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AVIATION Branson to launch Russian airline

1 February 2008
The Daily Telegraph

SIR Richard Branson is to launch a Virgin Russia airline as the first of a series of ventures in the booming oil economy, leading a wave of western investors pouring into Europe's last frontier.

"There are 150m people here within a three-hour flight from Moscow, and a lot of potential to take business from the rail services," he told the Troika Dialog Russia Forum in Moscow.

"We hope to offer the Russian people a really good airline. We may be able to do it a little better than it is being done at the moment. We're in discussion with two or three partners," he said.

The most likely ally is expected to be Sky Express, a Russian discount carrier. Virgin is also exploring a radio business in the country.

"A credit crunch is the time to expand: airlines are cheaper to buy and interest rates are cheaper," he said.

Sir Richard was feted like a cult hero in Moscow, where his attacks on the gauche excesses of the oligarchs made headline news. "Having a very large boat is not going to give you a lot of satisfaction, and it gives capitalism a bad name. Responsibility comes with wealth," he said.

Airline penetration in Russia is roughly a tenth of US levels. The gap is likely to close fast as the country's energy wealth filters through to the burgeoning middle class. Foreign investors are salivating at the range of opportunities offered by Russia's great leap forward into the club of rich nations, largely convinced that the de facto seizures of property from Royal Dutch Shell and other resource groups are special cases.

Most of the disputed contracts date back to the Yeltsin era when much of Russia's commodity base was sold off for a pittance. President Vladimir Putin has sought to unpick the contracts, alleging that the Russian people had been deprived of their "birthright".

Carlos Ghosn, the head of Renault-Nissan, said the Russian market was irresistible for European car manufacturers. "Russians love cars. Sales growth was the highest for any car market in the world last year. It was ahead of China, India and the Middle East, and it's not going to stop, because the Russians have 150 cars per 1,000 inhabitants, compared to 600 in France," he said.

Russia will become the biggest car market in Europe within two years, overtaking Germany. Sales reached 2.3m last year, up 67pc to $53bn in just 12 months. Much the same pattern is occurring across the gamut of consumer goods as the country turns its back on Soviet austerity.

Renault-Nissan has agreed to buy a quarter of AvtoVAZ, producer of the old Lada cars.

The US private equity group TPG Capital said it was to take the plunge in Russia, planning investments of $1bn a year.

Stephane Illenberger, head of AXA private equity, said doing business in Russia is easier than it looks once you know the pitfalls. "It didn't help what happened to Shell. People think the Russians can take your money away in a click, but actually money is quite safe here," he said. "

This market is at an inflexion point. It's rough and tough, but private equity is going to boom."