Download Annual report 2011 - Volga Dnepr

a new dimensionof the freight business1

1TABLE OF CONTENTS1234567891011Company Profile 4Key Performance Indicators of the Company 8Volga-Dnepr Group Aircraft Fleet 12Main Events of 2011 14Address by the Volga-Dnepr Group Management 16Overview and Forecast of the Airfreight Market 20Management of the Volga-Dnepr Group 24Volga-Dnepr Group Development Strategy 28Group Structure 32Risk Management (Corporate Risk Management) 36Business Areas 40page11.1. Charter Operations 4011.2. Scheduled Operations 4211.3. Small Freight Aviation 4411.4. Flight Safety 4511.5. Aircraft Maintenance and Repair 4611.6. Supporting Businesses 4811.6.1. Volga-Trucks 4811.6.2. NIC Insurance Company 4812Development Projects 5212.1. Projects for the serial resumptionof the An-124 Family Aircraft 5213Social Responsibility and Personnel Development 5313.1. Personnel Development 5313.2. Social Responsibility 55On the cover page: City Lights of Africa, Europe, and the Middle EastCredit: NASA Earth Observatory image by Robert Simmon, using Suomi NPP VIIRS data provided courtesy of Chris Elvidge (NOAANational Geophysical Data Center). Suomi NPP is the result of a partnership between NASA, NOAA, and the Department ofDefense. Caption by Mike Carlowicz.

2 a new dimensionof the freight businessANNUAL REPORT 2011A newdimensionof the freightbusinessDnieper River Delta (Ukraine)Credit: Jacques Descloitres, MODIS Rapid Response Team, NASA/GSFChttp://visibleearth.nasa.gov/view.php?id=71106

4 a new dimensionof the freight businessANNUAL REPORT 20111COMPANY PROFILEThe Volga-Dnepr Group of Companies is an international corporation, a major Russianairfreight carrier, and one of the world’s top 15 international airfreight companies. Accordingto its 2011 results, Volga-Dnepr was ranked 11th among major airfreight carriers of the worldin terms of its income from airfreight transportation (US$1,685.2 mn). The Group has been theworld leader in the oversize and heavy cargo market for many years. Last year, Volga-Dneprwas ranked first among Russian airlines both in terms of cargo carried (347,646 t), and in termsof cargo turnover (2,557,175 thou t/km).Volga-Dnepr Group has developed fourprimary business areas:1Charter operations (the parentcompany is Volga-Dnepr AirlinesLtd)The international staffof Volga-Dnepr Group consists of over3,000employees worldwide.2Scheduled operations (the parentcompany is AirBridgeCargo AirlinesLtd)It has representative officesand subsidiaries in3Aerotechnics maintenance andrepair (the parent company is Volga-Dnepr Technics Moscow Ltd)9countries.4Small Freight Aviation project (theparent company is Atran Ltd).Volga-Dnepr Group is the largest commercial operator of the unique An-124-100 Ruslan rampcargo aircraft. It is also a leading operator of Boeing 747 freighters in Central and EasternEurope.

510An-124-100;411IL-76TD-90VD;B747 (eightB747-400F/400ERF,three B747-200/300F);3An-12.As of December2011, the fleetof the Groupincludes 28 aircraftVolga-Dnepr aircraft have performedcharter flights to1,140airports in180countries.The route network of AirBridgeCargoAirlines includes over20destinations in12countries.An-124-100 and IL-76TD-90VD ramp aircraft(Volga-Dnepr Airlines Ltd), scheduledairfreight services using by Boeing 747family aircraft (AirBridgeCargo AirlinesLtd), and freight deliveries by smallerAn-12 aircraft (Atran Ltd). The synergyof the three main businesses representsa complementary combination of charter andscheduled operations, as well as a packageof comprehensive logistics services. Thismakes it possible for every customer toselect the most convenient, cost efficient andtimely method of delivery for all air cargoshipments.The customers of Volga-Dnepr Groupare public and commercial companiesoperating in sectors such as the oil and gas,power, heavy machine building, automobilemanufacture, construction, aerospace,agriculture, telecommunications andemergency recovery industries.Volga-Dnepr Group’s strategy is based onits “cargo supermarket” business model.According to the model customers areoffered air cargo charter services using

6 a new dimensionof the freight businessANNUAL REPORT 2011A newdimensionof the freightbusinessLake Baikal (Russia)Credit: Jacques Descloitres, MODIS Rapid Response Team, NASA/GSFChttp://visibleearth.nasa.gov/view.php?id=66586

8 a new dimensionof the freight businessANNUAL REPORT 20112KEY PERFORMANCE INDICATORSOF THE COMPANYSales volume in 2011increased byThe volume of the cargocarried grew byCargo turnover grew by6.2% 7% 8%Charteroperations899.7mn USDCharteroperations62,618tCharteroperations384,472thou t/kmScheduledoperations767.5mn USDScheduledoperations285,028tScheduledoperations2,372,145thou t/km

9Dynamics of the Volga-Dnepr Group key indicators, 2007-2011Sales volumes, mn USDAirfreight2007 2008 2009 2010 2011Charter operations 681.8 1,004.6 865 905.2 899.7Scheduled operations 304.1 451 369 672.7 767.5Other income 19.6 22 11.7 9.4 18Total income 1,005.5 1,477.7 1,245.8 1,587.4 1,685.2Cargo turnover, thou t/kmCharter operations 538,017 618,807 481,108 499,292 384,472Scheduled operations 859,153 1,103,607 1,318,652 2,057,883 2,372,145Total cargo turnover 1,397,170 1,722,414 1,799,760 2,557,175 2,756,617Cargo carried, tCharter operations 111,015 136,611 83,894 85,372 62,618Scheduled operations 95,323 122,558 149,109 240,220 285,028Total cargo carried 206,338 259,169 233,003 325,592 347,646Fleet (as of the year end)An-124-100 10 10 10 10 10IL-76TD-90VD 2 2 2 3 4Boeing 747 6 7 7 11 11An-12 3Staff, persons 2,410 2,849 2,649 2,878 3,270

10 a new dimensionof the freight businessANNUAL REPORT 2011A newdimensionof the freightbusinessKitakami River (Japan)Credit: NASA image by Jesse Allen and Robert Simmon, using ALI datafrom the EO-1 team. Caption by Adam Voiland.http://visibleearth.nasa.gov/view.php?id=77343

12 a new dimensionof the freight businessANNUAL REPORT 20113VOLGA-DNEPR GROUPAIRCRAFT FLEETVolga-Dnepr Group’saircraft fleet includes10 An-124-100 Ruslan,four IL-76TD-90VD,11 B747 (three B747-200/300F and eightB747-400F, five of whichbeing 747-400ERF),and three An-12.Boeing 747-400F/ERF х 8The maximumtake-off weight412.8 tThe maximumload up to112 tThe maindeckvolume607.7 m 3The lower deckvolume158.5 m 3The total number of pallets39Boeing 747-200/300F х 3The maximumtake-off weight377.8 tThe maximumload up to105 tThe maindeckvolume585.7 m 3The lower deckvolume148.6 m 3The total number of pallets38

13An-124-100 х 10The maximumtake-off weight392 tThe maximumload up to120 tThe full-loadrangeup to4,500 kmFreight compartment size:6.4x4.4x36.5 mIL-76TD-90VD х 4The maximumtake-off weight195 tThe maximumload up to50 tThe full-loadrangeup to4,000 kmFreight compartment size:3.4x3.4x20 mAn-12 х 3The maximumtake-off weight61 tThe maximumload up to15 tThe full-loadrangeup to3,600 kmFreight compartment size:3.6x2.5x13.5 m

14 a new dimensionof the freight businessANNUAL REPORT 20114MAIN EVENTS OF 2011Group Development• In May, Volga-Dnepr Group purchasedAtran Ltd, a Russian airline.Charter Operations• In August, during the InternationalAviation and Space Salon MAKS 2011,Volga-Dnepr Group reachedan agreement with the Antonov StateEnterprise on modernisation of thefirst An-124-100 Ruslan aircraft in theVolga-Dnepr Airlines’ fleet and itstransformation into the advanced An-124-111VD version;• In September, Volga-Dnepr Airlinesopened its own sales office in Japan;• In December, the company commissioneda fourth IL-76TD-90VD, built accordingto the IL-76TD aircraft modernisationprogramme.Scheduled Operations• In January, AirBridgeCargo Airlinesbegan performing more frequentflights from Maastricht and Amsterdam(The Netherlands) via Yekaterinburg andKrasnoyarsk (Russia) to the Chinese cityof Zhengzhou three times a week;• In April, AirBridgeCargo Airlines becamethe first Russian airfreight company toperform scheduled operations betweenRussia and the USA with the additionof Chicago to its international network,served three times a week by Boeing 747-400 flights.

15Maintenance and Repair• In August, Volga-Dnepr Technics wasamong the first to receive a certificateof residence in the Port SpecialEconomic Zone (PSEZ) in Ulyanovsk.Representatives of the company and ofthe Ministry of Economic Developmentof the Russian Federation signedan agreement for this developmentduring the International Aviation andSpace Salon MAKS-2011;• In August, SuperJet International SpAand Volga-Dnepr Technics signeda memorandum of intentions formaintenance of Sukhoi Superjet 100aircraft.Awards• In March, based on results for 2011,AirBridgeCargo Airlines was chosenas the winner of the Wings of Russianational aviation award.• In October, Volga-Dnepr won thehonourary award of the Baltic Air CharterAssociation (BACA) in the internationalorganization’s BACA Excellence Awardsin the category of Best Charter AirfreightCompany.• In December, for the third year in a row,AirBridgeCargo Airlines was recognisedas the largest freight carrier by Fraportat Frankfurt Airport (Germany).Post Balance Sheet Events• Volga-Dnepr Airlines and AirBridgeCargo Airlines successfully passed the IOSAcompliance audit, the operational safety standard of the International Air TransportAssociation;• As part of AirBridgeCargo’s fleet development, two new Boeing 747-8F were commissionedand entered service with the aircraft. They are part of the five aircraft ordered by theairline from Boeing. AirBridgeCargo Airlines is the only operator in Russia and one of onlya handful of global carriers operating this new type of aircraft.

