by land, may cost the same 80 euros, but it will no longer last 40-50 hours. Moreover, the further east the region is, the greater the relevance in flights.

And, of course, air traffic provides opportunities for promptly saving the lives of Ukrainians who need medical assistance.

In theory, large investments in airports are necessary and rewarding. In practice, everything will depend on specific projects, the absence of hesitation in their implementation and the targeted use of funds.

Will investors be interested in Ukrainian airports?

The reconstructed airports are planned to be put up for competitive selection of operating companies. The money that the winners will pay can be used to upgrade other ports. The Ministry of Infrastructure has studied the feasibility of transferring four objects to a concession for 30 years: the airports of Lviv, Chernivtsi, Rivne and Kherson. The transfer of the first two was planned earlier, but it has stalled due to the pandemic.

However, experts note that investors will be really interested in only Boryspil, Zhulyany, as well as the airports of Odesa, Kharkiv and Lviv. Let's go back to the passenger traffic indicator. Lviv, in particular, at the end of August became the first regional airport in the country. In 2021 it passed the mark of 1 million passengers.

Investments in small airports are extremely rare. The state usually has to take on at least the airfield component. By the way, almost all regional airports in Eastern Europe received grants from European funds for the global reconstruction of their airfields. At the expense of investors, terminals and maintenance centers are usually built.

For small airports, the way out is to "pack" them for public-private partnerships. Treskunov said that such an idea sounded in Ukraine several years ago, but its implementation was discredited by the incompetent actions of officials of the then Ministry of Infrastructure. The legislation is still not developed for such opportunities.

However, investors are already showing interest in Ukrainian projects. Recently, there was news that the coordinator of the Big Construction program, Kyrylo Tymoshenko, wants to hand over regional airports to the concession of the French Egis for projects in the aviation industry. Aviation experts interviewed by us highly appreciate the quality of the projects that this company has already completed, and have high expectations for it.

The signing of the Open Skies Agreement with the European Union should stimulate the interest of other investors. But authorities will still need to create a special airport fund for joint financing of projects with private individuals. The success of the concession will also depend on the investor's confidence that the state will be able to protect his rights. Moreover, in almost every airport there were cases of unsuccessful attempts to enter by private traders, which ended in legal proceedings.

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