Public Disclosure Authorized

Report No. 35649-TJ

Report No. 35649-TJ

Tajikistan
Review of the Air Transport Sector in Tajikistan
A Policy Note

June 30, 2006

Public Disclosure Authorized

Poverty Reduction and Economic Management Unit
Europe and Central Asia

Tajikistan Review of the Air Transport Sector in Tajikistan

Public Disclosure Authorized

Public Disclosure Authorized
Document of the World Bank
 ACKNOWLEDGEMENTS

This Air Transport Review for Tajikistan i s based o n the findings o f several
missions to Tajikistan and Europe between April 2005 and November 2005. M a n y
elements o f the study have already entered the policy dialogue between the Bank and the
Government o f Tajikistan. This report i s intended to facilitate further progress in this
dialogue and to allow broader dissemination within the country and donor community.

The principal authors o f the report are Andrks Ricover and Sudhee Sen Gupta.
Additional comment and guidance was provided by Sudharshan Canagarajah, Jakob von
Weizsaecker, Jariya Hoffman, Utkir Umarov, Cevdet Denizer, Mehmet Gokay and Firuz
Kataev. Administrative support provided by Damika Somasundaram and Zakja Nekaien-
Nowrouz.

The team wishes to thank the Government o f Tajikistan for very constructive
discussions during and after the various missions, as w e l l as comments provided on the
final draft o f the report. The team i s particularly grateful for the inputs provided by
Matlubkhon Davlatov, State Adviser to the President on Economic Policy,
Abdukholicov't-h Abdulaziz Sharipov, Adviser to the President o f the Republic of
Tajikistan on Economic Policy, Ibrohim Jobirov, Head o f Department o f C i v i l Aviation,
Hokimsho Tilloev, Director General o f State Unitary Aviation Enterprise "Tojikiston",
Rustam Bozorov, Transport Specialist Natural Monopoly Unit Antimonopoly Agency,
and their staff.

The generous financial support for this study by the Swiss State Secretariat for
Economic Affairs (seco) i s gratefully acknowledged. The team i s also grateful for helpful
comments and guidance f r o m the peer reviewers, Ellis Juan and T o m i s Serebrisky.
Finally, the report benefited enormously from the active participation and advice of
Charles E. Schlumberger, Principal Air Transport Specialist o f the W o r l d Bank.

3
4
 TABLE OF CONTENTS

EXECUTIVE SUMMARY .............................................................................................. 7

.
1 BACKGROUND .................................................................................................. 11

2. THE PRESENT SITUATION .......................................................................... 13

A . THE MARKET ................................................................................................................ 13

B . INSTITUTIONAL FRAMEWORK ................................................................................ 24

C. AIRPORT INFRASTRUCTURE.................................................................................... 28

D. AIR TRAFFIC CONTROL ............................................................................................. 32

E. FINANCIAL SUMMARY OF TSA ................................................................................ 32

F. EFFORTS UNDER WAY BY THE EBRD..................................................................... 34

3 . GOVERNMENT’S PROPOSED POLICY REFORM ....................................... 37

A . RATIONALE OF THE REFORM.................................................................................. 37

B. GOVERNMENT’S PLAN FOR LIBERAZATION........................................................ 39

4 . GOVERNMENT’S PROPOSED IMPLEMENTATION FRAMEWORK .......43

A . INSTITUTIONAL REFORM .......................................................................................... 43

B . AIRPORT REFORM....................................................................................................... 45

C. AIR TRAFFIC CONTROL REFORM............................................................................ 46

D. AIRLINE REFORM........................................................................................................ 46

5 . CONCLUSIONS AND NEXT STEPS .................................................................. 50

A . CONCLUSIONS ............................................................................................................. 50

B . ACTION PLAN............................................................................................................... 51

C. SCHEDULE OF IMPLEMENTATION OF RECOMMENDATIONS ............. 53

5
 EXECUTIVE SUMMARY

Introduction

1. In a remote and land locked country with limited natural resources and a small
population, development and growth are dependent o n trade and commercial contact with
the outside world. This makes access to Tajikistan a critical need for i t s development.
The communication and i t s associated trade and commercial contact could be improved
significantly, if the air transport sector in Tajikistan were appropriately configured.
Tajikistan i s also one o f the poorest countries in the world and the poorest country in the
former Soviet Union. One o f i t s major sources o f income i s the earnings o f migrant
workers who go mainly to Russia in search o f work (above 20% o f the GDP).Migrant
labor i s dependant on the country's air transport sector.

Background

2. Despite the relatively high volume o f passengers, air transport to and from
Tajikistan remains expensive by regional comparison. Air ticket prices for the main
route between Moscow and Dushanbe are around 1/3 more expensive than tickets on
comparable routes to other destinations in Central Asia. Furthermore, ticket distribution
systems and ticket availability i s poor. The burden of excessive prices and poor ticket
availability imposed o n a typical migration worker could at times represent an estimated
7 percent o f his annual net income.
Tajik State Air Company (TSA), the national flag carrier, was the only national airline
operating international flights, connected only with a few destinations outside Russia. In
fact, Dushanbe used to be the only capital in the region that was not served by a quality
international airline acceptable to international business and leisure travelers. The access
to Dushanbe i s s t i l l hampered by the inability o f international travelers to purchase or
reserve tickets through any o f the global distribution (GDS) systems to fly TSA. These
factors tend to undermine Tajikistan's ability to attract foreign investment and affluent
tourists.

The current aviation policy i s s t i l l restrictive in terms o f market access (number and types
o f routes that could be operated), in terms o f market capture (the maximum capacity
allowed, given by number o f frequencies and the type o f aircraft that could be used) and
in terms o f market competition (number o f carriers per route). For example, the
Dushanbe-Moscow route i s limited to only one carrier per party (single designation) and
to a limited number o f frequencies per week. Although some markets seem to be

7
unrestricted, technical regulations can sometimes be manipulated to restrict the access to
specific markets. Control o n air fares by the Anti-Monopoly Agency can restrict
flexibility to seasonal opportunities while at the same time not provide an effective
protection to consumers against abusive pricing.

Issues being addressed by Government

3. The root cause for the situation described above was a restrictive aviation policy
that limited competition to a minimum, combined with a poor institutional structure of
the air transport sector in Tajikistan. The situation was characterized by two different
features:
i. Inappropriate institutional framework: The Department o f Civil Aviation
(DCA) centralized the functions of policy making, technical regulation and
accident investigation and created conflicts o f interest where the function of
regulation i s affected by policy-making, instead o f being performed by a
neutral body.
ii. Anti-competitive structures: T S A operated the airline, the airport and the
provision o f air traffic control services. Under this situation, it i s unlikely
that the airport can deal in an even handed manner with other airlines wishing
to land in Tajikistan even if the air service agreements were changed to
provide the necessary landing rights. Without an arms length relationship
with the national airline, the airport i s likely to find every opportunity to
dissuade or discourage competition for the national airline, like for instance
not providing the ground handling equipment for competing types o f aircraft,
or manipulating the fuel supply. T S A also benefits f r o m discriminatory
practices applied to competing carriers, with respect to fees and charges for
the use o f infrastructure. T S A are not charged for any o f the services, which
are in addition the most expensive in the region for other carriers. Ultimately,
the cross subsidization provides the airline with significant competitive
advantages as i t i s not only not being charged for the use o f the infrastructure,
and thus receives a defacto subsidy.

Government3 reform Policy

4. The Government strategy for reform i s be based o n three lines o f action:

i. Gradual liberalization of the air traffic rights. Tajikistan w i l l look at
eliminating the entry barriers to foreign carriers by defining a policy o f
liberalization, while assuring that the environment also favors free market
access, competition and no control on air fares. Policies will also aim to
attract cross border investments by lifting ownership and control restrictions
in air carriers. In addition, air fares w i l l be purely market driven, with lesser
interference o f the anti-monopoly commission only to restrict monopolistic
behaviors.