16 a new dimensionof the freight businessANNUAL REPORT 20115ADDRESSBY THE VOLGA-DNEPR GROUPMANAGEMENTThe year 2011 set new challenges before theglobal airfreight industry. The escalatingeconomic crisis in the Eurozone, dramaticpolitical changes in Middle East, naturaldisasters, and volatility of global oil pricessignificantly affected the situation in theindustry. All of this forced operators in theairfreight market to concentrate theirresources and reduce costs in order toincrease business efficiency.Volga-Dnepr Group achieved a stable andpositive result at the end of 2011. The Group’ssales increased by 6.2% to $1,685.2 mn. Netprofit of $70.9 mn exceeded target by 8%.In 2011, Volga-Dnepr carried 347,646 t ofcargo, 7% more than in 2010.In 2010, the management and shareholdersof the Group reviewed the strategy for thecompany’s development, setting an ambitiousgoal to become by 2030 one of the undisputedleaders of the global airfreight industry.According to the strategy adopted, Volga-Dnepr Airlines will be developing asan integrator in the segment of heavy andoversized cargo, AirBridgeCargo Airlines isto become one of the five leading airfreightcarriers in the world, and Volga-DneprTechnics is to become a leader in the area ofaerotechnics maintenance and repair.According to a rating by the highly-respectedAirline Business magazine, based on 2011 results,Volga-Dnepr Group was one of the 15 largestairfreight companies in the world in terms ofrevenue from airfreight transportation. In Russia,Volga-Dnepr remains the undisputed leaderin this market.Until recently, Volga-Dnepr Group has beendeveloping exclusively through organicgrowth. Last year, we began implementingM&A projects. A first deal of this kind wasthe purchase of the Atran airfreight company,which operates small capacity cargo aircraft.The purpose of this company integrationinto the Group structure is to promotedevelopment of the small freight aviationindustry, to create a network of feeder trafficand to expand the range of services offered tocustomers.An important area of the Group’s businessis the creation as a separate businesswithin the Group and the subsequent activedevelopment of Volga-Dnepr Technics,rendering services for aircraft maintenanceand repair both to the Group’s own airlinecompanies and to external customers.In 2011, Volga-Dnepr Technics opened its ownwarehouse with a customs post at Moscow’sDomodedovo Airport (Russia), introducingnew technologies, purchasing equipmentand expanding its qualified staff at theinternational airport. According to the yearresults, the average downtime of aircraftat the Volga-Dnepr Technics stations wasreduced by 20%.Since April 2011, the company has beenperforming scheduled freight flights to theUSA. Thus the developed Eurasian routenetwork of the airline was supplementedby a promising North American expansion.On 5th March 2012, AirBridgeCargo Airlinesperformed a first cross-polar cargo flightacross the North Pole from Chicago toKrasnoyarsk.Volga-Dnepr Group was one of the firstcustomers of the new Boeing 747-8Fcargo aircraft. During 2011, the companyfully implemented its preparation plan

17to commission the most advance aircraftin the 747 family, thereby enabling thefirst Boeing 747-8F to begin performingscheduled flights from Shanghai to Europein January 2012.During the reporting period, we developeda modernisation programme for the uniqueAn-124-100 freighter used in global civilaviation, and agreed a plan of work formodernisation of the IL-76TD-90VD fleet upuntil 2017. Implementation of this work willensure compliance of this type of aircraft withperspective ICAO requirements.Further work under the project formodernisation and resumption of An-124Ruslan aircraft production, the IL76TD-90VDprogramme, commissioning of Boeing 747-8F, and retro-fitting of the Atran fleet withBoeing 737-400 freighter aircraft will requirethat we act professionally, demonstratecommitment, adopt a creative approach andwork closely as a team.Obviously, these are the qualities Volga-Dnepr Group staff have always been notedfor. This is why we believe in our success! Weoperate to the benefit of our customers, ourstaff, and our Company.The tasks set for 2012 provide not only for achievementof the highest performance results but also for activedevelopment of new business areas.

18 a new dimensionof the freight businessANNUAL REPORT 2011A newdimensionof the freightbusinessNovaya Zemlya (Russia)Credit: Jeff Schmaltz, MODIS Rapid Response Team, NASA/GSFChttp://visibleearth.nasa.gov/view.php?id=67852

20 a new dimensionof the freight businessANNUAL REPORT 20116OVERVIEW AND FORECASTOF THE AIRFREIGHT MARKET• The size of the global airfreight market increased to $69 bln comparedwith $66 bln in 2010;• Instability of the global economy and growth of fuel prices producedan adverse impact on the market;• In 2011, Russian airlines carried 981,484 tonnes of cargo and mail,exceeding the 2010 level by 5.9%.Fig. 6.1. Dynamics of the Global Trade and Freight Traffic in 2000-2011141312Billion FTKsAccording to the International AirTransport Association (IATA), the volumeof the airfreight market in monetary termsincreased by $3 bln as compared with 2010and amounted to $69 bln.The volume of cargo carried increased to47.7 mn tonnes in absolute terms, whichis 0.6% lower than the result of 2010. Cargoturnover decreased slightly by 0.7% andreached 172.1 Bil t/km. In general, the globalairfreight market continued to develop amidstthe uncertain economic environment thatwas most obvious in Europe. The expectationof the risks related to a second wave ofeconomic crisis and high oil prices continueto influence the market’s development.Index of world trade, 2000=100170160150The most significant activity declineswere observed in the markets of NorthAmerica, Europe and Asia-Pacific. Sincethese three regions account for 86.1% ofthe total airfreight market, the situationis demonstrative of the whole marketin general. Concentration of the businessactivity in these markets is so high that theUSA, China, Japan, Hong Kong and Germanyaccount for over 50% of the total volumeof airfreight in monetary terms. Thus anysignificant changes in these markets resultin serious consequences for the globalairfreight market.Despite the fact that the carriers operatingin the Asia-Pacific region account forabout 40% of the global airfreight market andare most sensitive to market instability, atpresent they are in an advantageous positiondue to large volumes of trade flows from Asiadominating the airfreight market. In particularin October 2011, the ratio of loading of airlinesoperating in the Asia-Pacific region wasan average of 58.8%. This is 12.3% more thanthe average global ratio of 46.5%.11109Jan-07May-07Sep-07Jan-08May-08Sep-08Jan-09May-09Sep-09Jan-10May-10Sep-10Jan-11May-11Sep-11140130120Jan-12Significant impact on the airfreight marketwas produced by the consequences of thenatural disaster in Japan and political eventsin the Middle East and North Africa. A waveInternational FTKs (left scale)World goods trade volume (right scale)

21of demonstrations and protests in the MiddleEast resulted in higher fuel prices. During thesummer of 2011, oil prices were fluctuating ataround 120 USD per barrel.In 2011, Russian airlines carried a totalof 981,484 tonnes of cargo and mail, thusexceeding the result of 2010 by 5.9%.The total cargo turnover of Russian airlinesamounted to 4,926,943 thou t/km, which is4.5% higher than the result of the previousyear. The market leaders in terms of thecarried tonnage were AirBridgeCargoAirlines (285,028 t, 18.7% more than in 2010),Aeroflot Russian Airlines (160,596 t, 1.7%below the results of the previous year), Volga-Dnepr Airlines (62,618 t, 26.7% below theprevious year), Transaero Airlines (51,348 t,27.9% more than a year ago). The reductionin cargo tonnage carried by Volga-Dnepr wasmainly caused by the scheduled reduction ofthe carriage volume under contracts for statecustomers from some countries.Fig. 6.2. Dynamics of the Cargo Turnover by Regions, mln t/km5,943Fig. 6.3. Volume of Airfreight carried by Russian Airlines, 2010-2011240,2206,113Europe -Middle East2010 2011285,02831,16629,474Europe - Asia163,404 160,5966,1726,453Middle East -Asia17,93016,496NorthAtlantic3,1093,462SouthAtlantic28,070 27,602PacificRegion85,37262,61849,421 53,16440,138 51,348AirBridge CargoAeroflotVolga-DneprPoletTransaero2010 2011

22 a new dimensionof the freight businessANNUAL REPORT 2011The segment ofcarriages for the oil andgas industry grew by62%The volume of carriagesfor the aerospaceindustry increased by39%Market of Carriagesby An-124-100In 2011, the volume of carriages by An-124-100 freighters increased by 4% as comparedwith the similar period of the previous yearand amounted to $1,063.3 mn compared to$1,019.2 mn a year earlier. After the periodduring which cargo carriage by An-124-100aircraft was in low demand during early 2011,cargo volumes carried by this type of aircraftbegan growing rapidly in the third quarter ofthe reporting period.In general, the market of carriages by An-124-100 freighters in 2011 was characterisedby tougher pricing competition. In addition,price competition with other types of aircraft(IL-96, Boeing 747) increased in some marketsegments during the reporting period.Fig. 6.4. Volume of the An-124 MarketIn monetary terms, the An-124-100 marketshowed growth in almost all segments.The commercial segment increased by 15%over 2011. The segment of carriages forthe oil and gas industry grew by 62%.The volume of carriages for the aerospaceindustry increased by 39% due to thegrowth of volumes of the Russian aviationindustry, export products and delivery ofsatellite equipment to launch site airfields.The segment of carriages for state customersalso grew strongly by a total of 35%.Market of Carriages by IL-76$mln, 1,200.0$mln, 1,000.0$mln, 800.0$mln, 600.0$mln, 400.0$mln, 200.0$mln, 02003-2%2004+25%2005+3%2006+42%2007+44%2008-15%2009+8%2010+4%20112011 saw a decrease in the total number ofavailable IL-76 aircraft in the market due tothe cancellation of operators’ certificatesfor IL-76 aircraft held by some airlines.Expansion of the EU “black lists” effectedairlines from Georgia, Kazakhstan andKirgizia, as well as aircraft registered

