Editors Note: Eurasianet is re-posting this article to clarify Samgori-94's involvement in the airline venture.
Several substantial obstacles hinder trade within the south Caucasus. Azerbaijan and Armenia are stalemated as they try to settle the Nagorno-Karabakh conflict. Meanwhile, Georgian authorities struggle to exert authority beyond the capital Tbilisi and other cities. Nevertheless, a new venture hopes there is sufficient commercial interest in the Caucasus to support a regional airline.
Caucasus Airlines, which includes money from American investors, aimed to begin flying in early November. Despite having virtually no competition, the venture still faces stiff odds against success.
The Caucasus has struggled with the legacy of a collapsed Soviet air transportation system. Prior to the new venture, there were only three commercial flights a week between Baku and Tbilisi, the capitals of Azerbaijan and Georgia. However, many Western business executives and other safety-minded travelers are often reluctant to fly the Russian-made Yak-40 used in these flights.
Caucasus Airlines, using Brazilian-made Embraer 30-seater turbo-prop planes, are planning five runs a week between Tbilisi and the Armenian capital of Yerevan and three a week, for now, between Tbilisi and Baku. With this territory virtually to itself, the carrier says it plans to expand the frequency of Baku-Tbilisi flights based on demand, and likewise hopes to add flights between Tbilisi and the Black Sea port of Batumi. (Batumi serves as the de facto capital of Georgia's breakaway Ajaria region, which borders Turkey.) Initial one-way prices range from $95 for the Batumi route to $130 for the Tbilisi-Yerevan run to $190 for flights between Tbilisi and Baku. Executives say they also have plans to run charter flights.
If logistics alone determine airlines' success, Caucasus Airlines should be poised to do quite well. Their routes should dramatically reduce travel time around the region. An aid worker or businessperson who now has to set aside six hours to drive from Tbilisi to Baku could cover the same route in a plane in 55 minutes. The five-hour drive between Tbilisi and Yerevan would take 35 minutes in the air.
In addition, preliminary work began in September on the Baku-Tblisi-Ceyhan (BTC) pipeline, a $2 billion-project with investments from major energy conglomerates and support from the United States. BTC and other hydrocarbon exploration projects are likely to keep travelers shuttling through the region.
Robert Christian, the project's prime mover and an experienced small-airline manager, claims that energy interests have already pre-purchased 25 seats per day, assuring the new firm will break even from day one.
Christian's confidence also reflects a healthy base of governmental support. Due diligence by the United States Overseas Private Investment Corporation (OPIC), completed in August, guaranteed a loan of roughly $5 million, which covered about half the airline's startup costs. American defense contractor Lockheed-Martin is also reportedly extending a limited recourse loan for $1 million. In addition, Christian also expects to benefit from earlier communications-security investment by Northrop Grumman, another defense contractor.
Georgian officials have been very supportive of the venture, clearing numerous regulatory obstacles since discussions started three years ago. Caucasus Airlines will not have to pay value-added taxes on fuel and will use routes that the national carrier, Airzena, once used exclusively. "They have done more here than I have had done [by U.S .officials] in the United States, honestly," says Christian. "This is a model that should be followed by other countries."
Christian, a Vietnam War veteran who flew helicopters, has some basis for confidence. He owns Saipan-based Pacific Island Aviation , which serves the North Mariana Islands, including Guam, and says he has started five regional carriers.
"Aviation is not just aviation, you have to look at its impact on the economy," says Christian. "There are several different agendas this regional airline will satisfy."
It's hard to predict, though, how many executives or investors will decide that a quick hop between capitals outweighs the business risks in a region marked by violence, corruption and poverty. Michael Waysher, a vice president for Vermont leasing firm Bombardier Capital Asset Services, has leased equipment to Pacific Island Aviation and trusts Christian to coordinate financial and political support to see Caucasus Airlines through its early years.
Be that as it may, Caucasus Airlines is beginning its corporate life with a cloud of Georgian intrigue. Radio Free Europe/ Radio Liberty reported in January that 60 percent of the airline belonged to Samgori-94, a Tbilisi outfit that distributes cigarettes and imports meat. However, airline officials insist that Samgori-94 has a 10 percent stake.
Media reports have linked Samgori-94 to a November 2001 grenade attack against a rival firm run by Fady Asly, who has also served as head of the American Chamber of Commerce in Georgia. Despite that alleged link, Samgori's involvement in the airline venture to date has conformed to the "highest requirements of good business and profesisonal ethics" said Paz Pabalinas, Executive Vice-President of Pacific Island Aviation.
Ken Stier is a freelance journalist who specializes in Caucasus and Central Asian affairs.
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