8
 The associated result o f this liberalization w i l l be a drastic reduction in air-
fares, and the increase o f supply by the entry o f new carriers and/or increased
capacity by existing carriers into the most demanded markets. This new
policy will increase the welfare o f the traveling public, and o f the migrant
workers, currently levied by an unjust tax that finances the inefficiencies of
the airline and the airport infrastructure.
ii. Setting the appropriate institutional framework: The institutional arrangement
w i l l assure the healthy and complete separation o f functions between the
policy maker, the technical regulator, the accident investigator and the
operator (airports, air traffic control, and the airline, independently).The
operation will break the vertical integrated scheme o f airline, airport and
ATC that limits competition, into three different and independent service
providers. Each one will be functioning at arm's length f r o m the government
budget and policies, promoting competition and efficiencies, probably under
the f o r m o f a corporation.
iii. Transforming the airline: The national flag carrier w i l l need to be
restructured in order to gain competitiveness to meet the challenges of a
deregulated and competitive environment. During the gradual process o f
liberalization, the airline w i l l be prepared to compete in a free market
environment. The Government i s seeking assistance in this regard to conduct
a comprehensive financial audit, implement at reporting and control
mechanisms and to develop o f a sound business strategy that should dictate
the future o f the airline.

Action plun

5. The specific actions that the government will take are in three different streams:
Policy making
- promote a gradual liberalization o f traffic rights, by pursuing a
liberalized environment, tariff deregulation and facilitation o f
cross border investments
- promote the competitiveness o f the regulatory environment
- separation strategy o f the three different businesses

Institutional actions
- institutional strengthening reform towards the separation o f the
functions o f policy making, technical regulation, and accident
investigation
- legal and organizational implementation

TSAreform

9
 immediate financial audit implementation o f basic management
control & reporting procedures
- implementation o f I A S accounting systems
- legal and organizational implementation o f the separation strategy
- development o f a business strategy for the airline

10
 1. BACKGROUND
1.1. Tajikistan's medium-term sustainability o f economic growth i s threatened by a
very restricted accessibility. The aviation policy protected the national flag carrier,
Tajikistan Airlines (Tajik Air) o n the most important routes, l i k e Dushanbe-Moscow or
direct links into Western Europe. As a result, the air transport sector in Tajikistan i s s t i l l
high priced, inefficient and poorly served.

1.2. While there was no explicit definition o f the aviation policy, the sector was
characterized b y a restrictive environment. With respect to international traffic, most
bilateral agreements limit capacity in terms o f weekly flights. The most attractive route,
Dushanbe-Moscow, i s s t i l l restricted o n the number o f carriers (one per side) and the
total capacity offered. Air fares are controlled in most o f the routes, either explicit or
implicit'. In some cases, entry barriers can eventually be imposed with unorthodox ways
(e.g. lack o f ramp handling equipment for specific aircraft types, manipulation o n the
supply o f fuel, etc.)

1.3. On the domestic front, traffic i s in theory free, but vertical integration by T S A
into the airport and air traffic control operations i s s t i l l being used to deter the entrance o f
any competitor to TSA.

1.4. Except now for Turkish Airlines and China Southern (from Urumqi), none of the
major international airlines operate flights into Tajikistan, depriving the sector f r o m a
healthy competition. As a result, air-fares are significantly higher than comparative
benchmarks. For example, the route Dushanbe-Moscow, dominated b y only t w o airlines
with monopolistic behavior, proved to be the most expensive o f 12 destinations out o f
Moscow. When measured as U S D per nautical mile, the route i s at least 49% higher than
the one to Almaty, 38% higher than Tashkent and 36% higher than Bishkek.

1.5. Over 80% of the international air traffic o f Tajikistan i s with Russia the majority
o f which consists o f migrant Tajik workers seeking for seasonal employment. The
earnings o f migrant workers represent over 20% o f the GDP o f Tajikistan, which also has
one o f the lowest GDP in the world. The inefficiencies and extra costs o f the present
aviation sector result in the fact that migrant workers could spend as much as 7% o f their
earnings o n air fares.

1
O f f bilateral accords o f pooling or joint tariff setting between the two parties
1.6. During high season periods, the situation becomes further exacerbated. Since
demand cannot be met due to the restricted regulated capacity, many workers are obliged
to purchase at a parallel market o f tickets, increasing the costs o f traveling by an
additional 15%.

1.7. Service levels are significantly low, with repeated cancellation o f flights, long
waiting times at airports and baggage frequently left behind. In addition, the lack o f
integration into the major distribution systems complicates travel arrangements even
further.

1.8. Airport infrastructure provides an unacceptable level o f service, with lack of

proper equipment for aircraft and unpleasant facilities for passengers. In spite of those
services, airport fees and charges levied o n aircraft and o n passengers are amongst the
highest in the region.

1.9. On top of the higher air-fares and greater costs for the airport infrastructure, the
poor service such as frequent delays, cancellations and detours have associated additional
costs, albeit they are harder to measure. In summary, the restrictive policies generate an
excess in costs for the traveling public, constrain traffic growth, and thus limit trade and
the exchange o f ideas.

1.10. A valuable WB study that was carried out b y John M. C. King2on July 2005, also
identified the restrictions o n air liberalization in Central Asia as an important factor
limiting economic development in the region.

* Europe and Central Asia Transport. JMC King, World Bank, July 2005.
12
 2. THE PRESENT SITUATION
A. THE M A R K E T

2.1 As the national flag carrier, T S A i s the only carrier performing international
operations and domestic operations. In the domestic market, there i s a second carrier,
"Samar Air" that operates flights.

Demand side

International

2.2 The total market o f international passengers was o f 646 thousand passengers in
2006, a slightly decrease o f 7.4% with respect to the 656 thousand passengers carried in
2004. This market i s mainly attended by TSA, which accounted for 54% o f the market,
in terms o f passengers carried in 2005.

2.3 The remaining 46% o f the international market i s served by 23 foreign carriers, o f
which 16 are Russian. The following table (Table 2.1) shows the evolution of
distribution o f market share o f the international market, by main categories o f carriers,
for 2003,2004 and 2005:

TSA 346,165 54% 399,633 61% 313,520 73%

Russian carriers (16 carriers) 274,046 42% 237,445 36% 109,141 25% -

CIS carriers (3 carriers) 7,404 1Yo a, 122 1Yo 6,898 2Yo

Other foreign (4 carriers) 19,144 3% 10,940 2Yo 1,665 0%
Total 646,759 100% 656,140 100% 431,224 100%
Source: Prepared by consultant based on information received by TSA - Economic and Planning
Department (updated in 2006)

2.4 F r o m the table stands out that the share o f T S A decreased in comparison with
2003 and 2004. While the total number o f passengers transported b y T S A increased in
absolute terms, i t did not absorb the increase in traffic in the same proportion.

13
2.5 The most dramatic increase was o f the airlines f r o m Russia, whose share jumped
dramatically f r o m 2003.

2.6 The importance of the Russian market stands out again, when looking at the T S A
international activity in terms o f passengers carried, as shown in the following table
(Table 2.2):

-
Table 2.2 Distribution of TSA international passengers and shares, per city for 2003 and
2004

total TSA international 346,165 399,633 313,520

Russia
Moscow 190,966 76% 228,212 74% 175,271 69%
Novosibirsk 12,339 5% 33,899 11% 38,667 15%
Ekaterinenburg 26,626 11% 37,614 12% 40,487 16%
other cities in RF 20,687 8% 7,775 3yo
total Russia 250,618 100% 307,500 100% 254,425 100%
share of total 72% 77% 81YO

Other CIS
Almaty 23,432 87% 23,898 74% 14,651 63%
Bishkek 3,400 13% 8,504 26% 5,473 24%
Other 3,096 13%
total CIS 26,832 100% 32,402 100% 23,220 100%
share of total 87'0 8Yo 7%
Non CIS countries
Istanbul 6,776 10%
Munich 5,388 8Yo
Istanbul-Munich 2,252 3% 13,809 23% 11,112 31yo
Delhi-Sharjah (UAE) 17,199 25% 9,412 16% 6,074 17%
Sharjah 7,136 10% 4,707 8% 0 Yo
Tehran 5,247 8% 4,941 8Y'o 0%
Urumchi 10,557 15% 13,021 22%
Khujand-Ras AI-Khaima 874 1Yo 3,667 6?Lo 2,589 7yo
other+- 13,286 19% 10,067 17% 16,100 45%
total other countries 68,715 100% 59,731 100% 35,875 100%
share of total 20% 15% 11%
Source: Prepared by consultant based on information received by TSA - Economic and
Planning Department
+include Mashhad (Iran), Karachi (Pakistan) and Urumchi (China) in 2003

14
 2.7 While reduced in 2004 comparing with 2003, the share o f Russia of total
passengers carried b y T S A was 74%. Of these routes, 77% o f passengers where carried
to/from Moscow, which in turn accounts for 57% o f total international passengers f l o w n
by T S A in 2004. N o single other route challenges this very significant share, the next
biggest, Ekaterinenburg with 9% and Novosibirsk with 8%, are far behind.