23in these countries. However, some WesternEurope countries (Sweden, France, Spain,the Netherlands, Denmark) still accept IL-76(Stage II) aircraft carrying cargo to the MiddleEast, deeming it a cheaper alternative toIL-76 (Stage IV) aircraft. IL-76 (Stage IV) beingunavailable, cargo carriages to Germanywere performed by IL-76 (Stage II). Lastyear IL-76 (Stage II) aircraft were still widelyused in multi-modal freight carriages fromWestern Europe with road transportationto airports in France (Chateauroux, Vatry),Bulgaria (Burgas), Slovakia (Bratislava),Czech Republic (Pardubice), Serbia(Belgrade, Niš), and Romania (Bucharest).An obvious trend in the segment was thewithdrawal from the market of operators withsmall carriage volumes.Forecast of the MarketDevelopment in 2012According to the IATA forecast adjusted bypost balance sheet events, there will be47.8 mn tonnes of cargo carried in 2012,which slightly exceeds the result of the lastyear. This target will be achieved throughgood performance of carriers from theMiddle East. Nevertheless, the rate of theaviation market’s development will be ratherslow due to high prices for the fuel and theoverall instability of the global economy.This will significantly influence the costeffectiveness of carriers. The net profitof airlines is forecast to reach only $3 blnin 2012, less than in 2011. The margin in theaviation sector will also remain low at 0.5%.According to the IATAforecast adjustedby post balance sheetevents, there will be47,8mn tonnes of cargoThe volume of carriages by IL-76 (Stage IV)increased by 57% as compared with 2010.The geographical coverage of flightsperformed by IL-76 (Stage IV) includedmainly flights to/from Europe as well asto the Middle East and Latin America,carrying commercial and government cargo.In 2011, Volga-Dnepr’s fleet of IL-76TD-90VDmodernised aircraft was supplemented bythe arrival of a fourth aircraft in its fleet.Fig. 6.6. The Global Volume of Carriages,mn tonnes8.4%47.70.2%47.844201020112012F

24 a new dimensionof the freight businessANNUAL REPORT 20117MANAGEMENTOF THE VOLGA-DNEPR GROUPThe topmanagement ofVolga-Dnepr Grouprepresents a combinationof extensive industrialexperience and innovativebusiness approaches,deep understanding ofthe market operatingmechanisms and theability to generateproductive ideas.The Group’s managersinclude specialistsin such areas as theaviation industry, airtransport, finance,HR management andeconomics. The teamspirit and resultorientatedoperationsallow Volga-Dnepr Groupto achieve high resultsunder any conditions.Sergey I. ShklyanikSenior Vice-President,Volga-Dnepr GroupDmitry N. ObsharovMarketing and StrategicManagement Director,Volga-Dnepr GroupAlexey I. IsaykinPresident, Volga-Dnepr GroupVictor I. TolmachevTechnical Director,Volga-Dnepr GroupSergey A. DeryabinHR Director, Volga-DneprGroupCharterOperationsValery A. GabrielExecutive President,Volga-Dnepr Airlines LtdAlexander A. SidorinProduction Vice-President, Volga-DneprAirlines LtdDennis A. GliznoutsaSales Vice-President,Volga-Dnepr Airlines LtdSergey D. PedanFinancial Director –Chief Accountant,Volga-Dnepr Airlines Ltd

25ScheduledOperationsTatyana V. ArslanovaPresident,AirBridgeCargo AirlinesLtdWolfgang MeierSenior ExecutiveVice-President, Sales,AirBridgeCargo AirlinesLtdEvgeny V. BorisovProduction Director,AirBridgeCargo AirlinesLtdAndrey V. KolesnikovFinancial Director -Chief Accountant,AirBridgeCargo AirlinesLtdAtran,Small FreightAviationRoman R. KristalDirector General, AtranLtdAlexander D. SevyanDeputy Director General,Atran LtdSergey N. GorevDeputy Director General,Atran LtdAircraftMaintenanceVictor V. SherinDirector General,Volga-Dnepr TechnicsMoscow LtdKonstantin A. ZorinExecutive Director –Financial Director, Volga-Dnepr Technics MoscowLtdIldar R. IlyasovManaging Director,Volga-Dnepr TechnicsGmbHAlexey V. SdobnovFinancial Director, Volga-Dnepr Gulf (UAE) FZC

26 a new dimensionof the freight businessANNUAL REPORT 2011A newdimensionof the freightbusinessLena River (Russia)Credit: Jacques Descloitres, MODIS Land Rapid Response Team, NASA/GSFChttp://visibleearth.nasa.gov/view.php?id=60586

28 a new dimensionof the freight businessANNUAL REPORT 20118VOLGA-DNEPR GROUPDEVELOPMENT STRATEGYAccording to the 2011results, Volga-DneprGroup was recognisedas one of the15LARGESTairfreight companiesin the world in terms ofrevenue.Mission and General ObjectiveThe mission of the Volga-Dnepr Group is: Webuild reliable air bridges for our partners allover the world. We change the perception ofthe air logistics through our work using ourunique capabilities. We believe that we willattain our goal promoting success of each ouremployee that will secure the overall successof the company.The general objective for 2030: Volga-Dnepr Group is an “eternal” professionalorganization, a leader in the area of the globalfreight aviation industry.In 2011, a major event in the Volga-Dnepr Group’s activitywas its acquisition of Atran Airlines and the launch ofthe Small Freight Aviation project.Key Tasks and Resultsof their Performance in 2011In 2011, the Group’s strategy was aimed atenhancing the efficiency of key productionprocesses, improving labour productivity,development of the marketing and salessystem, training, and professional growthand retention of production and managementpersonnel.One of the main business areas during thereporting period was the work undertaken onthe creation of the scenario strategic plan ofthe Group’s development up to 2030, includingstrategic plans of development of all subgroupsof Volga-Dnepr Group.Charter OperationsTasks for 20111Modernisation of theexisting fleetof An-124-100and IL-76TD-90VDResultTerms of reference for modernisation of the existing fleet ofAn-124-100 were developed, and terms and procedures forthe works performance were identifiedWithin the framework of works for modernisation of theIL-76TD-90VD fleet, a work plan up to 2017 was developedand approved.2Set up of the AirTransport OperationsCentre (ATOC)of XXI centuryResultWe completed construction works in the information centrebuilding, installed information equipment, developed andcommissioned the software products required, deliveredtraining and carried out attestation of the ATOC employees.The ATOC was commissioned after the balance sheet dateearly in 2012.3Developmentof the Marketingand Sales SystemResultThe existing sales system was restructured: we openeda sales office in Japan, expanded the Shanghai representativeoffice, and opened a new sales office in Moscow.

29Scheduled OperationsTasks for 20111Growth of the Sales VolumeResultThe gross profit of AirBridgeCargo Airlinesincreased by 14% as compared with 2010 andreached $767.5 mn.Positive dynamics in the operational resultswere observed: the volume of cargo carriedand number of flight hours increased by 18.6%and 18.3% respectively.2Opening of the USA marketResultIn April 2011, AirBridgeCargo Airlines beganperforming scheduled flights to the USA.3Preparation for the Boeing 747-8Fcommissioning and operationResultWe fully implemented the plan of preparationfor commissioning of the Boeing 747-8F aircraft.A first aircraft of this type joined the fleet afterthe balance sheet date in January 2012.4HR development aimed atachievement of the Company’sstrategic goalsResultWe completed the process of formation ofthe personnel reserve for the managementand flight service. The system for HRmotivation, focused on achievement of thecompany’s strategic goals, was improved.The HR development programme approvedin 2012 was formalised.Aircraft Maintenance and RepairIn 2011, Volga-Dnepr Technics’ prioritywas to create a system for promptand qualitative maintenance of theAirBridgeCargo aircraft fleet. To performthe task set, Volga-Dnepr Technics hiredspecialist personnel, and carried outtraining and certification. The companyalso strengthened its managementstructure. Besides, there were regulationsof the process of interaction betweenVolga-Dnepr Technics and AirBridgeCargoadopted in the course of the lineartechnical inspection, the company’s owncustoms service was set up in Moscowwith a warehouse of spare parts at theDomodedovo airport (Russia).In 2011, a major event in the Volga-Dnepr Group’s activitywas its acquisition of Atran Airlines and the launchof the Small Freight Aviation project.

30 a new dimensionof the freight businessANNUAL REPORT 2011Corporate DevelopmentTasks for 20111Creation of the strategic planfor the Group’s developmentup to 2030ResultWe analysed the current status and prospects ofdevelopment of the airfreight market, assessedall types of internal competences and resourcesof the Group, and developed priority scenarios ofeach sub-group development.This work included, among other things,development of key functional strategies. Workon this was initiated in 2011 and will be carriedout further in 2012.2Development of the advancedmanagement technologiesResultAn instruction on managerial solutionsproduction was prepared.Development of the corporate university wascontinued.Improvements to the quality system wereidentified and a plan for implementation wasdeveloped.A knowledge management centre was set up.Operation of the project office and methods ofthe project management were improved.3Development of the Group’s staffthrough implementation of theselection, motivation, trainingand development programmeResultWork commenced to develop the Group’simage as the best employer in its segment ofRussian civil aviation. Under this framework,a number of actions were carried out in thearea of personnel appraisal and development,improvement of the motivation system, andprocesses to attract employees. A considerableamount of work was performed on cooperationwith the leading Russian aviation universitiesaimed at attracting young specialists.

