LLC 5th Ocean Airlines

The purpose of the loan is to optimize the aviation route network of the Russian Federation on the Embraer 145 medium-haul aircraft (Brazil, 50 seats, 2850 km, range, 830 km/h); provision of low-intensity passenger traffic by direct air communication

Resumption of previous activity since 1992 - performance of regional air carriage by TU-134 and RRL-100 aircraft. The former name was Center-South Airlines.

From each Russian city with a population of 500,000 people, there are 5-10 routes of 150-250 people a week, not provided by direct flights, as large-capacity aircraft in these areas are not provided by load, and analogues Ejet-145 (50 seats, 3000 range) are absent.
From each airport of temporary deployment these routes are determined by the analysis of statistical data and a common route grid is constructed.
For each airport, reference routes are selected to guarantee loading:
- 5 routes, frequency of 5 flights per week (25 flights);
- average length of 1500 km, 4 hours round-trip, 100 hours per week;
- 400 hours for two planes. Factor 1.5 of the required number of planes for the introduction of additional flights. Thus 3 planes for one airport of operative basing with the guaranteed load, providing profitability of air transportation. All airports are interconnected by a common route network, aircraft and crew turnover. The main base is Belgorod airport, which is connected with a convenient geographical location for aircraft maintenance. The main base airports are Nizhny Novgorod, Samara, Volgograd, Astrakhan, Saratov, Gelendzhik.
The ticket price is determined by the current fare for each route through transit airports, multiplied by the direct service coefficient (1.1-1.2).

Passenger flows for opening of direct connections with passenger flow intensity of 150 to 250 persons per week and organization of 3 to 5 flights per week are selected on the basis of the analysis of annual and monthly statistics of ticket sales fr om one city to another with transfer in intermediate airports. Less than 3 flights is not feasible, based on passengers' convenience, more than 5 flights, respectively, passenger flow over 250 persons - there is a risk of coming of air carriers operating high passenger capacity planes after testing of flights with ACs with 50 seat capacity. Therefore the destinations network is built along the routes with guaranteed passenger flow of 150 to 250 persons per week and lack of direct connection on these routes, which allows to assume with confidence that at least 80% of seats will be occupied (40 seats). Base tariffs are also determined based on average occupancy of 40 seats/flight with consideration of minimum profit of $75 / f.h.
 Additional market segment that does not depend on passenger flow (guranteed payment for flight) - charter service. ACMI price established in this market is at least 150 000 rub. With Е145 sales for the price of $2000 profit will be at least $700 / f.h. There are preliminary requests from the leading charter operators (appendix No. 3 in BP), that give grounds to expect 300-400 flight hours per month, wh ere profit will be:
350 f.h. Х $700 = $250K / month Х 12 = $3M. per year.

The route grid is built on the basis of the network of operationally based airports, for which, using statistical data, routes with passenger traffic of 150-250 people per week and the lack of direct flights are selected. All operational airports are linked by a common route network, aircraft and crew turnover. Thus, the guaranteed loading of aircrafts is ensured.

The route network is built between the cities with a lack of direct flights due to a large shortage of aircraft of small passenger capacity - no more than 25 units, with a need for more than 100 planes.

The main competitive advantage is the operation of E-145 medium-range planes with small passenger capacity, the analog of which is CRJ 200 - not more than 25 aircraft, while the demand in Russia is more than 100 aircraft. This allows organizing direct flights between regional centers, between which there is air traffic only through transit airports.

Financing.
Total budget of the project, including purchase of an operating airline, leasing and mastery of 15 ACs Е-145LR and 10 E-170 is $25M.
PART I. E-145LR