2.8 The market into Moscow i s mainly composed o f migrant workers that travel to
Russia at the beginning o f the spring, and return to Tajikistan by autumn. During that
season, some o f those workers may return home for short periods o f time during short
work breaks (Le. the first week o f May). Load factors are consistently over 95% during
end o f March through M a y on the Russian bound flights, with load factors as l o w as 30%
on the return sectors. The situation i s the reverse f r o m end o f July through September.

2.9 Services between Tajikistan and Russia are governed by the bilateral air service
agreement between the two states o f 1997, and the changes introduced in the Protocol, on
2 1 December 19983. The agreement defines the routes to be operated by designated
airlines defined by Tajikistan, to four points in Russia (Moscow, Novosibirsk,
Yekaterinburg and one (1) other point to be agreed in the Russian Federation4), f r o m any
point in Tajikistan. In turn, airlines designated by the Russian Federation can fly from
any point in Russia to Dushanbe, Khujand and one more point to be defined. Overall,
there are 25 weekly frequencies o f Tajik Airlines versus 38 flights by Russian operators5.

2.10 The Moscow-Dushanbe route i s treated separately in a Supplementary

Agreement6. This supplementary document establishes the capacity on this route as 14
weekly frequencies o f aircraft not bigger than the TU-154M7.

2.11 During 2004, T S A performed 893 flights to Moscow, with an average o f 17

weekly flights, just above the established capacity. While currently T S A utilizes all o f
the given capacity, from the Russian side, Domodedovo Airlines flies only 3 times per
week' with a TU-154M. One possible explanation for this unbalanced reciprocity may
be Russian national interest to protect Tajik Air'. The Russian carrier has attempted to
introduce a larger aircraft (the IL-96lo) into this route. However, the Tajik authorities
rejected the request justifying the lack o f the necessary ground handling equipment to
attend the aircraft. Currently, there i s some kind o f agreement between T S A and

"Agreement between the Government o f the Republic o f Tajikistan and the Government o f the Russian
Federation on Air Transport", signed September 12 1997.
4
Tajik Air also flies to Samara as the "additional point".
Summary o f meetings with Russian Ministry of Transport, Department of Civil Aviation
This document was not made available to the consultant, in spite o f numerous requests.
7
The consultant was not able to confirm this information, which was obtained verbally at the DCA.
*
%

Increased to 5 weekly frequencies in late 2005.

10
The I L 9 6 can transport from 257 to 289 passengers

15
Domodedovo Airlines under which Domodedovo can sell up to 7 or 10 seats o n T S A
flights ll.

2.12 The following table shows the presence o f the Russian carriers into the three main
entry points o f Tajikistan (Table 2.3):

- -
Table 2.3 Traffic flown bv Russian carriers 2003. 2004 and 2005

Dushanbe 161,092 59% 128,085 54% 59,268 54%

Khoujand 90,971 33% 91,128 38% 49,873 46%
Kulob 21,893 8% 18,232 8Yo 0 0%

Total 274,046 100% 237,445 100% 109,141 100%

Source: Prepared by consultant based on information received by TSA - Economic and Planning
Department (updated in 2006)

2.13 The presence o f the Russian carriers i s particularly strong in Dushanbe, where
they carried 59% o f the total traffic. Also Khoujand i s substantial, accounting for 33%.

Domestic Market

2.14 The fleet i s based at the airports o f Dushanbe and Khoujand, serving the
following routes:

-
Table 2.4 TSA domestic destinations

Khoujand Dushanbe
lsfara Kulob
Djirgital Kurgan Tube
Rushan -

Pindjikent
Khorog

Vanch -
Aini
Source: TSA

11
Domodedovo Airlines i s given 8 seats per flight, based on information provided at a meeting with the
Russian Ministry of Transport, Department of Civil Aviation. The agreement was never made available.
Domodedovo has proposed to operate joint flights on this route, proposal that i s being considered.

16
2.15 All the figures evidence the strong impact o n the sector caused by the community
o f migrant workers traveling to Russia. The business travel and international community
portion i s minor, mainly o n the routes to Moscow and St. Petersburg (Polkovo).
Businessmen and traders use also the routes to Europe and Middle East, accounting in
total less than 10% o f the total international travel.

2.16 The domestic market accounted, in 2005, for 164.5 thousand passengers, or
20.3% o f the total passengers carried in a l l airlines o n domestic and international routes.
That figure represents 32.2% of total passengers transported by TSA.

Supply side

2.17 T S A operates 61% o f the international capacity to and f r o m Tajikistan and

Russian carriers operate 33%., as can b e seen in the following table (Table 2.5).

national destinations 2004-

TSA 1,730 51yo
Russian 1,400 41Yo
CIS airlines 140 4%

Total 3,409 100%

-
Source: Prepared by consultant based on information received by TSA Economic and Planning
Department (updated 2006)
+-Proxy for capacity, since type of aircraft was not made available

2.18 The fleet i s composed o f 27 aircraft (including 4 helicopters) Russian built

airplanes, inherited by Aeroflot during the Soviet era. The entire fleet age averages about
21 years old. M o s t o f TU-154B fleet will be retired during 2006, since otherwise they
should have gone through major overhaul maintenance (D check). For each aircraft, the
cost o f such maintenance i s around U S D 1.5m to U S D 2.0m.

2.19 K e y routes are operated with the "Emkas" (TU-l54M), which are the latest model
o f the type (on average, about 13 years old). While s t i l l the most technologically
advanced in the fleet, these aircraft burn as much as twice the fuel as a western plane o f
comparable seating capacity (B737-800, A320).

2.20 The remaining fleet operating in Tajikistan i s composed of Russian built airliners.
Of the foreign flights serving Dushanbe and Khujand, about 40% are operated by T U -
154s, another 45% by TU-134s and the remaining by Yak42s..

17
 The current fleet o f T S A i s composed as follows:

TU-154 M 160 4.) 4

TU-154 B 167 3.f.) 1+.)+
TU-134 80 3 3

YAK-40 32-36 7 7
Mi-8 MTV 20 3 3

AN-28 17 3 3
AN-24 52 5 3
AN-26 Cargo 2 2
Total 30 27
Source: Prepared by consultant based on information collected by Charles Schlumberger (WB) and
information received by DCA
aircraft availability depend on major overhaul (D check) pending:
.) all four good until 2015
.).) 1 already stopped April 21''. remaining: one due Jan 28 2006, one Feb 27 2006 and one Feb 26 2007.
As at July 2006 there i s only one (1) aircraft of this type still operational
.).).)To be retired February 2007

2.21 I t i s important to stress that the competition to T S A i s offering similar types of

aircraft. At present, there i s almost no western built aircraft serving the market, currently
only with the exemption o f Boeing 757 operated by the Chinese carrier China Southern
and the B737-800 operated by Turkish Airlines

2.22 The situation should change dramatically within the next coming years. As
previously noted (table 2.6), two o f the remaining TU154-B were retired in early 2006.
In addition, i t i s expected that by 2006, the remaining TU154-Ms w i l l be banned f r o m
entering European airspace. All this poses a degree o f urgency where new aircraft w i l l
be needed to cover the routes operated today by the existing fleet.

Pricing

2.23 Another factor than characterizes supply i s pricing. Air fares are set by T S A and
approved (coordinated) by the local anti-monopoly agency (Agency for Antimonopoly
Policy and Entrepreneurial Support), Tariff regulation allows airlines to move through a
band o f +/- 25% o f fixed prices without prior approval, to allow adjustment to specific
seasonal changes. However, airlines are not free to offer discounted promotions during
the slow seasons, or to increase prices at periods o f high demand.

2.24 The criteria for tariff approval by the anti-monopoly agency are based on the
production cost, as reported by the airline. There i s no further analysis o n the reliability

18
o f the information, nor any benchmarking against international industry standards. The
lack o f a proper benchmarking does not enable the airline to assess the fare structures
against those o f other carriers .Benchmarking can be a positive aid to efficiency.

