Under the protection of the Prosecutor General
It was enough for Domodedovo to arrange to sell 25% of its shares to foreign investors for the office of Yuri Chaika immediately to detect a threat to national security in foreigners participating in running the country’s largest airport.
Last week, the General Prosecutor’s Office created a small sensation when it released a statement saying that Domodedovo airport was run by foreign companies, which, the statement further read, poses a threat to national security.
Such a statement was unprecedented in so much as it broke a taboo. Not even while attacking Yukos [the largest Russian oil company until 2003, it was declared bankrupt by a Russian court on August 1, 2006, Ed.] did the authorities go so far as to accuse Mikhail Khodorkovsky [former Yukos CEO, Ed.] of two things: loan auctions and foreign shareholders. All major Russian companies, from RUSAL to Norilsk Nickel, function with the same capital structure, and the General Prosectutor’s naïveté about where children come from – not from cabbage patches - is simply staggering.
This alone gives one cause to regard the statement not as an expression of a higher will, but rather as economic poaching on behalf of the airport’s opponents.
To recap, it became public last week that Domodedovo airport was planning to offer up to 25% of its shares, equalling approximately $1 billion, to major foreign funds. Consultants for the closed offering were Morgan Stanley, J.P. Morgan, Goldman Sachs and Credit Suisse. What’s more, during the presentation made to the funds, the airport for the first time released its performance figures, and they are record-setting for the sector. Over the last ten years, the number of passengers using Domodedovo has increased eight fold, and its EBITDA margin amounts to 42% (compared to the approximately 20% margin of the Frankfurt am Main Airport).
In other words, in the face of Domodedovo’s offer, opponents of the company have decided to go for broke. Medvedev was saying something about foreign investment and at the very moment when the highly profitable airport is about to make its offer, the Prosecutor General suddenly reports that it – who would have thought – has foreign shareholders! I can just imagine the jaws dropping at Credit Suisse.
And it isn’t difficult to guess who stands to benefit from the General Prosecutor’s stance. For some reason the General Prosecutor suggests entrusting national safety to an organisation such as the Ministry of Transport, headed by Igor Levitin, who is at the same time also head of the board of directors of Sheremetyevo Airport and Aeroflot.
It is quite clear that as head of the board of directors for Sheremetyevo, Levitin will be compromised by a conflict of interests with Domodedovo – indeed it is the very same as asking Bill Gates to take care of Apple.
In recent days this conflict of interests has become particularly problematic because of the issues of building a third runway. This issue is so characteristic of the way in which economic decisions are made in bureaucratic economies that we really must take a moment to look at it more closely.
In short, the crux of the matter is the following: the skies above Moscow are beginning to look more and more like the Garden Ring Road during rush hour and, in order to make them easier to pass through, the government needs to build new runways (which in Russia belong to the government). And common sense would have it that building a third runway at Sheremetyevo is the last thing you would want to do.
Anyone who glances at the map will see that there is simply nowhere to build a third runway. The only place where one could possibly be built is Khimki Forest; practically the entire forest would have to be cut down. Khimki activists are not yet aware of this fact.
Second, in order to build a third runway at Sheremetyevo, the Klyazma River would have to be redirected into a concrete canal. The Klyazma River supplies the Klyazmenskoe reservoir with drinking water, or in other words, millions of Muscovites, and what would happen to the aeration of drinking water in a concrete canal passing under the runway is anybody’s guess. Such experiments have not been carried out anywhere in the world.
Third, even should the runway be built, it would be no longer than three kilometres, which means big plans like the Boeing 777, the Airbus 380 and Ilyushin 96 would have to find somewhere else to land.
Fourth, even this short of a runway would be located on the opposite side of the motorway from the airport, eight kilometres from one end and five from the other. Eight kilometres requires an airplane to taxi from point A to point B for 35minutes. Moreover, international safety regulations prohibit taxing airplanes more than five kilometres to a runway. And so even with a shortened runway it would be possible to take off from one end only.