1. Costs (financial leasing of 1 AC E145LR):
 All-inclusive insurance (full comprehensive, crew, 3rd parties, luggage, mail) 7 ACs ___35 thd.;
 Preparation of AC for operation in RF ________________________________________55 thd;
 Registration in Bermudas __________________________________________________55 thd;
 Inspection, acceptance of AC_ ______________________________________________15 thd;
 Deposit for leasing of AC__________________________________________________150 thd;
 Training of flight crews and personnel________________________________________100 thd;
 Customs clearance __________ ____________________________________________ 65 thd;
 Airferry of AC ___________________________________________________________35 thd;
 Painting of AC___________________________________________________________50 thd;
 Purchase of keroses aviation fuel ____________________________________________150 thd;
 Deposit for airports _______________________________________________________50 thd.
Total ______________________________________________________________ $750T.
For 15 AC ______________ $11.25M.
Additional costs - organization of maintenance line stations, equipment and tools for maintenance, warehouses for spare parts storage, company certification as airline, etc. – 750 thd.
Reserve $500 thd .
Total amount $12.5M.
2. Operating costs ACMI (one Е-145 AC; 150 hours/month):
AC leasing ($40 thousand : 150 hours) _________________________$270/month;
Reserves for overhaul (airframe, engine, APU, landing gear, limited life cycle accessories)
one AC for one flight hour ______________________________ $450 /hour;
Warranty maintenance _________________________________ $200/hour;
Operational maintenance ________________________________ $50/hour;
Remuneration for crew, aviation specialists _________________ $160 /hour;
Airline operating costs __________________________________ $160/hour.
Flying cost per hour with 150 hours per month flight time/one $1 290 /f.h.
Kerosene ______________________________________________$850/hour;
Airports, air navigation charges (ANC)____ __________________$350/hour.
TOTAL, total cost of flight hour: $1 290 + $850 + $350 = $2 490 hour.
Flight hour price – $3000/hour . Seat price (50 seats)$60 /hour.
For calculation: 40 seats – $75 seat /hour
Monthly profit from 15 ACs with 150 flight hours (occupancy of 40 seats)
[$3 000 – $2 490 = $510/hour ] х 150 hours = $76 500/month Х 15 ACs = $1.15M/month;
The age of $12.5M is no more than one year.
*Monthly flight hours per one AC is calculated with consideration of flight reservations.
PART II. E-170
1. Costs (financial leasing of 1 AC E-170):
 All-inclusive insurance (full comprehensive, crew, 3rd parties, luggage, mail) 7 ACs ___50 thd.;
 Preparation of AC for operation in RF ________________________________________75 thd;
 Registration in Bermudas __________________________________________________75 thd;
 Inspection, acceptance of AC_ ______________________________________________15 thd;
 Deposit for leasing of AC__________________________________________________215 thd;
 Training of flight crews and personnel________________________________________125 thd;
 Customs clearance __________ ____________________________________________ 65 thd;
 Airferry of AC ___________________________________________________________55 thd;
 Painting of AC___________________________________________________________75 thd;
 Purchase of keroses aviation fuel ____________________________________________225 thd;
 Deposit for airports _______________________________________________________75 thd.
Total ______________________________________________________________ $925T.
For 10 AC ______________ $9.25M.
Additional costs - organization of maintenance line stations, equipment and tools for maintenance, warehouses for spare parts storage, company certification as airline, etc. – 750 thd.
Reserve $500 thd .
Customs duty $2M
Total amount $12.5M.
2. Operating costs ACMI (one Е-170 AC; 150 hours/month):
AC leasing ($75 thousand : 150 hours) _____________________$500/month;
Reserves for overhaul (airframe, engine, APU, landing gear, limited life cycle accessories)
one AC for one flight hour ______________________________ $750 /hour;
Warranty maintenance _________________________________ $300/hour;
Operational maintenance ________________________________ $50/hour;
Remuneration for crew, aviation specialists _________________ $200 /hour;
Airline operating costs __________________________________ $250/hour.
Flying cost per hour with 150 hours per month flight time/one $2 050 /f.h.
Kerosene ______________________________________________$1300/hour;
Airports, air navigation charges (ANC)____ __________________$450/hour.
TOTAL, total cost of flight hour: $2 050 + $1300 + $450 = $3 800 hour.
Flight hour price – $4 650/hour . Seat price (max 78 seats) $60 /hour.
For calculation: 62 seats – $75/hour.
Monthly profit from 10 ACs with 150 flight hours (occupancy of 62 seats)
[$4 650 – $2 490 = $510/hour ] х 150 hours = $76 500/month Х 15 ACs = $1.15M/month;
The age of $12.5M is no more than one year.

1. SHORT SUMMARY OF THE PROJECT
Name of the project – Organization of passenger air transportation.
Initiator of the project − LLC “Airline 5th Ocean”.
Location of the project: 308501, Belgorod Region, Belgorod district, Dubovoye settle, 235 Blagodatnaya Str.
Project description
The purpose of this project is justification of cost efficiency and feasibility of organization of a company for performance of passenger air transportation. For this purpose the Initiators of the project will procure leasing of 15 E-145 and 5 E-170 planes.
Ideological basis of the project – the organization of air passenger traffic for the purpose of covering of the outstanding demand and receiving profit fr om commercial operations.
International experience in the organization of air transport infrastructure shows that for balance of passenger traffics and fuller satisfaction of demand for air transportation the optimum ratio between the aircrafts (AC) of big passenger capacity – more than 150 seats – and small passenger capacity – from 30 to 75 seats – on average is one to three. About the same is also shown by the experience of the organization of air transportation in the Soviet Union, when for one AC with more than 150 seats (TU-154, IL-62, IL-86) there were 4 ACs of the smaller carrying capacity (YaK-40, AN-24, TU-134, YaK-42). Now in Russia this ratio is opposite (~ 600 ACs with more than 150 seats, Boeing, Airbus type, and ~ 150 ACs with up to 75 seats), and in this connection on many destinations with passenger traffics of small intensity there is no direct connection, and passengers reach their destinations with transfer at intermediate airports. The objective of an airline – to identify destinations with steady passenger flows of 150 to 250 people per week and lack of direct air connection for organization from 3 to 5-6 flights per week on the basis of the analysis of statistical data of passenger flow from the proposed hub airports, consultations with the management of airports: less than 3 flights are inexpedient based on inconvenience for passengers, and when performing more than 6 flights there is a risk that other airlines can come with ACs of big passenger capacity. Proposed hub airports: Belgorod, Nizhny Novgorod, Samara, Volgograd, Astrakhan, Simferopol, Gelendzhik, Moscow. The actual choice of the cities depends on the following factors:
 Existence of historically established passenger flows confirmed with statistical data which are not covered with direct flights;
 Equidistance from the main base in Belgorod, wh ere the general scheduling, control of AC and crews turnover will be exercised; the organization of flight work (OFW) according to " The rules of flight operations" (RFO); organization of maintenance and works aimed at supporting of the flight worthiness of ACs according to "Maintenance manual";
 Possibility of creation of the destinations network allowing to optimize aircraft turnover, turnover of crews and reservation of flights for achievement of high regularity of flights;
 Granting the preferential mode by the management of the airports on the charges for airport service and departure arrival slots;
 Small dependence of passenger traffics on seasonality;
 Possibility of expansion of the market through rotational air transportation and on applications of travel agencies;
 Moscow – availability of a large number of orders for charter air transportation according to applications of the main charter operators.