2.25 In order to make a comparison on air fares, the following chart (Graph 2.1)
compares cheapest round trip air fares between Moscow and selected cities:

-
Graph 2.1 Return Fares from Moscow to selected cities
in cents of USD per nautical mile

0.40

0.35

0.30

E 0.25
L

% 0.20
n
u)
3 0.15

0.10

0.05

n nn

Source: prepared by consultant based on data obtained from Olympia Business Travel (Moscow),
for lowest published fares, effective May 2005

2.26 From the sample of cities observed, air fares from Dushanbe to Moscow are the
highest (USD0.33 per nm, or USD540 for 1,617 nautical miles). This fare i s about 49%
higher than the one to Almaty, 38% higher than Tashkent and 36% than Bishkek.

These findings are consistent with a very limited competition in the route between
Dushanbe and Moscow Domodedovo, served 9 times a week by T S A and 9 times a week
b y Domodedovo AirlinesI2. In particular Almaty, where the highest difference was
found among the CIS countries, offers a more liberalized market with greater
competition offered b y the presence o f some international carriers. l3

2.27 N o statistics were available with respect to the amount o f demand unsatisfied
during the highest seasons. However, i t has been reported that a black market for air

'* Based on 2004 traffic figures, TSA share o f the market i s 95.3%, for this route that accounts for 38.6%
o f the total traffic o f Tajikistan
l3 Traffic often travels to Moscow via Samara or Kazan as an alternative cheaper option.

19
tickets exists during the highest peaks o f demand, where tickets can be found at higher
than official fares.

Service Levels

2.28 The pre-flight level o f service o f T S A i s extremely poor. The reservation system
o f the airline i s not linked to any o f the major GDS14 used today by airlines and travel
agencies. This seriously complicates the reservation and issuing o f tickets, in particular
for onward travel into Tajikistan. Additionally, the lack o f proper reservation systems
facilitates the mismanagement o f availability o f seats.

2.29 Flights are often cancelled or postponed with short or no previous notice at all.
Call centers or information desks are often neither responsive nor reliable, forcing
passengers to arrive to the airport and cope with long waiting times. The in-flight service
i s reasonable, although limited by the restricted comfort offered by outdated aircraft. In
total, the traveling experience i s o f very poor service, and often stressful.

2.30 In summary, the supply in terms of infrastructure, i s characterized by Russian

aircraft with sub-optimal efficiencies o f operation and lower levels o f comfort than
western built aircraft. In terms o f pricing, the selected comparison o f the return fare for
the Moscow-Dushanbe route proved to be the highest among the sample o f destinations
from Moscow. The supply i s poorly served and priced at higher than comparable fares.

New and Prospective Entrants

2.31 At present, there i s one private sector initiative to launch a new airline, Somon
Air, with operations in the domestic and the international market. The airline, would be
formed by a mixed capital of 51% local (Trust Corporation Orion International Bank)
and 49% foreign (Ikar Invest, o f the US) has already obtained an AOC15 and i s planning
to start operations by 2006.

2.32 T S A operates weekly frequencies into two destinations in Europe: Munich and
Istanbul. As compared to the traffic into the Russian market, this traffic i s mainly
composed by a business and VFR16 public, I t i s also characterized by a significant
proportion o f beyond traffic, or the passengers coming or going to points further afield
from M u n i c h and I ~ t a n b u l ' ~using
, both hubs to connect into Dushanbe18.

14
Global Distribution System, such as Amadeus, Sabre, Apollo/Galileo, Worldspan, etc.

l5Air Operators Certificate, on February 25, 2005

Visiting friends
l6 and relatives
l7In a lesser extent
l8Due to the fact that TSA does not have interline agreement with Western carriers, passengers do self-
connecting at these hubs. Therefore, there are no statistics o f how much o f this traffic is.

20
2.33 In meetings with operators and policy makers in Turkey and Germany, the
interest o f Turkish and German carriers in operating the Tajik routes was explored. The
following i s a brief recount o f the salient outcomes o f these discussions. .

Istanbul

2.34 The Turkish and the Tajik Government have been in long negotiations already
around the concrete interest o f Turkish Airlines to operate three frequencies to Dushanbe,
out o f Istanbul. I t should be stressed that Turkish Airlines i s the single designated carrier
by the Directorate General o f Civil Aviation o f the Turkish Ministry o f Transportation.
In addition, the Turkish Government s t i l l owns 75% o f the company's shares. The
remaining quarter o f the company was floated on the local stock market.

2.35 The Tajik DCA has systematically rejected any Turkish request that would imply
more than one weekly frequency f r o m Istanbul, and instead, has expressed flexibility o n
services to Ankara. Turkish Airlines operates a successful hub operation in Istanbul,
with an interesting connecting volume o f traffic linking Western Europe and the U S with
Eastern Europe, Middle East, Central Asia and the Far East. The entrance o f Turkish
Airlines in Dushanbe would represent a strong competition for T S A o n the traffic
arriving from points beyond Istanbul, namely the US, Western & Eastern Europe, and
even Moscow.

2.36 The Turkish-Tajik relations are currently ruled by a basic bilateral agreement that
lacks the specifications o f which routes are to be operated. Bilateral air service
agreements are often accompanied by documents (minutes o f meetings o f consultation or
memorandums o f understanding) in which conditions such as routes and capacities are
defined. T S A operates based o n a specific permission, setting an ad-hoc relationship o f
one flight per week. Based o n this accord, Turkish Airlines could operate once a week
from Istanbul, just by using the privilege o f reciprocity.

2.37 A service limited to one single frequency would lack any commercial appeal for
market development. In fact, most airlines would not enter into new routes with less than
three (or even four) weekly frequencies. I t i s virtually impossible to build up a business
traffic market, which i s the most profitable segment, without offering a flexible product
o f frequent flights per week.

2.38 The Turkish Government i s currently requesting at least two weekly frequencies
to start with, however i t hasn't been granted yet. One o f the reasons provided by the
Tajik authorities to block the petition i s the lack o f appropriate facilities at Dushanbe
airport. This argument evidences the direct .consequences o f the monopolistic power of
the airline in running the airport operations. I t i s obvious that the resistance f r o m the
Tajik authorities to grant additional frequencies to new entrants i s aimed to undermine
the possibility o f any competition. I t i s noted that as o f July 2006 the Turkish carrier
Turkish Airlines i s operating one (1) b.737-800 flight per week between Istanbul and
Dushanbe

21
2.39 The two governments have reached a compromising solution under which
Turkish Airlines would be granted acceptable conditions to initiate operations, with none
flight a week f r o m Istanbul. The consideration o f offering a number o f seats to T S A on
every Turkish Airlines flight, under some kind o f block spacekode share agreement, has
been considered by the Turkish Airlines management.

Munich

2.40 Lufthansa German Airlines operates out o f two hubs in Germany, Frankfurt and
Munich. Progressively, M u n i c h i s challenging Vienna in becoming one o f the major
hubs into Eastern Europe, with an increasing presence o f Lufthansa after the opening of
the new Terminal 2.

2.4 1 Although Lufthansa's expansion plan includes gaining presence in Central Asia,
their priority i s at the moment Kazakhstan. At this stage, Lufthansa i s not seeking entry
rights to operate to Dushanbe, so the German Government i s not investing any efforts in
achieving a bilateral agreement that would allow the German carrier to enter Tajikistan.

2.42 However, the increasing interest o f Western carriers to gain access into
Kazakhstan and t o other fast growing economies in the region opens the possibility to
connect Tajikistan to Western Europe via additional points within the region. The
connectivity within the Central Asia Region requires an effort towards an integrated
policy o f the countries aimed to mutual benefit f r o m the development o f regional hubs
for connecting o n medium and long haul routes. In other words, the increasing interest
o f European carriers in other countries o f Central Asia will open the possibility o f new
routes into European via points in the region. The degree o f regional integration in terms
o f air transport w i l l facilitate the connectivity of the individual countries with Europe and
the rest o f the world. Foreign carriers may find interest in developing regional hubs from
where the traffic f r o m the region will be distributed or collected. Fueled by the long haul
traffic, more services w i l l appear within the region, motivating a further integration of
the region, with i t s associated economic effects.

The Cargo market

2.43 There i s virtually no cargo traffic transported by TSA. This i s a consequence of

the type o f aircraft used by the airline.