31Key Tasks for 201212ScheduledOperationsCharterOperationsPriorityProduct quality and operating efficiency to secure future developmentKey tasks and KPIsAttainment of the targets for flight reliability (97.9%), punctuality (55%),DAP (delivered as promised) 75%.Commissioning of three B747-8F.Implementation of personnel retention and training aimed at achievementof the year’s tasks.PriorityExtension of the competitive advantages through fleet development and optimisationof the main process managementKey tasks and KPIsDevelopment of the production base in Ulyanovsk.Creation of the management reserve for the charter operations business.345Aircraftmaintenanceand repairCorporateDevelopmentSmallfreightaviationPriorityPerformance of the agreed order placed by AirBridgeCargo Airlines in compliancewith the price and quality level requiredKey tasks and KPIsApproval and implementation of the production facilities creation strategy.Creation of the technical inspection mobile teams to reducethe downtime required for recovery.Implementation of the technical staff training, attractionand retention programme.PriorityCreation of the Group’s management company at the new level of qualityKey tasks and KPIsProvision of the qualitative improvement of the managerial staff throughimplementation of the selection, motivation, training and development programme.Identification of the management company’s role and place in the system of the Groupmanagement.Development of the corporate university in line with business requirements.PriorityDevelopment of the new viable, profitable business within the framework ofimplementation of the Group’s freight supermarket strategyKey tasks and KPIsActive development of the marketing and sales function.Formation of the managerial and production staff team through the management oftalented and highly qualified specialists.Fleet development on the basis of Boeing 737: commissioning and break-evenoperation.

32 a new dimensionof the freight businessANNUAL REPORT 20119GROUP STRUCTUREThe 2011 organisational model of Volga-Dnepr Group provides for singling out thefollowing 4 key business areas: charteroperations (CO – Volga-Dnepr Airlines Ltd),regular operations (RO – the parent companyis AirBridgeCargo Airlines Ltd), aerotechnicsmaintenance and repair (AMR – the parentcompany is Volga-Dnepr Technics MoscowLtd) and the Small Freight Aviation project(Atran Airlines Ltd).Scheduled freight transportation usingBoeing 747 aircraft of various modifications isoperated by the AirBridgeCargo sub-group.The parent company of the sub-group islocated in Moscow (Russia). AirBridgeCargoAirlines Ltd representative offices arelocated in Frankfurt (Germany), Amsterdam(Holland), Krasnoyarsk, Yuzhno-Sakhalinsk(Russia), Shanghai, Beijing (China). Tokyo(Japan), and Chicago (USA).The key competence of the Volga-DneprGroup includes airfreight transportation allover the world.Volga-Dnepr Group performs its activitieson the basis of the leadership strategy and“cargo supermarket” marketing conceptuniting the following product lines:The Volga-Dnepr Technics Sub-groupcoordinates the activities of such structuralunits as Volga-Dnepr Technics UlyanovskLtd., Volga-Dnepr Technics Moscow Ltd.(Russia), Volga-Dnepr Technics GmbH,Leipzig (Germany) and Volga-Dnepr Gulf(UAE) FZC, Sharjah (UAE), specialisingin aircraft maintenance. charter operations;• scheduled operations;• aircraft maintenance and repair;• small freight aviationThe four key lines of business arerepresented by company sub-groups withstrategic management effected by themanagement company. Additional businessareas constitute a supporting businesssub-group.Within the Volga-Dnepr Sub-group(charter operations) the activity of thefollowing organisations is coordinated:Volga-Dnepr Airlines Ltd and itsrepresentative offices in Beijing (China)and branch in Shanghai (China), Volga-Dnepr UK Ltd. ,Stansted (UK) and its branchin Tokyo (Japan), Volga Dnepr–UniqueAir Cargo, Inc., Houston (USA), VolgaDnepr (Ireland) Airlines Limited, Shannon(Ireland) and Volga-Dnepr Gulf (UAE) FZC,Sharjah (UAE).Carriage of air cargo using small freightaircraft is provided by ATRAN Airlines, part ofthe SFA sub-group.The group structure also includes businesssupport companies established for theproduction of the products and servicesrequired for the four key business areas:charter and scheduled operations, aircraftmaintenance and repair, and small freightaviation, that render services both for theGroup companies and external customers.The business support companies includeVolga-Dnepr Leasing Ltd (implementation ofthe IL-76TD deep modernisation programme),Volga-Dnepr International TrainingNOU (non-state educational institution)(educational services), NIC and NIC-LifeInsurance Companies (aviation and nonaviationinsurance), Volga-Dnepr branches.The Volga-Trucks branch (road carriage)located in Ulyanovsk (Russia) and the branchof Volga-Dnepr Airlines in Moscow (Russia)perform construction, repair, leasing and

33Fig. 9.1. Structural and Process Model of the Volga-Dnepr GroupStrategicManagementMC GPurchase Manufacture SaleCharter operations (CO) Maintenance and repair (M&R) Scheduled operations (SO) Small freight aviation (SFA)Volga-Dnepr Airlines Volga-Dnepr TechnicsAirBridgeCargoAtran Airlines(VD AL)Moscow (VDT Msc)Airlines (ABC AL)(Atran AL)Volga-Dnepr Sub-group(VD Sub-group)Volga-Dnepr Technics Sub-group(VDT Sub-group)AirBridgeCargo Sub-group(ABC Sub-group)Small Freight aviation(SFA)RIAir worthnesssupport (AWS)Air worthnesssupport (AWS)OperationalmanagementVDGulfRSVDIVDUKVDUACVD Gulf/TOVDTUlnVDTGmbhPurchase Manufacture Sale Purchase Manufacture Sale Purchase Manufacture Sale Purchase Manufacture SaleABCEuropeABCJapanABCRussiaABCChinaVDMOVDLNIC MF VTrSupporting businessPurchase Manufacture SaleInteraction through managinginteracions and service provisionInteraction through service provisionoperation of buildings and structures,administrative support, transport service,passport and visa support and objectprotection.The management of the Group is effectedat the strategic level via the ManagementCompany (Volga-Dnepr-Moscow LLC) and atthe operational level via parent companies ofthe sub-groups. The Volga-Dnepr-MoscowLLC management company has beenestablished for the purpose of developmentand control of implementation of the uniformdevelopment strategy, functional strategies,formation of the uniform values of strategicmanagerial decisions taking and control overtheir performance, formation of the Group’sand its sub-groups’ budget, development ofthe uniform for the Group’s structural unitsstandards of management and formation ofthe Group’s managing team.

34 a new dimensionof the freight businessANNUAL REPORT 2011A newdimensionof the freightbusinessSpider Crater (Australia)Credit: NASA image created by Jesse Allen, using data provided courtesyof NASA/GSFC/METI/ERSDAC/JAROS, and U.S./Japan ASTERScience Team. Caption by Michon Scott.http://visibleearth.nasa.gov/view.php?id=8607

36 a new dimensionof the freight businessANNUAL REPORT 201110RISK MANAGEMENT(CORPORATE RISK MANAGEMENT)The risk management system of the Groupprovides for the following four stages of riskmanagement: risk identification (analysis,threat assessment), risk assessment(realisation probability, financial impact, andmanageability), identification of the methodsof response to the risk (risk acceptance,mitigation, risk transfer to the third party,risk aversion), and risk reporting.Risk management is effected at all levelsof the Group as well as in all functional andproject business areas. Below you can findsome risks that Volga-Dnepr Group deemsmaterial for its business.10.1. Key Business RisksProvision of Flight Safetyand Aviation SecurityThe Group’s main priority is flight safetyand the prevention of aviation accidents.The main operational methods thatsupport this include enhancement of thelevel of aerotechnics reliability, personneldevelopment, and improvement and strictcompliance with work techniques. The Grouphas developed and introduced a flightsafety management system using a set ofspecific indicators. This system constitutesthe basis for the constant monitoring offlight safety and if and when required,takes adequate preventative measures.The published principles of the Policy ofthe Aviation Accident Prevention and FlightSafety Management constitute the code ofconduct for all the employees of Volga-DneprGroup and form the basis of the corporatesafety culture. Starting in 2006, Volga-DneprAirlines has been subject to regular IOSAaudits (the audit of operational safety of theInternational Air Transport Association).In the past year, AirBridgeCargo Airlinespassed this audit for the first time.CompetitionThe industry is generally characterised bya high level of competition, however theunique product offering of Volga-DneprGroup has enabled it to secure its stablemarket position and allows it to demonstrategrowth in the key performance indicators.The opening of new routes, developmentand moderniation of the fleet, training ofqualified staff, improvement of the customerservice system, constant improvement ofservice quality and extension of their range,e.g. the introduction of unique and oversizecargo logistics services, minimise marketcompetition risks.The Risk of Aviation Fuel Price GrowthThe growth of the aviation fuel priceis a material adverse factor effectingoperations of the Group. Measuresfor counteracting this risk includemodernisation of the company’s fleet (bothof the existing aircraft and purchase ofnew ones with higher fuel efficiency), andenhancement of carriage managementefficiency. The latter point implies reductionof flights without cargo, optimisation ofthe route network and schedule of aircrafttraffic in the airport, as well as of the takeoffand landing cycles. In addition, the Groupbuilds mutually beneficial partnershiprelationships with suppliers on the basisof long-term contracts. In February2011, Volga-Dnepr Airlines Ltd concludeda contract with the Aerofuels Group andGazpromneft-Aero CJSC on the long-termsupply of aviation fuel for the airline’saircraft. Due to the contracts made, thecompany is able to efficiently hedge risks

37from the aviation fuel price change andguarantee supply of the particular volumeof fuel, minimising the risk of aviationkerosene purchase at higher prices. Duringthe reporting period, the company alsoconsidered the possibility of cooperationwith TNK-BP Holding OJSC.Regional and Legal RisksVolga-Dnepr Group is an internationalholding with 80% of its operationsconcentrated outside the Russian Federation.For this reason the Group’s activity issubject to various regional and countryrisks. Both the countries where the Groupcarries out its activities and internationalregulatory bodies pay special attention tothe rules of air carriage performance andrequirements made to airlines. To minimisethe influence produced by such risks, thecompany’s staff perform monitoring ofchanges made to regional and internationallaws, bringing their activity in line with newrequirements set by regulatory bodies.The Group carries out its activities in fullcompliance with the best internationalpractices and it has been certified byinternational and national regulatory bodies.At the same time, the Group is subject tothe global macroeconomic risks that havebecome more acute due to the crisis eventsin Europe. However, the structure of theGroup’s freight carriage and income is welldiversified by region which makes it possibleto overcome potentially negative economictendencies in some regions. Minimisation ofthis risk factor is also secured by constantoptimisation of the route network witha view to the changing macro-regionaltrends and volatility of global cargo flows.Development of the carriage network isdriven by new growth centres in the globaleconomy.Environmental RisksPaying closer attention to the issues ofenvironmental protection and the rationaluse of resources render the environmentalpolicy an important component of Volga-Dnepr Group’s business. The companyconsistently takes measures to minimiseits negative impact on the environment andall plans for the Group’s development arebeing created with this commitment in mind.The company constantly modernises itsaircraft to ensure they meet all current andprospective requirements for the emissionof harmful substances into the air and noise.In particular, the Group has implementeda project for construction of the ecologicallyfriendly IL-76TD-90VD aircraft with modernPS-90A-76 engines that meet all ICAOrequirements. Moreover, the project toresume production of the An-124 Ruslanfamily aircraft provides for the – creation ofa new generation aircraft that complies withinternational requirements due to be in effectat the time of its proposed commissioningin 2020.