PART II. E-170
1. Costs (financial leasing of 1 AC E-170):
 All-inclusive insurance (full comprehensive, crew, 3rd parties, luggage, mail) 7 ACs ___50 thd.;
 Preparation of AC for operation in RF ________________________________________75 thd;
 Registration in Bermudas __________________________________________________75 thd;
 Inspection, acceptance of AC_ ______________________________________________15 thd;
 Deposit for leasing of AC__________________________________________________215 thd;
 Training of flight crews and personnel________________________________________125 thd;
 Customs clearance __________ ____________________________________________ 65 thd;
 Airferry of AC ___________________________________________________________55 thd;
 Painting of AC___________________________________________________________75 thd;
 Purchase of keroses aviation fuel ____________________________________________225 thd;
 Deposit for airports _______________________________________________________75 thd.
Total ______________________________________________________________ $925T.
For 10 AC ______________ $9.25M.
Additional costs - organization of maintenance line stations, equipment and tools for maintenance, warehouses for spare parts storage, company certification as airline, etc. – 750 thd.
Reserve $500 thd .
Customs duty $2M
Total amount $12.5M.

To be determined in the process of negotiations

Risks
Additional lending through the Bank of Russia up to 75% is possible
Operating:
 Possible malfunctions of AC are compensated by warranty maintenance agreement with manufacturers for airframe and engines. Deductions fr om flight-hour, specified in calculations. In case of breakdown of accessories and airframe elements – replacement within 36 hours. Engine – 48 hours. Reserve AC will be used during replacement period. Monthly flight hours and destinations network including reservation in accordance with the requirements of the Federal Air Transport Agency.
 Passenger accommodations in case of delays due to weather conditions, are not significant based on operations experience (not more than 0.5%) – compensated from reserve fund (KL) provident fund – airline.
 Breakdown (destruction) of AC – compensated by insurance coverage.
Financial
 Increase in price of fuel and lubricants – compensated by wholesale purchases.
 Service in airports – regulated by the state, air carriers are notified in advance, compensated by ticket prices.
 Competition – destinations network is built along the routes wh ere there are no other air carriers.
 Presence of demand for flight routes.
Passenger flows for opening of direct connections with passenger flow intensity of 150 to 250 persons per week and organization of 3 to 5 flights per week are selected on the basis of the analysis of annual and monthly statistics of ticket sales fr om one city to another with transfer in intermediate airports. Less than 3 flights is not feasible, based on passengers' convenience, more than 5 flights, respectively, passenger flow over 250 persons - there is a risk of coming of air carriers operating high passenger capacity planes after testing of flights with ACs with 50 seat capacity. Therefore the destinations network is built along the routes with guaranteed passenger flow of 150 to 250 persons per week and lack of direct connection on these routes, which allows to assume with confidence that at least 80% of seats will be occupied (40 seats). Base tariffs are also determined based on average occupancy of 40 seats/flight with consideration of minimum profit of $75 / f.h.
 Additional market segment that does not depend on passenger flow (guranteed payment for flight) - charter service. ACMI price established in this market is at least 150 000 rub. With Е145 sales for the price of $2000 profit will be at least $700 / f.h. There are preliminary requests from the leading charter operators (appendix No. 3 in BP), that give grounds to expect 300-400 flight hours per month, wh ere profit will be:
350 f.h. Х $700 = $250K / month Х 12 = $3M. per year.
 Seasonal factor has insignificant effect on ACs with 50 passenger capacity. It is compensated in calculations of average annual occupancy of seats and monthly flight hours.
 Other possible risks - compensated from reserve (credit line) and provident fund of the airline.
It is possible to provide BG/SBLC.