2.44 Air cargo can be transported in two different forms, either on full cargo flights or
in the belly o f passenger airliners. Cargo transported on passenger aircraft is, capacity
driven. Since scheduling and frequencies are decided based on the passenger market,
belly capacity then becomes a derived consequence o f the passenger traffic.

22
2.45 The type o f aircraft used by T S A i s not suitable for cargo. The TU-l54s, mostly
used o n the international routes, provide very little belly capacity which i s mostly taken
by checked-in baggage”. I t s cargo compartments are also not designed for pallets or
standard cargo containers. As a consequence, passenger traffic does not generate capacity
that could induce cargo traffic.

2.46 Additionally, Tajikistan does not generate import or export o f high value goods
that could justify the operation o f full cargo flights. Because o f both reasons, the air
cargo market in Tajikistan remains undeveloped.

19
Very often, on inbound flights, baggage i s left behind at the point of origin due to the amount of excess
baggage carried by migrant workers returninghome.

23
 B. INSTITUTIONAL FRAMEWORK

Aeronautical Authorities

2.47 The institutional scheme in Tajikistan i s characterized by a great concentration o f

functions in two different entities: the Department o f C i v i l Aviation and the Tajikistan
State Air Company

The Department o f C i v i l Aviation (DCA) was created in December 2001 in an attempt to

respond to the pressure set by various multilateral agencies to separate the regulation
from the operations. Presently, i t s t i l l performs three functions2’:

a. supervision and technical regulation o f air transport

b. formulation o f air transport policy
c. accident investigation

2.48 All the functions o f operation are concentrated with the Tajikistan State Air
Company (TSA). T S A runs the airport operations, provides air traffic control services
and operates the national flag carrier.

2.49 The Government has recognized that this lack o f proper separation o f functions
creates conflicts o f interest, in which technical regulation can be affected by policy-
making and that control and regulation need to be performed independently, by a purely
technical body.

2.50 In the last “Summary Report o n the Safety Oversight Audit Follow-Up o f the
Department o f Civil Aviation of the International Civil Aviation
Organization pointed out that “the financial viability o f the DCA s t i l l remains a problem
as the necessary financial resources for the D C A to perform i t s safety oversight mandate
are still lacking”. Based o n preliminary talks, i t seems that the situation has not
improved since that last oversight mission.

2.51 The Government realizes that ultimately, to guarantee an impartial judgment of

events, the body responsible for the investigation o f accidents (and incidents) cannot be
the same as the regulator, nor the policy-maker. If the regulator i s the same as the

*’The functions assigned to the DCA are regulated by Resolution No. 361 dated “3 1” August 2004:
Regulation on Department of Civil Aviation of the Republic of Tajikistan
*’21 to 23 October, 2002

24
investigator, the investigator can end up being judge and party, when regulatory issues
are involved in the accident22.

Operation

2.52 All infrastructure operations in Tajikistan are performed by Tajikistan State Air
Company (TSA - or State Unitary Aviation Enterprise "Tojikiston"). The company was
founded in 1924 as part o f the Aeroflot Regional Directorate. I t then became an
independent entity in 1992, with the enactment o f the current charter by the Council o f
Ministers, after the dissolution o f the USSR and the collapse o f the USSR Ministry o f
C i v i l Aviation.

2.53 The company operates the airline, the airport and the provision o f air traffic
control services, the three entities bundled as one single company.

The airline, the airport and the ATC, indistinctly bundled

Transparency in accounting

2.54 The Government i s concerned about transparency in accounting and intends to

address this immediately. Under the current situation, the accounting procedures do not
separately reveal the different sources and expenditures for the different nature of
businesses. Moreover, there i s no management or informal reporting that addresses the
different businesses separately.

2.55 This lack o f reporting makes virtually impossible the execution and measurement
for a normal decision making process23. Managerial decisions need reliable information,

22 The Government intends to take a phased approach to address these issues over time. ( See Chapter 4)

25
in the same way that proper reporting i s basic t o measure performance and results of
decisions made. Basic costing and revenue management procedures are dependent o n
efficient budgeting and financial planning, which should be based o n analysis of actual
results. For most airlines, in particular, margins are so narrow that efficient accounting
systems are key to keeping costs and revenues under control as a condition for survival.

2.56 This integrated method o f accounting seriously compromises transparency in the

reporting procedures. I t i s extremely difficult to analyze the flows o f funds within, and
between, each one o f the different businesses to discriminate costs and to conduct a
comprehensive analysis o f expenses and revenues.

2.57 I t i s o f further concern that there are no audited financials available for TSA24,
raising further concerns about the reliability o f the information presented. In addition,
this lack o f separated accountings for the three businesses contributes even further t o the
lack o f understanding of the real financials o f TSA.

Control on cross subsidization

2.58 Today, i t i s not possible to obtain from the financial reports a clear picture o f the
sources and uses o f the funds, per each one o f the different three businesses operated by
TSA. I t i s likely that there i s a substantial cross subsidization between the airport and
ATC onto the airline, based o n the following facts:

The airline does not pay fees and charges for the use o f the airport facilities
based o n an estimate o f U S D 1,100 o f landing fee per operation, and
considering 2,120 operations as in 2004, i t could be estimated that the airport
i s subsidizing the airline by not charging approximately USD2.3m25per year.
the airline does not pay for the ATC services received
estimating the same amount o f T S A flights per year as in 2004, and assuming
an average revenue o f USD300 per flight, the ATC i s currently subsidizing
the airline by not collecting an approximate amount o f USD637k per year
the airline uses ATC revenues to cancel their o w n obligations abroad, for the
use o f ATC services in other countries
the airline does not pay the fuel handling services for the fuel purchased at the
airport (fuel handling i s operated by the T S A group)

23 During the process o f data collection, basic financial information and basic statistics required over a
week o f preparation from the Financial Planning Department. Other basic data such as statistics on aircraft
movements or general breakdown o f costs was reported to be unavailable at all.
24 To support this statement, it can be stressed that the information presented in the “Financial Statements
prepared in compliance with I A S for the years 2001, 2002 and the first six months o f 2003” by I M C
Consulting Limited, commissioned b y the EBRD, contains a disclaimer (page 2) that “We have neither
audited nor reviewed the mentioned financial statements, so we do not make judgements on i t s reliability”.
25 This figure i s conservative, since i t does not include revenues for aircraft parking

26
 the airport i s subsidizing the airline by not charging usual fuelling fees to the
airline
issues o f network pricing and location specific pricing require further
exploration

2.59 The cost structure o f the three different businesses i s integrated, and i t i s virtually
impossible today to allocate the operations and administrative expenses among the
different entities, some way o f cross subsidies do exist at this level, while i t i s not
possible to determine in which direction.

2.60 Beyond the rationale or justification for any cross-subsidies, i t i s necessary to

identify the flows o f fund that finance each business operations. Any business decision
and efficient management approach cannot be conceivable without reliable information
o f revenues and costs. Identifying those mutual financing flows i s not possible under the
current integrated scheme and given the lack o f proper accounting procedures.

Competitive environment

2.61 The Government has recognized that T S A as the airline also provides airport and
ATC services and that this represents a situation o f vertical integration o f activities that
does not promote a truly competitive environment. The danger o f the vertical integration
o f services o n business o f natural monopoly characteristics, such as airports, implies a
restrictive framework for other competitors to enter. With the specific example o f the
airport, the T S A as the airline could take advantage o f i t s monopolistic power as the
airport operator and restrict the access o f other competitors, or simply by discriminating
in the provision o f services. In addition, as the provider o f other services at the airport,
such as fuel, i t could restrict the supply o f fuel to competing carriers26. Similarly the
vertical integration of the airline into ATC services which i s monopolistic in nature,
could eventually be manipulated to exercise competitive advantage in relation to other
carriers.

Management efficiency

2.62 The three businesses are different in their kind and nature. There i s n o efficient
way o f managing a l l three o f them with an integrated management approach.

26
In fact, i t has been reported that fuel prices are manipulated at the airports in Tajikistan. Current fuel
prices are approximately U S D 9 5 0 per ton, as opposed to USD550 per ton in Russia. Allegedly, the
delivery o f aviation fuel i s monopolized and accompanied with huge intermediary charges. Competing
carriers have reported the existence o f discriminatory pricing, unfairly overcharging fuel supplied to the
foreign carriers, posing additional barriers to competition.. In fact, TSA has been suffering from
discontinued supply o f fuel at Dushanbe, because o f irregularities in their payments. As a consequence,
TSA occasionally may rationalize the fuel available to other carriers.