38 a new dimensionof the freight businessANNUAL REPORT 201110.2. Financial RisksThe reporting period was characterisedby a high level of uncertainty in the globalfinancial markets caused by debt problemsexperienced by Eurozone countries,a slowdown of development in the world’sleading economies, natural and technologicaldisasters, and social and political eventsin some African and Middle Easterncountries. However, the financial resultsachieved by Volga-Dnepr Group in 2011demonstrate the effectiveness of the financialrisk management system adopted by thecompany. During the acute phase of theglobal economic crisis during 2008-2009,the Group was able within a short period oftime to implement an efficient cost reductionprogramme.The Currency RiskReceipts and obligations denominatedin various currencies result in the currencyrisk occurrence, with fluctuations ofcurrency risks influencing financialperformance of the company. To reducethis risk, the Group carries out a policy ofbalancing its receipts and obligations in eachcurrency.The Credit RiskThe credit risk occurs as the result of thefailure by counterparties to perform theirobligations to the company. To minimise thisrisk, the Group executes constant controland monitoring of the financial standing of itscounterparties. The credit risk also arisesin relation to the banks acting as guarantorsof counterparties’ obligations. In relation tothe banks issuing guarantees, the companyperforms assessment of their financialstanding based on the accounting dataand on the results of the analysis definingthe maximum limit under operation withbank guarantees from a particular creditinstitution.The Loss of Liquidity RiskTo minimise the loss of liquidity risk, thefinancial services of the Group carry outaccurate planning of the monetary inflowsand outflows to identify possible deficitthat in this case will be covered throughshort-term financing from partner banks.To promote the opportunity of additionalfinancing, the Group performs systematicwork to support its high financial andbusiness reputation.

A newdimensionof the freightbusiness39Selenga River (Russia)Credit: Astronaut photograph ISS029-E-37915.Caption by William L. Stefanov, Jacobs/ESCG at NASA-JSC.http://visibleearth.nasa.gov/view.php?id=66586

40 a new dimensionof the freight businessANNUAL REPORT 201111BUSINESS AREASThe revenue fromoperation of the IL-76TD-90VD modernisedaircraft increased by34%11.1. Charter OperationsOne of the key business areas of Volga-Dnepr Group is air charter transportationfor cargoes using An-124-100 Ruslan andIL-76 freighter aircraft operated by Volga-Dnepr Airlines Ltd. Volga-Dnepr Airlinesis the leader of the global over-size andheavy cargo market. The airline’s customersare such major industrial, transport andlogistic companies as Lockheed Martin/United Launch Alliance, Thales Alenia Space,Eurocopter, Space System Loral, SikorskyAircraft, Russian Aircraft Corporation “MiG”FGUP (Federal State Unitary Enterprise),Rosoboronoexport, General Electric, BritishPetroleum, Exxon, Siemens, MitsubishiHeavy Industries, The Boeing Co., as well asthe U.S. and European Union governments,and international humanitarian andgovernmental organisations. Volga-DneprAirlines is also a regular participantin international humanitarian aid andpeacekeeping missions.According to the 2011 results, Volga-DneprAirlines’ results were comparable withthose for 2010. Operating income for 2011amounted to $899.7 mn, which is 0.6% belowthe similar ratio for 2010. The revenue fromoperation of the IL-76TD-90VD modernisedaircraft increased by 33.5% from $55.8 mn upto $74.5 mn.In 2011, Volga-Dnepr carried 62,618 tonnesof cargo, 26.6% less than in 2010. In terms ofthe carriage volume, Volga-Dnepr Airlineswas ranked third among Russian carriersbehind AirBridgeCargo Airlines – alsoowned by Volga-Dnepr Group – and Aeroflot-Russian Airlines. Cargo turnover for 2011 fellby 23% as compared with 2010 and reached384,472 thou t/km. This reduction in the keyperformance indicators was mainly causedby a scheduled reduction of work volumeunder contracts made with governmentalcustomers.During the reporting period, the companycontinued to implement its strategy aimedat enhancement of the airline’s operatingefficiency. The key business areas included: Optimisation of the sales system and theopening of a new sales office in Japan;• Reallocation of availability of the carryingfacilities in line with market trendsin favour of the market commercialsector, including the oil and gas andaerospace industries;• Entering a new market segment – charteroperations by small aircraft;• Development of the service to providecomplex logistics services for uniqueoversize cargo;• Further improvement of the air staffprofessional training system.In 2011, the company continued to work underjoint international projects in the market ofair cargo charter operations , such as RuslanSALIS and Ruslan International.The Ruslan SALIS project is the first largescaleinternational project for provisionby Russian and Ukrainian companiesof highly technological services to theirEuropean partners in the aviation sector.The German company Ruslan SALIS GmbHrepresents the interests of Antonov GC andVolga-Dnepr Group within the frameworkof their participation in NATO’s StrategicAirlift Interim Solution (SALIS) programme.According to the contract signed in 2006,Ruslan SALIS shall deliver to the projectparticipants (at present represented by 16 EUand NATO countries) 6 An-124-100 aircraft ata time. In 2011, within the framework of the

41Ruslan SALIS project, there were 332 flightsperformed and 21,485 tonnes of cargocarried, 23% less than in 2010.Ruslan International Ltd. is a joint ventureset up by Volga-Dnepr Airlines and AntonovGC in 2006. It is a uniform marketing agentfor the two airlines in the internationalmarket of cargo transportation by An-124-100 aircraft. Joint use of the fleet ofboth airlines allows them to provide theircustomers with a higher quality servicedue to the increased availability of theaircraft, the creation of a more flexible flightschedule and cooperation in the area ofaircraft maintenance. Ruslan Internationalis designated to enhance the service qualitythrough use of the united experience of thetwo An-124-100 operators as well as efficientuse of the joint fleet, loading equipment andmaintenance bases. The two founding airlinescontinue to fly as independent operators.In total, Ruslan International operates 17 An-124-100 Ruslan aircraft (10 aircraft belongto Volga-Dnepr Airlines and 7 to AntonovGC). Within the framework of the RuslanInternational project, in 2011 there were696 flights performed and 40,734 tonnes ofcargo carried, a growth of 15% over 2010.In 2011, Volga-Dnepr Airlines continuedto develop the segment of internationalcargo movements using IL-76TD-90VDaircraft. In December 2011, the companycommissioned its fourth aircraft of thistype. In pursuance of the contract for thepurchase of the IL-76TD-90VD aircraft madeat MAKS-2007 with Joint Stock Company“United Aircraft Corporation – TransportAircraft” (UAC), the company performsfurther work on completion and deliveryfor commissioning of a fifth aircraft.The construction is performed at theTashkent Aviation Production AssociationVolga-Dnepr Airlines performs air cargo charter flightstransporting unique and over-size cargo using its uniquefleet of An-124-100 Ruslan, IL-76 and small aircraft(An-12, An-26, An-72).named after V.P. Chkalov (Uzbekistan).The fifth IL-76TD-90VD was introduced intothe Volga-Dnepr fleet after the balancesheet date in Q2 2012.In 2011, Volga-Dnepr Group, together withUAC, began working on the creation of thetechnical design of the IL-76 civil versionplanned to be manufactured at Aviator-SPCJSC in Ulyanovsk.As well as air carriage, Volga-Dnepr Groupoffers ‘door-to-door’ services for thecomplex logistics of oversize, heavy andother cargo, including multi-modal carriageschemes using road, railway and watertransport worldwide. To resolve these tasks,the Group has set up a special Engineeringand Logistics Centre with offices in Russia,the UK and USA working 24 hours a day,7 days a week, 365 days a year.The An-124-100 Ruslan has no direct comparisonin the world among ramp aircraft. The record cargocapacity of the aircraft of 120 tonnes allows it to solvethe most complex logistics challenges. Within theframework of the programme to modernise Volga-DneprAirlines’ fleet, a lot of modifications were made to theAn-124-100 to prolong the initial service life of theaircraft and of the components purchased, which madeit possible to continuously operate the fleet of theseaircraft.