The construction of a runway would likewise require the purchase and removal of around 240 homes, and not just shacks, but Moscow suburban mansions.
And so it would seem that there is simply no place for a third runway at Sheremetyevo. The airport was designed incorrectly in the first place, and its pair of runways (the distance between them is 280 metres, which means two planes cannot land at the same time) and the airport itself are squeezed tightly between water, homes and the motorway. At Domodedovo, on the other hand, there is as much space as one could possibly desire. The general plan for Domodedovo provisions the construction of 10 runways.
In any normal country the issue of where to build a runway would not arise. There are state, private, and municipal airports the world over, and in the world over one simple rule is followed: whoever owns the airport owns the runway.
In Russia the situation is impossible. The runways here belong to the state and the airports, well, to whomever. For this reason, the head of the board of directors for Sheremetyevo, who thanks to a fortunate coincidence happens also to be the minister of transport, wants to build a runway at Sheremetyevo, even though it will be much more expensive. Even Prime Minister Vladimir Putin recently lent his firm support to Levitin’s option, all the more since it is the prime minister’s friend, Mr Rotenberg, who will be undertaking the construction.
Domodedovo is powerless to do anything about the situation. Domodedovo can show us how a modern airport is supposed to be built. Domodedovo can build terminals for $2,200 per square metre (the new terminal at Sheremetyevo cost more than three times as much at $7,000 per square metre), and can purchase 11 megawatts of diesel-powered electricity after the January blackout. It can speed up the construction of its own power station (they were planning to build it anyway, seeing the state of the system in the Moscow region). But Domodedovo can’t spend 20 billion roubles to build a runway that will then belong to the government.
The history of Domodedovo Airport is, unfortunately, a great example of two problems that plague Russian business. Rupert Murdoch described one, saying, “The more I find out about Russia, the less I want to do business there, because the more successful my business will become, the more people there will be who want to take it from me”.
Domodedovo has challenged the system by being successful. If in one and the same climactic zone and one and the same economic system Domodedovo can build a terminal for three times less than Sheremetyevo, then the state-owned Sheremetyevo can survive only if the privately owned Domodedovo is made to sleep with the fishes.
The second maxim is even simpler: a subsystem cannot be efficient when the system itself is not efficient. An efficient business cannot survive in an inefficient state. And if the subsystem tries to compensate for the shortcomings of the other systems, it will self-destruct from the resulting overload, from anaphylactic shock.
In regards to Domodedovo, this means that they can build terminals and improve the quality of airplane maintenance, but they can’t produce electricity in place of the power stations, and they can’t fight terrorism for the Federal Security Service. And even so, every time the government is looking for a scapegoat after a terrorist attack or a blackout, it is precisely Domodedovo – at the Ministry of Transport’s initiative – that ends up taking the blame.
The most ironic thing about this is the following: There is President Dmitry Medvedev, who talks about foreign investment. There is Prosecutor General Yuri Chaika, who is considered to be an ally of Medvedev’s. There is Minister of Transport Levitin, whom, by the way, Medvedev asked to withdraw from the board of directors at state companies. And on the eve of the largest, most successful Russian airport’s share offering, Medvedev’s allies, in Levitin’s interests, openly and brazenly rub out Domodedovo. It is hard to think of something showing more clearly Medvedev’s capabilities in that troop of baboons that we call the Kremlin.
A short postscript. For those who believe there is a great homespun truth in building a runway in a state airport and not some private one, I would like to call your attention to the fact that the government recently built a runway for the private airport of Gelendzhik nearby a famous property the lucky businessman Kolesnikov called “Putin’s Palace”. What’s more, Oleg Deripaska, the owner of the airport, still has not built a permanent passenger terminal there. And so the question arises: who is the passenger for whom the government so generously dished out $1 billion to build the runway, and who is the passenger who needs a runway, but not a terminal? And why can a runway be built in a private airport for the needs of this passenger, but not for the needs of the 22 million passengers who pass through Domodedovo annually?