27
 C. AIRPORT INFRASTRUCTURE

Infrastructure

2.63 T S A operates a l l the airports facilities in Tajikistan, including Dushanbe Airport.

2.64 The airport o f Dushanbe has one runway (09/27) o f 3,100 meters long and 45
meters wide, suitable for most operations within the region27. The runway pavement was
repaved in 200528. The runway and taxiway system2' does not present any further
constraint for the approximately 70 handled operations per day. The airport used to
handle up to 300 operations per day during the Soviet times.

2.65 Approaches to runway 09 are supported by an Instrument Landing System (ILS),

although there are non-precision approaches3'. No visual aids are installed for visual
landing. The apron has plent o f capacity for aircraft parking. There are currently about
40 stands for aircraft parking5;.

2.66 The airport services are reported t o be basic, offering very poor level o f service.
There i s limited ground handling equipment, outdated and only suitable for a type of
aircraft that T S A normally uses. Baggage handling i s downloaded f r o m the planes into
construction trucks, quite primitive for this type o f operations.

2.67 The terminal building shows a serious lack o f maintenance, accumulated over the
years. Arriving passengers are bused to a very small satellite building outside the main
airport building, and required to wait over one hour to claim luggage, o n a single small
baggage conveyor belt. On departures, serious bottlenecks occur when more than one
flight i s being operated. The processing flows for check in are awkward, since only one
counter i s offered per single flight. The waiting lounge has approximately 180 seats, not
sufficient when t w o flights are about to leave at close times32.

2.68 Flights are often cancelled because o f airport problems, such as breakdown o f
equipment, lack of available fuel or other reasons. Communication with passengers i s

27 The length o f the runway could restrict long haul operations, in particular during the high temperatures
o f the summer, factored as well by the altitude o f Dushanbe.
28 The airport was closed for most operations between 8am and 8.30 pm local time during the process.
29 Five taxiways connect the runway to the main apron
30 I t has been reported that the system i s not a full I L S categorised equipment, due to the lack o f a proper
approach lighting system (high intensity)
31 Four for TU154s, 2 for TU134s, 4 technical for TU154s, 3 technical for IL76s, 16 for smaller aircraft
(AN24), 4 for helicopters, 3 additional for TU154s and 4 for TU154 currently occupied b y the French
Coalition Forces in Afghanistan.
32 Delays are common at Dushanbe, accumulating two flights or more at the same time, creating a chaotic
scene

28
 3,200

f ,000

e00

400

200

ed on airport ctinrges drre obtained frcin the selected

airports
 than any 117c

Source prepared by cansui t based (311 airport cha d from $tie selected
Graph 2.4
-
- Impact on senger
USD fanding and
passengers of Ian
charges on a pe
passenger charges

35.00

25 00
x
2000
8

5.00
 -
Table 2.7 TSA Financial performance
 -
Table 2.8 TSA F ~ n performance
a ~ ~ ~ ~ ~

11.8,"; 'Ihe ci ion of [he cox1 (4 2005. i s of' USD 14.97 n i i f l i o n s .

-
Table 2.9 TSA ~ ~ t ~debtt as~af June
~ d 2006i ~ ~

7 254 820
72,797,395

33
 -
Table 2.1 0 Major items accauntincr '71% of TSA ~ ~ t $ t a debt
n d ~ ~ ~

to
prtrhabt 4 on short tc'ritr.

ovm 13% of tttc total de

hc VIP hall. at the

that R
if i it I.

34
justification for this particular facility arouses serious concerns, given the present
conditions o f the Company.

Lack of strategy

2.94 While it can be argued that the current fleet i s sub-optimal in terms o f operational
costs, the fleet cannot be blamed for the mismanagement o f the Company. T S A s t i l l
lacks o f a proper transparent accounting system that could enable professional managers
to make decisions based o n business oriented criteria aimed at best practice parameters.
The idea o f incorporating new aircraft into the Company i s certainly not a strategy by
itself, but could eventually be a tactic, if i t would be following a particular strategy. In
fact, there i s n o clear definition of a strategy for the Company, although, in a recent
agreement reached between EBRD and the W o r l d Bank, the EBRD study i s proposing to
develop the needed strategy.

2.95 Currently, the only strategy the Company has i s the operation o f the airline with
monopolistic advantages given by a state policy o f regulating the market access. The
airport and the ATC are not conceived as businesses but mainly as cost centers for the
airline, and they may eventually generate some revenues.

2.96 The introduction o f new aircraft has no bearing to any defined strategy. For
example, the traffic f l o w n today to Russia - chiefly migrant workers - i s a captive traffic,
with n o option to choose. In an eventual deregulation and opening o f the market, this
very price sensitive type o f traffic would only follow lower fares, and not western aircraft
with better fittings. Also, the connection between more efficient equipment and lower
fares i s not straightforward in a company with virtually n o cost control.

Luck of cost control

2.97 Without a transparent accounting system, i t i s virtually impossible to implement

cost control procedures and budgeting and planning techniques o f management control.
Although a new accounting system i s supposed to be under implementation, i t will take
some time (from one to t w o years) until a full budgeting and planning technique i s
effectively implemented. Until this happens, any increase in the expenses (both capital
expenses as well as operating expenses) i s extremely dangerous, since a significant
proportion o f them could end up being wasted in unproductive uses.

2.98 The introduction o f a new airplane will definitely involve a significant amount o f
resources. The facility provided by the EBRD will not be covering any o f those, l i k e the
lease itself and all the associated capital expenditures associated with the introduction o f
new equipment (fittings, accessories, support equipment - ground and maintenance -
etc.). I f the Company would embark in such reform without cost control techniques,
valuable resources could end up in the wrong places.

35
The myth of efficiency

2.99 The further indebtedness o f T S A to lease t w o second-hand aircraft i s being

justified under the name o f efficiency. In order to achieve efficiency, efforts should be
placed first in controlling the uses o f resources and the revenues collected. Following
this, a sound strategy should be in place that would involve clear marketing techniques in
close collaboration with product design and operational performance. This process
would certainly generate far greater efficiencies than those that could derive f r o m the
introduction o f aircraft with lower fuel consumption flows.

2.100 In fact, within the Russian Federation, new airlines are mushrooming addressing
particular market niches. Among them, Mr. Abramovich's Air Bridge Alliance42 i s
progressively enlarging their operations across the country and internationally. I t should
be noted that the whole alliance i s operating mainly TU-154Ms (or "Emkas"), and yet the
company i s not only achieving positive results but expanding rapidly.

2.101 Furthermore, the document does not appear to incorporate a Return on Investment
analysis to justify the capital expenditure. Being the reform motivated by the
achievement o f efficiencies, i t should be expected that they are measured and assessed.
A feasibility analysis for the expenditure i s necessary, but not sufficient, to justify the
expense.

Lack of definition of thefacility

2.102 From the formulated document, i t i s s t i l l not clear the applications where the
facility being provided to TSA will be used.

2.103 Interestingly, there are provisions for the "modification of the aircraft or cabin
improvements " even before the equipment has been selected and any negotiation with the
lessor.

2.104 The document also proposes the "introduction of Central Reservation Systems
(CRS43)",although the project component description does not appear to include these
costs.

2.105 While it i s reasonable that the airline will need external advisory help to undergo
a package o f necessary reforms, the facility does not seem to address this crucial help.

42
By 2006 Samara Airlines, Omsk Airlines, Domodedovo Airlines, Kras Air and Sibavia Trans would be
consolidated under the name of Air Bridge Alliance or Union Air, (owned by Boris and Alexander
Abramovich).
43 Mistakenly named, since CRS stands for Computer Reservation Systems

36
 3. GOVERNMENT'S PROPOSED POLICY REFORM
A. RATIONALE OF THE REFORM

Improving connectivity

3.1 The recent scheme in Tajikistan was o f a protected environment for TSA, with
price controlling mechanisms and restricted market access. As a result o f that, a
significant mass o f workers that migrate to Russia to work and send their earnings home,
are s t i l l being taxed with one o f the higher air fares in the region. This situation
supported a state owned enterprise that i s poorly managed, with countless inefficiencies
and the reluctance to adopt modem business methods o f performing. At the end, the
migrant workers are covering all these inefficiencies with a significant part of their
earnings.