42 a new dimensionof the freight businessANNUAL REPORT 2011The IL-76TD aircraft are designated to carry oversize,unique and general cargo weighing up to 50 tonnes.Starting in 2002, Volga-Dnepr Group has beenimplementing a programme for modernisation of theIL-76TD aircraft, the key element of which is installationof new PS-90A-76 engines. These new power units complywith the current and future requirements set by ICAOin relation to the emission of harmful substances intothe air and aircraft noise. As at the end of 2011, Volga-Dnepr Airlines’ fleet included four modernised IL76TD-90VD aircraft.The range of services offered by theEngineering and Logistics Centre includes: Provision of on-ground equipment atloading/unloading airports;• Land carriage of cargo to/from an airport,including receipt of all permits required;• Technical expertise and the cargo’spreparation for carriage;• Development and manufacture of specialcarriage complexes for a particularproject;• Consultations on possible methods ofa particular cargo movement includingrecommendations on its packing andpreparation for carriage;• Assistance with cargo customs clearanceand insurance;• Use of small aircraft (An-12, An-26, An-72) to ensure the most efficient servicecost for customers.11.2. Scheduled OperationsAirBridgeCargo Airlines, owned by Volga-Dnepr Group, performs scheduled cargotransportation using its modern fleet ofBoeing 747 freighter aircraft.Customers of AirBridgeCargo Airlinesinclude major global logistics and industrialcompanies, such as DB Schenker, Panalpina,DHL, Inditex, Dachser, TNT, CYTS, CTD, DSV,and Kerry Logistics.According to 2011 results, the operatingincome of AirBridgeCargo Airlines rose to$767.5 mn, an increase of 14.1% over in 2010.Overall, the company recorded a loss.The decrease in the airline’s profitabilitywas caused, in particular, by a reductionin revenue on flights from China, which wasnot fully compensated for by other routesectors, such as Europe and the UnitedStates. In addition, during the reportingperiod there was a considerable growth in theairline’s expenses for aviation kerosene in theglobal market and in Russia (in Russia +37%,in Europe and China +27%). Another factorthat significantly influenced the company’sprofitability was the late delivery of its newBoeing 747-8F aircraft.Last year, AirBridgeCargo Airlines rankedfirst among Russian airlines in terms of thevolume of cargo and mail carriage, securingthe transportation of 285,028 tonnes,which is almost twice annual tonnages ofits closest competitor Aeroflot – RussianAirlines. Compared with 2010, the volume ofcargo carried grew by 18.7%. In 2011, cargoturnover amounted to 2,372,145 thou t/kmexceeding the 2010 result by 15.3%.Average load factors for AirBridgeCargoaircraft increased from 53.8% in 2010up to 71% in 2011. Flight regularity wasat the level of 97.9%. The departure andlanding punctuality ratio was 47.6% and41.7% respectively. In 2011, AirBridgeCargocontinued to implement its strategy in keybusiness development areas. AirBridgeCargoimproved its tonnage ratios in all marketsegments and was awarded a higher rating

43among all key consignors. In the key markets,in particular in Germany, the airline retainedits position as the major freight operatordeparting from Frankfurt based on an annualcompetition by the largest handling companyat Frankfurt airport, Fraport Cargo Services.The achievement of such high results waspromoted by further implementation of thestrategy to develop long-term cooperationwith key customers and reduce the imbalancein two-way cargo flows.During the reporting period, the companycontinued to develop its route network.AirBridgeCargo Airlines was the firstairfreight company to commence scheduledcargo flights between Russia and the USA.The carrier began performing charter flightsto Chicago three times a week using one ofits Boeing 747-400 freighters. Accordingto the results for the year, AirBridgeCargoaircraft flew to over 20 destinationsin 12 countries.After the balance sheet date,AirBridgeCargo Airlines Ltd successfullypassed the IOSA safety audit, thus provingthe high quality of its operations in line withinternational standards. To ensure productquality, the airline created an internalquality monitoring system. This systemsecures availability of 90% of informationabout cargo moving in the airline’s networkand incorporates and records key indicatorsin accordance with the airline’s regulations.A special IT platform has been introducedallowing the company to execute control,perform analysis and prepare statements,and support close cooperation with allparticipants of the logistics chain (servicingcompanies, customers, IT providers).The platform is used for the messageexchange between the airline and itscustomers.Last year, AirBridgeCargo carried on withwork aimed at introducing paperless,electronic freight documentation.In particular, it completed the technologywork to meet Russian and internationalstandards: E-Freight on routes fromAmsterdam (The Netherlands) to Chicago(USA) and using paper technologiesin compliance with Russian laws. It alsosuccessfully introduced a system forpreliminary cargo customs declarationsin the USA territory – and no violations onthis route were identified during the periodof work. The company keeps on working onextending its use of E-Freight technologywithin the framework of the existing bookingsystem. Work has also been carried outon the creation of a uniform IT system forAirBridgeCargo that will include modules forcargo customs clearance, shipment tracking,and operating expenses control.Already in 2011, hub operations at theDomodedovo and Sheremetyevo airportsin Moscow accounted for over half of theinternational cargo flow transported byAirBridgeCargo Airlines, securing the leadingposition of the company in Russia in terms ofhub operations. According to the 2011 results,the volume of transfer cargo increasedby 26% to 66.1 thou tonnes (comparedwith 52.5 thou tonnes in 2010). The carrier isFlight regularity was atthe level of98%AirBridgeCargo Airlines uses highly efficient freightaircraft of the Boeing 747 family, representingan excellent combination of such important features ascargo capacity and flight distance. Due to its cuttingedgetechnologies and modern equipment, the Boeing747 is able to carry any type of cargo, including thoserequiring special handling and temperature controlledconditions.

44 a new dimensionof the freight businessANNUAL REPORT 2011The volume ofAtran sales in 2011amounted to$11,2mnstill ranked third in terms of freight volumeat Domodedovo Airport with a throughputof 14 thou tonnes.As the AirBridgeCargo fleet is supplementedwith new Boeing 747-8F aircraft, theproject for the second hub developmentis becoming the priority. This hub willbe used to perform cross-polar flightsbetween Asia and the USA. The company isconsidering the Tolmachevo (Novosibirsk),Koltsovo (Yekaterinburg) and Emelyanovo(Krasnoyarsk) airports as potential airportsfor the next stage of its hub operationsdevelopment.11.3. Small Freight AviationIn the market for the carriage of cargoonboard small capacity freight aircraft, theGroup is represented by Atran Ltd, whichjoined Volga-Dnepr Group in May 2011.During the reporting period, Atran operatedthree An-12 aircraft. The volume of Atransales in 2011 amounted to $11.2 mn,exceeding the 2010 result by 16%.The net profit for 2011 was $547 thou.(in 2010 – $5 thou).The cargo turnover of the company andthe total tonnage of cargo carried in 2011remained practically at the same levelas in 2010. In 2011, the airline performed357 flights, 6% more that in the year before.The total number of flights in 2011 reached2,700 flown hours (2% more than in 2010) andwas in line with the planned annual numberof flights of 1,000 hours per the list number ofaircraft.The market for small capacity aircraftwas characterized by a significant reductionin the An-12 aircraft fleet as a result oftheir writing-off as well as termination ofAn-12 operations by principal competitors(AVIASR AIR Airlines Ltd, Avial NV AirlinesLtd, Airstars Aircompany Ltd, MoskoviaAirlines OJSC). Now, there are only twooperators of An-12 aircraft left in theCentral European part of the RussianFederation – Artran Ltd and Kosmos AirEnterprise CJSC.The principal customer of the airline in 2011was the world’s largest express and couriercompany, UPS. Atran has been cooperatingwith UPS since 1994. This long-termpartnership is secured by the high qualityand reliability of the Atran service. Duringthese 17 years Atran has demonstratedflight punctuality at a level in excess of 99%.In 2011, flight punctuality was 99.4%, which ishigher than the average ratio within the UPSfleet.In 2011, the company performed 254 flightsfor UPS on the route linked Moscow – Malmö(Sweden) – Moscow (Russia) with a flightfrequency of 5 times a week (on weekdays).Until May 30, 2011 Atran performed flightsfor UPS from the base airport of the airline –Domodedovo (Moscow). Since June 2011,Atran – at the request of UPS – beganperforming flights from Vnukovo Airport(Moscow). The transfer of flights to Vnukovowas preceded by serious preparation ofthe airline’s own subdivisions and workscoordinated with UPS. They agreedoperational schedules of the flights andagreed advantageous contracts with theVnukovo Airport’s enterprises. All of theseactions secured the success of the flighttransfer from Domodedovo to Vnukovo.In 2011, the company held furthernegotiations with UPS on the Jet project to

45replace An-12 aircraft with Boeing 737F andto transfer flights from Malmö (Sweden) toCologne (Germany).11.4. Flight SafetyVolga-Dnepr Group systematicallysupports the high level of aerotechnicsair worthiness and invests funds into thetraining of production staff to secure safeoperation and maintenance of Russian andforeign manufacture aircraft in compliancewith international standards. The generalbusiness area remains further introductionand development of proactive forms:prevention of air accidents and managementof flight safety in compliance with ICAOideology and operational experience of theworld’s leading airlines.The structure of the Group’s airlines includesflight safety and aviation accident preventioninspectorates (FS&AAPI). Activitiescoordination and methodical managementaimed at prevention of air accidents isimposed on the relevant department ofthe management company. The publishedprinciples of implementation of the Policy ofthe Aviation Accident Prevention and FlightSafety Management constitute the code ofconduct for all employees of Volga-DneprGroup and form the basis of the creation of itscorporate safety culture.The Group has its own system for flightsafety management. It performs continuousmonitoring of flight safety levels using a setof special directive ratios.According to the 2011 results, theactual flight safety level recorded byAirBridgeCargo Airlines was much betterthat the directive ratio with 0.10 accidentsper 1,000 flights compared to the target levelof 0.45.In 2011, the actual safety level achieved byVolga-Dnepr Airlines was also better thanthe directive values and against the targetratio of Ctarg=1.11, it reported 0.75 accidentsper 1,000 flights performed.In 2011, both airlines worked on preparationfor the IOSA flight safety audit to meetthe highest IATA standards. This auditis a prerequisite for confirmation ofmembership of this highly respectedorganization. This was the third time thatVolga-Dnepr Airlines has successfully passedthe flight safety audit since 2007. The newcertificate is valid until April 2013. 2011was the first audit year for AirBridgeCargoAirlines and the audit results showed thatthe safety standards adopted by the companyare of a high level. AirBridgeCargo Airlineswill be issued with an IOSA certificate in 2012and will join Volga-Dnepr Airlines, which hasbeen the only Russian freight carrier to holdthe safety certificate so far.In the reporting year, Volga-Dnepr Airlinescontinued operating a full-scale trainer (FST)of the An-124 aircraft that was designed andbuilt at the Group’s own expense. Introductionof the trainer into the air staff professionaltraining system and the training resultsobserved undoubtedly demonstrate thekey role of the FST in the prevention of airaccidents. This year, the company purchaseda trainer mobility system and introduction ofthis will further enhance training efficiencyand quality.Striving for further improvement of the flightsafety management system, in 2011 Volga-Dnepr Airlines together with the UlyanovskState University continued working on the

