TyumenAviaTrans (TAT), an aviation company based in the Tyumen region, has catapulted itself from relative obscurity to become one of Russia's leading domestic carriers following a radical change in company management. And contracts with the United Nations for peacekeeping transport duties have helped the airline keep its financial position flying high.

But insiders and outside observers say the airline is still recovering from Russia's August 1998 financial crisis and that the new leaders have their work cut out if the airline is to continue to glide along in Russia's competitive airline sector.

Since a new management team was put in place in 1999, the company has undergone a turnaround in fortunes, winning a number of industry awards and claiming a position among the leaders of Russian airlines in terms of passengers carried domestically for the first half of 2000.

As evidence of its recent upturn, the company posted a profit of 236.3 million rubles (about $8.5 million) for the first six months of 2000, contrasting with a loss of 158.5 million rubles for the same period last year. It also announced it had a 56.7 percent increase in passenger-kilometers and a 62.5 percent rise in the total number of passengers. It also recorded a 54.5 percent rise in cargo ton-kilometers, while absolute freight tonnage jumped 115.6 percent.

"The new CEO [Andrei Martirosov], appointed in 1999, has begun the restructuring of the company, which has already significantly improved the company's financials," Vladimir Merkushev, a CentreInvest Group analyst, said in a report Aug. 29. "In 2000, we anticipate that the company will more than double its ruble revenues and report a strong operating margin.

"The new management has been clearing up the financial mess left over by its predecessor," he added.

According to the Russian Association of Air Carriers, TAT ranked third among passenger carriers on domestic routes for the first six months of 2000, up from 12th place on the same period of 1999. Only Aeroflot and Pulkovo ranked higher on the list for this year.

Among the key money-earners for TAT is its relationship with the United Nations. In September, it is scheduled to open a representative office in New York to facilitate its work with the international body, which uses its aviation services for peacekeeping and humanitarian aid missions.

"[The New York office] will be so important in the medium term," said Michael Boboshko, managing director of Sovlink Group and a TAT board member. "[We will] be able to hear of tenders [on a timely basis] and will be closer to our major clients and our foreign shareholders. … We will also be able to develop new partnerships with other organizations, such as charities."

For the year 2000, TAT has $21 million to $22 million in signed contracts with the United Nations, officials said. According to analysts, however, the nature of humanitarian assignments means that the company cannot rely on U.N. work in the future; it must continue to cut costs and develop services if it is to maintain profitability.

As a result of the cost-cutting program implemented by the new management, TAT has moved its headquarters from Tyumen to the more prosperous city of Surgut and centralized business control systems with the assistance of outside consultants.

The recent reopening of its Moscow representative office has itself been a milestone for the company.

"[Our office] is a gateway to our company, allowing us to make contact with companies in other countries easier," says Inessa Gousseza, deputy director of the TAT Moscow office.

"These short-term moves are expensive but will bear fruit in the future," said Julia Zhdanova, a transportation analyst at United Financial Group (UFG).

TAT, which saw early success in its fortunes along with other Russian companies during the boom years of the mid-1990s, suffered extensive damage during the August 1998 financial crisis, leading shareholders to push for a new management team in early 1999.

TAT was a classic example of the kind of high-risk stock that people rushed into when times were good on the stock market before the 1998 crash, said Sovlink's Boboshko. "Following the crisis, the management team could not get their act together …. Along with Sovlink, a group of shareholders, mainly foreign, banded together and replaced the top management."

Despite profits boosted by U.N. work, TAT is in reality still attempting to recover from huge losses, and it faces enormous challenges for the future, experts say.

"The company began negotiations [with local authorities] to restructure tax arrears, social payments and accumulated debts in 1999, which [are now drawing to a close]," said Boboshko.

"The fundamentals are not very attractive," says UFG's Zhdanova. "Around 60 percent of the fleet is grounded, and [TAT] doesn't generate enough cash flow to acquire new aircraft. The passenger-transportation arm of the business just breaks even, but it allows the company to maintain its cash flow."

In its drive to gain access to hard currency, TAT has been actively participating in tenders with international organizations, particularly with the United Nations. Boboshko said he expects hard currency revenues this year to "jump five times on last year."

UFG's Zhdanova said this is a positive sign in TAT's development.

"International activity has risen to around 30 percent of revenues this year from 10 percent in 1999," she said. "And helicopter services to oil and gas industries are down from 44 percent to 22 percent of revenues. Therefore, more revenue is coming in hard currency, rather than in barter."

TAT has two primary lines of business: regular (primarily domestic) passenger services and helicopter services to Russia's Siberian oil and gas fields; and internationally, flying humanitarian and peacekeeping missions for the United Nations and its affiliates.

At a glance (in mlns)

Airplane

Number

Value

Tu-154

6

$33

Yak-40 (op)

7

$1.4

Yak-50 (non)

15

$1.5

An-24

6

$600,000

An-2

5

$125,000

Helicopters

Mi-26

4

$8.4

Mi-8

35

$17.5

Mi-8MTV

11

$12.36

Airports

Surgut and Noyabrsk

$6.3

Total

$81.2

Source: CentreInvest