3.2 Roughly, about 600 thousand passengers travel to Russia every year, either b y
T S A or by any o f the carriers. Based on estimations f r o m industry people in Tajikistan,
about 90% o f those are migrant workers, accounting for about 540 thousand passengers.
Assuming a lower return air-fare o f USD 500, the total expenditures o f the migrant
workers would represent, at least, about 3.4% of the country's GDP.'

3.3 The Government's proposed policy i s one o f a gradual liberalization o f the sector,
both in terms o f market access as w e l l as o n price setting. The outcome would be the
progressive entrant o f new players into specific routes, driving air-fares to competitive
levels.

3.4 M o r e liberalized agreements should be pursued with all o f the bi-lateral partners
o f bilateral agreements, allowing all airlines to serve as many destinations as they wish,
with no capacity restrictions. The opportunities will remain open also for new countries
willing to establish liberalized relationships o f air traffic. The reform will include the
promotion o f deregulated agreements with flexible terms with respect to ownership and
control. The condition for designated carriers to be owned and controlled by o w n
nationals w i l l be replaced by the so called "Hong K o n g Clause", allowing for the
designation o f an airline that has " i t s principal place o f business" in the country o f
designation. This clause promotes the cross border investments allowing for the
establishment of new airlines at any side o f the border.

3.5 This liberalization o f the aviation sector i s likely to raise the number o f foreigners
visiting the country for business or tourism, thus increasing direct foreign investment and
local economic activities, especially in the service sector. Further, migrant workers will
be able to travel cheaper and more frequently. This will facilitate transfers o f technology

37
and exchange o f new ideas and experience brought in by the thousands o f Tajiks
traveling abroad.

3.6 T o measure the economic benefit o f a liberalized market and the subsequent
reduction o f air fares, using the minimum scenario o f zero elasticity which means an
equal mass o f travelers44, a reduction in air fares o f 22%45 would have an associated
benefit o f about USDGOm, or 0.7 points o f the 2004 GDP.

3.7 Although, with the present data available, the demand elasticity on price for Tajik
migrant workers traveling to/from Russia cannot be measured, any reduction in price i s
very likely to generate more frequent travel by same workers throughout the year, while
may facilitate the access to this labor market to more Tajiks.

3.8 With respect to incoming foreign traffic, the demand to air fare i s probably
inelastic. Most foreigners traveling to Tajikistan are not tourist related but business
related. The tourist market i s not dependent o n the air fares but o n the lack o f
infrastructure in the country.

Assisting the airline to be competitive

3.9 The liberalization need not pose a threat to Tajik Air. On the contrary, i t will
reprzsent an opportunity to adapt to a more competitive environiilent, by becoming more
efficient and preparing i t to provide a better service.

3.10 The implementation o f the Government's liberalization policy i s proposed to be

gradual, to allow the adaptation o f the national flag carrier to the more competitive
situation. In parallel with the liberalization process, a restructuring plan for the airline
will be implemented in phases, with the objective to provide competitiveness to the
national flag carrier by the time the market i s challenged by international contenders.

3.1 1 The reform for the airline i s being viewed as the adaptation for the inevitable,
which i s the globalization o f the air transport market and the liberalization trend that i s
progressively expanding. Those carriers that do not adapt to the change, while they
enjoy a certain level o f protection, w i l l hardly survive the deregulated competition. The
reform thus should be viewed as inevitable, where "only the fit will survive".

3.12 The Government i s aware that such restructuring i s not free o f costs which the
airline does not have the resource to meet. This vicious circle can only be broken by
ensuring a transparent accounting and reporting system, a clear strategy for becoming
competitive as the sector liberalizes and a financing plan for implementing such a
strategy. Without this the airline will not only not be able to attract the required

In fact demand i s elastic and w i l l increase with a reduction in air fares.

45 Based on' similar air fares available on competitive markets

38
financing to implement the strategy, i t will in a l l probability also not b e able to secure the
financing for the two aircraft i t seeks to acquire or secure i t at a viable cost o f financing.

B. GOVERNMENT'S PLAN FOR LIBERAZATION

Towards a liberalized environment

3.13 T o achieve these objectives, the Government will adopt a policy towards a more
open market by gradually liberalizing the international air traffic market to increase the
access o f foreign carriers into Tajikistan.

3.14 An ultimate unrestricted market would mean:

(a) f r o m any point in the other country to any point in Tajikistan, and vice
versa
(b) multiple designation o f carriers o n all routes
(c) no price control o f any kind

This means that each country will allow the carriers designated by the other
country to operate to any o f the cities in i t s o w n territory. In the same
fashion, following the principle o f reciprocity, the carriers designated by the
lSt party, w i l l be able to fly revenue traffic to any international destination
in the territory o f the 2nd.Party.
Each side w i l l be able to designate several carriers, as long as they comply
with some technical and economic regulatory issues.
With respect to control o n air fares, airlines will be completely free to set
their o w n prices, since i t w i l l be the market that w i l l set the prices. The
anti-monopoly agency may have some interference in cases where price
dumping i s reported, but o n a demand driven basis.

3.15 The implementation o f such a liberalized policy by the Government o f Tajikistan

i s actually not unilateral, since i t depends on the other party and its willingness to
liberalize and to renegotiate the respective bilateral air service agreement. Most o f the
countries dealing with Tajikistan are far more liberal and already expressed their
intention to be more open.

Gradual plan

3.16 The liberalization plan will be phased in order to allow a gradual transition f r o m
the current situation to the ultimate desired status. The gradual process will allow T S A
to restructure and become more competitive so as to adapt better to the changing
competitive condition.

39
3.17 I t i s envisioned that a liberalization plan that will take 5 years to b e fully
implemented, sufficient time for the airline to adapt. The following milestones are to be
achieved at the end o f each phase.

Phase I:first year

permit at least 1 new Western European46 carrier linking Dushanbe with

any destination within i t s o w n country (no restriction on the number o f
points o f origin on the other country)
this carrier should b e allowed to operate at least 3 weekly frequencies,
without specifying the type o f aircraft
no restrictions o n traffic beyond (Fifth Freedom)47
no price control o n the new route (free competition)
multiple-designation o n the Moscow-Dushanbe route, allowing the entry
o f at least one additional carrier per side
full reciprocity o n the Moscow-Dushanbe route, allowing Russian carriers
to match the capacity offered by T S A (14 weekly frequencies)

3.18 During this first year, a foreign carrier will start operating flights f r o m Western
Eurcpe, connecting also to points "beyond", meaning carrying traffic f r o m Tajikistan to
other countries, but always through i t s own base4*. The allowance o f three frequencies i s
the minimum that will be required for any large operator to develop the premium
business traffic. In most cases, less than three frequencies would not be enough and
would deter new entrants49.

3.19 The introduction o f a new carrier w i l l provide competition, so price control

should not be required. However, the anti-monopoly agency should remain alert to
possible collusion between operators.

3.20 Multiple designations o n the most profitable route, Moscow-Dushanbe, w i l l

represent the entrance o f as many airlines as each side allows, s t i l l limited by the total
amount o f frequencies served per side (14 weekly at the moment).

46 This should not apply for Russian carriers

47 This means that the foreign carrier w i l l be able to carry passengers from Tajikistan into third countries,
through i t s own country, and vice versa (from third countries, through i t s own country, to Tajikistan).
48 This i s called Sixth Freedom Right: The use b y an airline o f country A to carry traffic between two other
countries but using i t s base A as a transit point
49
In fact, even three frequencies may not be appealing enough for many carriers. Even where the market i s
uncertain, capacity once in place, allows the carrier to build up volume over time through marketing and
other means and the route, if successful, may help the carrier to break even. In this way, allowing capacity
to be in place, helps to build traffic, implying tourist trade and investment.

40
Phase 2: second year

The Government will:

allow 1 new foreign carrier to operate between Dushanbe and any

destination in Western Europe or the M i d d l e East
increase the flight to at least 4 weekly frequencies for a l l foreign carriers,
on any type o f equipment
0 allow entry o f one additional (third) carrier per party o n the Moscow-
Dushanbe route, increasing the capacity to up to 21 weekly frequencies
per side

3.21 One additional point i s now allowed, that could be either to Western Europe or
the Middle East. The increase o f at least four frequencies will make the route more
appealing for carriers catering the business traffic.