46 a new dimensionof the freight businessANNUAL REPORT 2011creation of the Automated System of AviationAccident Forecasting and Prevention. Thisproject is being implemented in pursuance ofthe Russian Government’s decree No. 218 oncreation of highly technological equipment.The project is financed on a parity basis bystate subsidy and the own funds of the airline.Leading scientists specialising in flight safetyand management have been engaged to workon the project as experts and consultants.The project is expected to be completedin December 2012.11.5. Aircraft Maintenanceand RepairIn 2008, aircraft maintenance and repair(M&R) was separated into an individual line ofthe Group’s business under the brand “Volga-Dnepr Technics” (VDT), which was set up onthe basis of the existing M&R bases. Thisallowed for reducing costs and enhancingthe quality of the Group’s aviation fleetmaintenance. Another line of the company’sbusiness was rendering aircraft maintenanceservices to third party airlines.In 2011, Volga-Dnepr Technics’ revenueamounted to $26 mn, of which $14.5 mnwas generated from services provided tothe Group’s own airlines and the remaining$11.5 mn was earned from servicesdelivered to external customers. Labourworks on linear maintenance amountedto 82,769 standard hours, including additionalworks. A network of operational complexesperforming M&R services for Russian andforeign-built aircraft created by Volga-DneprTechnics includes four main centres:Volga-Dnepr Technics Moscow Ltdperforms prompt maintenance of theBoeing 747 family aircraft (pre-flight,daily check, service check), Boeing 737(pre-flight, daily check, service check,A-check) and renders associatedservices in the territory of the twomajor Moscow airports – Sheremetyevoand Domodedovo. Maintenance of theBoeing 747 family aircraft is performedby the linear maintenance stationlocated at the Emelyanovo airportin Krasnoyarsk;• Volga-Dnepr Gulf (UAE) FZC (Sharjah,UAE) renders services for prompt andperiodical maintenance of Russian-builtaircraft (An-124, An-24, An-26, An-32,An-74, IL-76);Volga-Dnepr Technics Ulyanovsk Ltd(Ulyanovsk Vostochny, Russia) wasset up on the basis of the Volga-DneprAirlines’ maintenance station that hadbeen in operation for over 20 years.The enterprise performs maintenance ofthe An-124-100 and IL-76 aircraft;• Volga-Dnepr Technics GmbH (Leipzig/Halle, Germany) was set up as the RuslanSALIS GmbH maintenance station, whichhas been operational since 2006. Thisenterprise specialises in Boeing 747-200/300/400 and An-124-100 aircraftmaintenance.In the reporting period, Volga-DneprTechnics increased its customer portfolioby signing maintenance agreements withsuch major airlines as Aerosvit AirlinesCJSC, JSC Kogalymavia, NorthwindAirlines, Donavia OJSC, and OrenburgAirlines FGUAP. Last year, the companyalso extended its network of componentsand spare parts suppliers all over the worldand increased mobility of service provision.Strategic agreements were signed with such

47companies as SPM Components & Support,Aircraft Maintenance Connections, EverestVIT GmbH, Air Spares, and others.As regards business development, Volga-Dnepr Technics successfully used mobileairsheds to secure maintenance of aircraftengines in complex weather environments.Last year, the company also worked on thecreation and introduction of a system forprompt and qualitative aircraft recovery thatallowed it to reduce the average downtimerequired for recovery by 20%.In relation to certification and licensing,in 2011 Volga-Dnepr Technics Ulyanovskconfirmed its certificate for the linearmaintenance stations at the Sheremetyevo,Domodedovo and Emelyanovo (Krasnoyarsk)airports. It also obtained a certificatefor maintenance of the Boeing 747-8and Boeing 737-300/400/500 aircraft.These certificates cover operations ofthe linear maintenance of Boeing 747-8and maintenance of Boeing 737 aircraftin the volume up to A-check. Volga-DneprTechnics GmbH was issued with Europeantypeaviation specialists licences EASAPart-66. In addition, the M&R base in Leipzig(Germany) was awarded a certificatefrom European aviation authorities (EASAPart 145) authorising it to perform aircraftmaintenance works on the Boeing 747-200/300/400. Volga-Dnepr Technics GmbHwas the first Russian enterprise to becertified under this system in the territoryof the European Union.As regards personnel development duringthe reporting period, the companies of theVolga-Dnepr Technics Sub-group hired newhighly qualified employees for the linearmaintenance station, the group responsiblefor defect elimination coordination.The company implemented a programme toattract foreign staff with proven productionexperience. Throughout the year thecompany was active in training deliveryand further education of the operatingstaff, including employees in engineeringand procurement services. Employees ofVolga-Dnepr Technics also received trainingin operating a new type of aircraft, theBoeing 747-8F.Company plans for 2012 includeorganisation of work on the creation ofmobile maintenance teams to furtherreduce downtime by 20% throughoutthe route network and by 40% at its ownmaintenance stations. The companywill by its own forces organise promptmaintenance (A-check) at the networkenterprises. One of the most importantbusiness areas will be implementation ofthe programme for training as well as theattraction and retention of engineering staff.Company plansfor 2012 includeorganisation of workon the creation ofmobile maintenanceteams to furtherreduce downtime by20%throughout the routenetwork

48 a new dimensionof the freight businessANNUAL REPORT 2011to $5.2 mn, which exceeds the 2010 resultby 19%.The total number of operations performedby Volga-Trucks in 2011 was 4,200 withthe volume of carriages amounting toover 180 tonnes of cargo under contractswith AirBridgeCargo and Volga-DneprAirlines. During last year the companycontinued implementing the project fordevelopment of freight carriage usingrefrigerated vehicles. In 2011, Volga-Truckscarried over 3,600 tonnes of cargo in thismarket segment.Revenue from roadtransportation servicesamounted to$5.2mn.11.6. Supporting BusinessesAuxiliary businesses of Volga-Dnepr Groupsupport the operating activities of the Group’sairlines and allow them to improve the qualityof customer service through the provisionof additional services in areas related to theprimary activity of the company.11.6.1. Volga-TrucksVolga-Trucks is a branch of Volga-DneprAirlines Ltd and is located in Ulyanovsk.It was established in 1997 and specialisesin road transportation allowing Volga-Dnepr to offer its customers delivery ofcargo directly to the point of destination,including land carriage. In 2011, thecompany performed road transportation forAirBridgeCargo and Volga-Dnepr Airlinesflights operating from SheremetyevoAirport in Moscow to locations in CentralRussia, Volga region, and Southern andNorth-Western districts. Revenue fromroad transportation services amountedVolga-Trucks is a member of theInternational Automobile TransportationAssociation and holds a customs carrierlicence which allows it to perform roadtransportation using the customs transitprocedure. The company’s fleet includesvehicles manufactured by Volvo, Mercedes-Benz and Scania and these are used fortransportation of general, customs and bulkfreight.11.6.2. NIC Insurance CompanyAccording to the 2011 results, NIC InsuranceCompany CJSC, established in 1995 to providereliable insurance protection of the Group’s airfleet, was ranked 10th in terms of insurancepremium collection among other insurancecompany members of the Russian Associationof Aviation and Space Insurers (RAASI).In 2011, the total amount of insurancepremiums under direct aviation insurancecontracts showed insignificant growth –by 4.4% (8,557.8 mn rubles). According tomarket trends, the share of payments underhull insurance policies increased by 21% overthe year to 85.3%.

49In 2011, NIC Insurance Company CJSC –acting together with the management ofVolga-Dnepr Group and insurance brokerWillis Ltd – was able to decrease thecombined tariff applied to the hull andcivil liability policies by 16% instead of theplanned 10%, while the average decreasein the global market was at the level of 11%.Thus the company was able to save 400 thouUS dollars despite a 19% increase in theGroup’s fleet cost.Besides aviation insurance, NIC InsuranceCompany provides the personnel of allthe structural units of the Group withcorporate insurance protection withinthe framework of employment benefits.This includes voluntary health insurance,accident and incapacity insurance. NIC alsooffers services to the Group employees forinsurance of their private vehicles, propertyand liability. According to the 2011 results,payments under all insurance productsamounted to 72,198 thou rubles.The development strategy of the NICInsurance Company up to 2020 wasapproved in November 2011 and is focusedon performance of the tasks set before theGroup in the areas of the aviation insurance,flight safety management and air accidentprevention, as well as personal insuranceof employees. NIC assists the Group withperformance of its task to become one ofthe three leaders in the industry in terms offlight safety ratio. NIC Insurance Companyalso engaged in work on aviation accidentprevention and flight safety management asan accident forecasting expert.According to the 2011results, paymentsamounted72,198thou rublesIn 2011, NIC-Life Insurance CompanyLtd, which offers life insurance andsupplementary pension payment servicesto the Group’s employees, effectuatedpayments for the total amount of 18,641 thourubles. The number of the Group’semployees reaching the pension age andreceiving supplementary pension paymentsincreased to 106 persons as at the endof 2011.In 2011, NIC Insurance Company continuedworking to extend the list of its long-termreinsurance partners. This already includesleading international insurance companiessuch as Chartis, Aspen, Partner Re, Allianz,Liberty, Torus, La Reunion Aerienne, Lloyd’ssyndicates, and others.Fig. 11.1. Structure of the Insurance Portfolioby the Underwritten Premium for 20111% 1% 3% 2%12%81%Aviation insurance 346,612,797 rublesVoluntary health insurance (VHI) 51,672,906 rublesUPP 3,975,409 rublesAccidents 4,605,776 rublesProperty other than avia 13,891,248 rublesIncoming reinsurance 6,070,177 rubles

50 a new dimensionof the freight businessANNUAL REPORT 2011A newdimensionof the freightbusinessSeattle (USA)Credit: Images courtesy NASA/GSFC/MITI/ERSDAC/JAROS,and U.S./Japan ASTER Science Team and Paul Morin, University of Minnesota.http://visibleearth.nasa.gov/view.php?id=1218

52 a new dimensionof the freight businessANNUAL REPORT 201112DEVELOPMENT PROJECTS12.1. Projects for Resumptionof An-124 Family AircraftMass ProductionOver more than 20 years of operation in thecommercial market, the An-124 has becomean essential tool used in the complexlogistics of super-heavy and oversize cargoand has no aircraft equivalents in the world.Volga-Dnepr Group is an active participantin the project for resumption of An-124 massproduction. In 2011, within the framework ofthis project, Volga-Dnepr Group continuedto interact with competent ministriesand agencies regarding performance ofthe Russian President’s commissions toorganise production of the An-124 aircraftfor needs of the Ministry of Defence ofthe Russian Federation. In particular, thecompany rendered assistance to regulatorybodies with identification of the technicaldesign of the new aircraft and developmentof the technical and economic assessmentof the An-124 production resumption atAirstar-Sp CJSC. In 2011, the company alsoformalised the list of commercial customersof the modernised An-124 aircraft on thebasis of the applications received by JSCUnited Aircraft Corporation.One of the major events that took placeduring the reporting period was thesignature in the course of the InternationalAviation and Space Salon MAKS-2011 of theDecision “On the Procedure for Performanceof R&D Works on Modernisation of thefirst An-124-100-150 (An-124-100) aircraftoperated by Volga-Dnepr Airlines Ltd.According to the R&D Terms of Reference,the modernised An-124-111VD will have thefollowing characteristics: take-off weight –402 tonnes, cargo capacity – 150 tonnes,range with 120 tonnes of cargo – at least5,000 kilometres, and the minimum numberof the crew members – three persons.In addition, the parties developed andapproved the schedule of the R&D worksperformance. The aircraft will be equippedwith modernised D-18T series 3M enginesfitted with the FADEC digital control systemwith the resource of 50,000 hours and11,111 cycles. Environmental features of theengine will be in line with the internationalrequirements on the level of harmfulsubstance emissions in compliance withAppendix 16 ICAO volume 2 (includingamendments up to the 6th) and noisein compliance with requirements stipulatedby chapter IV Appendix 16 ICAO.Moreover, the company carried onperforming other works to attractthe Ukrainian party to the productionresumption project. There was an activediscussion of the draft intergovernmentalagreement on state support of An-124production resumption in the line of theMinistry of Industry and Trade of theRussian Federation, RF Government Office,RF President Administration and otherspecialised ministries and agencies.During the reporting period, the Group’srepresentatives also held furthernegotiations on the issue of Americancompanies participating in the project andtheir inclusion into the processing chain ofthe aircraft manufacture.

53SOCIAL RESPONSIBILITYAND PERSONNEL DEVELOPMENT1313.1 Personnel DevelopmentAccording to the goals of its strategicdevelopment, the Group is trying to becomethe most attractive employer in Russian civilaviation.The ambitious goals set by the companyin the area of active business developmentin the Russian and international freightcarriage markets and its striving forindustry leadership require a proactiveand professional approach to its staffdevelopment policy.Volga-Dnepr Group employs only themost qualified specialists with thegreatest potential for further professionaldevelopment. It forms its personnel reservethrough regular and active cooperation withuniversities and has also implemented itsown “Young Generation” programme.Last year, the headcount of the Groupincreased by 10.8% to reach 3,270 personnelat the end of the year.During the reporting period, the mainevents aimed at attracting new personnelincluded the Doors Open Day forAirBridgeCargo air staff, which includeda tour around the Boeing 747-400F aircraft,and successful implementation of theprogramme for training commercial staffentitled “Commercial Service Incubator”.Based on the successful results of this,Volga-Dnepr Airlines employed five youngspecialists.Another key line of the Volga-Dnepr businessin the HR area is improvement of labourproductivity up to the level of global industrystandards. The company solves this task byway of employee training and education, thedevelopment and introduction of modernsystems of education, improvementsin working conditions, and the introductionof modern production and managementtechnologies.The total amount allocated for personneleducation and training in 2011 was$1.6 mn, which is comparable with the 2010investment.Today, Volga-Dnepr is actively working ondevelopment of the production ties betweenGroup companies and the enhancementof interaction efficiency, knowledge andexperience exchange among specialists ofits various subdivisions. In particular, toimprove interaction between the companiesand to enhance the quality of services offeredto customers, in 2011 AirBridgeCargo andVolga-Dnepr Technics held a number of jointteambuilding events for key managers.A strong example of the experience andknowledge sharing among the Group’sprofessionals was constituted by the flightand technical conferences that broughttogether the flight officers to solve pressingissues and tasks in the area of aerotechnicsoperation, support of high air worthinessThe total amountallocated for personneleducation and trainingin 2011 was$1,6mnThe Group’s social policy is aimed atprotecting employees’ social rights, youngfamilies support, work with the youngergeneration, and provision of medical andpension benefits.Since it was founded, Volga-Dnepr Group’s success hasbeen driven by the high professionalism of its employeesand staff enthusiasm, who constantly strive for thehighest standards.

54 a new dimensionof the freight businessANNUAL REPORT 2011completed practical training in the Groupcompanies and 12 of these were offeredemployment with the Group.As regards work with the younger generation,Volga-Dnepr held a number of events forits employees’ children in Ulyanovsk andMoscow. The children could visit trainercomplexes and, sit at the wheel of realtransport aircraft.standards, flight safety, and improvement oflabour productivity.Volga-Dnepr Group is an active participantin educational programmes to develop thespecialists of future aviation to overcome theindustry’s lack of qualified staff. Some yearsago, Volga-Dnepr made strategic partnershipagreements with the leading universitiesof the Ulyanovsk region: Ulyanovsk HigherCivil Aviation School, Ulyanovsk StateUniversity, and Ulyanovsk State TechnicalUniversity. In 2011, Volga-Dnepr expandedthe geography of cooperation with theeducational institutes by making agreementswith the Tomsk Polytechnic University,Samara State Aerospace and Kazan AviationUniversities. During the reporting period,over 180 students of these universitiesThe general objective of the corporate university:Seventy per cent (70%) of the strategic tasks set beforethe Group are solved by employees trained at theCorporate University.The key element of work on the Group’spersonnel development and training ofits management staff is the CorporateUniversity, which was established in 2011 asone of the first corporate education centresin Russia. The first result of the corporateuniversity work was the progression of youngmanagers to key operative managementpositions in the Group.Today, the corporate university is a diversifiededucational company acting in the formof a non-state educational institution –Volga-Dnepr International Training NOU.The company holds a licence to performeducational activities and has the status ofan aviation training centre.At the moment, the corporate universitycomprises the Leadership School,Management School, Aviation TrainingCentre, School of Foreign Languages andKnowledge Centre. The main educationalsites of the corporate university are locatedin Ulyanovsk and in Moscow. Besides, thereare field sessions held in all the structuralunits of the Group and at customer offices.Actual business tasks require that changesbe made to the education and developmentprocess. They also call for a more innovativeapproach to educational events. Thus, in 2011,a series of project sessions took place with

55the Managerial Technologies Department ofthe Management Company of Volga-DneprGroup with the engagement of leadingspecialists of the PM-Expert company, theleader in the market of project consultingand training services. These sessions wereattended by the top managers of Volga-Dnepras well as heads of the Group’s projects.In 2011, graduations from the ManagementReserve School and Personal AssistantSchool took place and the School of Bankersand Economists, Line Management School,and even School of Health were opened, thelatter of which began its activity from theseminar entitled “Corporate Standards of theHealthy Lifestyle”.Last year, Volga-Dnepr received an orderfrom the Aviation Administration of the UnitedArab Emirates to train its inspectors in theengineering and technical peculiarities of theAn-124-100 Ruslan aircraft in order to gainthe fullest insight into the aircraft, up to thepotential of flying it in the future. To performthis extraordinary order, a special workingteam was formed in the Corporate Universityand training sessions were organisedin Sharjah (UAE).13.2. Social ResponsibilityThe future of any business, its gradual andefficient development are closely connectedwith the social welfare, standard of life,culture and health of the nation, as well aspreservation of its historical heritage.healthcare, education and science, cultureand art, and helping disadvantaged groups.Developing and implementing its socialprogrammes, Volga-Dnepr Group strives fortheir multi-level realisation. The employeesof the Group regularly take an active partin social and charitable campaigns, makingtheir personal contribution to the creation ofa harmonious society.The main project in the area of corporatesocial responsibility is the project forconstruction of the production and dwellingcomplex “Volga-Dnepr City” in Ulyanovsk.The main objectives of the project includeprovision of housing for the company’syoung specialists and specialists of the PortEconomic Zone. On the land plot with thearea of 13.2 ha there will be administrativeand office buildings and an aviation andeducational centre with a total area of28,480 sq.m. The area allocated for the socialand housing facilities construction will make23,600 sq.m. Moreover, it is planned to createa park zone on the bank of the Volga River.The total amount of capital investments isvalued at $75 mn.In 2011, the opening ceremony of thesecondary comprehensive school “Istochnik”took place. This school is one of the keysocial projects of the Volga-Dnepr Group.Its implementation was commenced in 2005with the setting up of the primary school“Istochnik” in Ulyanovsk. Opening of theVolga-Dnepr Group performs its socialmission in line with applicable nationalpriorities and priorities of significance tosociety in general and for each individualin particular, notably support of sports andThe volume of educational services sold in 2011 grewby 15% compared to 2010. The number of class hoursin 2011 increased by 4% over the previous year.

56 a new dimensionof the freight businessANNUAL REPORT 2011authors secondary comprehensive school“Istochnik” is another step on the way tothe project implementation. The new schoolaccommodates 144 pupils and offers allnecessary conditions for education, creativeand physical development of the children.This educational institution operates asa system of pre-school, primary, basicsecondary and additional education.“Istochnik” is a half board school witha maximum of 12 children in a form. The fullday regime allows the children to obtainnew knowledge and to develop their creativetalents at the same time.