3.22 On the route to Moscow,'the addition o f one daily flight will increase the capacity
by over 33%.

Phase 3: third year

The Government will:

allow5' up to 2 new foreign carriers to operate between Dushanbe and any

destination in Western Europe or the M i d d l e East
put no restrictions on capacity offered o n these routes
put n o restriction o n capacity on the Moscow-Dushanbe route, for the
three designated carriers o n each side
The total number o f carriers per side i s now four, linking Dushanbe with
four possible destinations. Capacity restrictions are now totally lifted.
With respect to the Moscow-Dushanbe route, while there are no new
entrants, capacity offered will now be totally free f r o m restrictions.

Phase 4: Fourth year

The Fourth year program will include:

allowance o f 2 new routes to any country (excluding Russia) under

unrestricted terms

50 i.e., not prevent but also not require if the market does not support it. Any restriction or obstacle w i l l be
removed to allow the market to play i t s role and evolve.

41
 total deregulation o n the Moscow-Dushanbe route, with no restrictions o n
designation, capacity or pricing
At this stage, Dushanbe could be reached f r o m 6 points in any country
(excluding Russia). Russia i s excluded because points in Russia - other
than Moscow - are currently w e l l served.
By year four, the Moscow-Dushanbe route w i l l be totally liberalized.

Phase 5: Fifth year

full deregulation an all routes (free designation, no limit o n capacity, n o

price controls)
On the fifth year, liberalization would take place in all of the international
markets.

-
Parallel Activity Airline Reform:

3.23 The Government o f Tajikistan i s rightly concerned about the ability of the
National Flag Carrier to weather the onslaught o f competitive forces into the sector,
given * i t s weak management, controls and resource availability. However, the
Government recognizes that the answer i s not, not to allow liberalization, but rather to
strengthen the airline's management, controls and competitive ability so that i t can in fact
withstand the advent o f competition. Accordingly, the actions that w i l l be taken to effect
this strengthening are discussed in more detail in the next section under "Airline
Reform".

Measurable risk:

3.24 A non desirable consequence o f the liberalization reform would be the incapacity
o f Tajik Air to be able to cope with the new competitive environment. In such a case, the
airline while not able to compete under free market conditions may be forced to
bankruptcy, and Tajikistan would lose i t s national flag carrier.

3.25 Such scenario would therefore involve the loss o f jobs related to the airline.
However, such consequence would force a transformation o f the company o f separation
between the airport and ATC operation from the airline. Both the airport and the ATC
would not cease operation, mostly on the contrary, would be managing more volume of
traffic derived from the increased presence o f competitors that took over the market.

3.26 I t should be stressed that the airline reform proposal i s aimed to mitigate the risk
associated with an airline liquidation, b y preparing the company to afford the new
challenging situation.

42
 4. GOVERNMENT’S PROPOSED IMPLEMENTATION
FRAMEWORK
A. INSTITUTIONAL REFORM

Separation o f functions

4.1 The proposed institutional framework i s based on the strict separation o f

functions between the policy maker, the operator, the technical regulator, and the
investigator. Unless these functions are not separated, conflicts o f interest may interfere
in the correct performance o f their functions.

4.2 The following graph represents the proposed institutional arrangement for the air
transport sector that will be ultimately realized under the Government’s phased program.

I Proposed Institutional Arrangement for the Air I ransport Sector

4.3 The role o f each one of the different bodies will be as follows:

Policy maker:

This function should be retained by some Ministry office within the Government. This
body will be responsible for setting the policies that shape the sector, including bilateral
and multilateral agreements, tariff regulation, market access ,foreign investment
,designation issues concerned with capacity allocation between competing carriers when
dual or multiple designation exists as w e l l as consumer protection issues and security
related matters .

43
Technical Regulator

4.4 The technical regulator i s the body responsible for the observance o f the safety
standards with respect to air transport. These standards emanate f r o m the local
applicable laws with respect to air transport safety, as w e l l as f r o m the norms and
recommendations f r o m the 18 Annexes to the Chicago Convention (1944) o f the
International Civil Aviation Organization.Currently, this role i s performed by the
Department o f Civil Aviation o f Tajikistan (DCA). With respect to Aviation Security
(Annex 17), this i s the responsibility o f the “aviation security services of aerodromes and
airports, the military security units o f aerodromes and airports, the aviation security
services o f the exploiters (aviation entities) as well as the specially authorized bodies
vested with this right by laws o f the Republic o f T a j i k i ~ t a n ” ~ ’ .

Operator:

The operation of each one of the three services will be separate entities, as the
Government recognizes that i t i s crucial that the airline i s operated completely
independent f r o m the airport and the air traffic control, preventing a vertical integration
of the airline into these two monopolistic services.

Accidents investigator: While initially contained within the DCA,

eventually, the investigation o f accidents and incidents should be the
responsibility o f a body totally independent f r o m any of the other agencies
involved in the sector. In many countries, this function i s assigned to a
specific body linked directly to the president o f the country or the
congress, bypassing also the ministry and all other organisms with direct
or indirect responsibility o n the sector. In Tajikistan, this responsibility
could be initially assigned to a separate body that reports to the Office o f
the President, with capabilities to oversee the functions o f any other party
potentially involved in an accident, including the policy maker, the
regulator and the operator.

4.5 The separation o f functions will involve the formulation o f a complete new
regulation. Currently the functions assigned to the DCA are regulated by the Resolution
No. 361 dated “31” August 2004 o f the Government o f the Republic o f Tajikistan, on the
“Regulation of Department o f C i v i l Aviation o f the Republic o f Tajikistan”. The current
regulation consists o f an amalgamated description o f all the functions that are normally
accomplished by the three bodies independently (the policy maker, the technical

5’Air Code of the Republic o f Tajikistan, Chapter X I I : Aviation Security and Safety, Article 76: Aviation
Security - of November 1998

44
regulator and the accident investigator), and some provisions allowing the possibility o f
functionaries o f the Department to be employed by the regulated institutions.

4.6 The proposed reform w i l l include a completely new legal framework, involving
specific regulations for each one o f the independent bodies.

B. AIRPORT REFORM

4.7 All the airports currently managed by T S A will be placed under the
administration o f an autonomous body with responsibility for running the airport
business. Such a body should be a state owned corporation, conducted under purely
commercial principles for the interest o f the Tajik people.

4.8 However, this airport corporation will be managed at arm's length o f the
government, far from political pressure and policy making. In fact, i t s governance body
will be formed by an apolitical board, with active participation o f the investment
community, the industrial sector and the academy.

4.9 Such an airport corporation, totally independent f r o m the airline business, i s

likely to treat equally a l l airlines based o n competitive terms, and following the non
discriminatory principles o f airlines, as underlined by ICAO.

4.10 I t i s expected that a business oriented corporation will be able to exploit in a

better way the non aeronautical businesses associated with the airport. A better layout of
the facilities and the incorporation o f commercial activities may allow the airport to
obtain, conservatively, at least an additional 20%52o f revenues. A high proportion of
greeters and meters and the existence o f a range o f services either not exploited or not
charged today (e.g. car parking, food and beverage, etc.), supports the notion that
additional sources could be obtained f r o m the non aeronautical activities.

4.11 Currently, there i s no information about the airport cost structure. However,
given the existent charges structure, with values w e l l above competing facilities, the
potential exploitation o f commercial revenues, employing a reduced and efficient work
force, under a cost efficient structure, and without significant capital expenditures to be
carrier out, there i s no reason why the airport should not be able to generate revenues to
cover i t s own operational costs.

52 The proportion o f commercial revenues o f the aeronautical revenues varies significantly from country to
country. However, at middle size airports like Dushanbe, and given the low purchasing power of the
travellers, i t i s conservative to estimate a 20% o f additional revenues from the commercial operations.

45
 C. AIR TRAFFIC CONTROL REFORM

4.12 In a similar fashion as the airport business, the ATC will be managed
independently as a separate business. The f o r m o f a state owned corporation can also be
used, following the same scheme applied for the airport company.

4.13 As an alternative option, as a second best option, the provision o f ATC services
could be provided by the same authority or company that operates the airport
infrastructure, following the same guidelines defined for the exploitation of the airport
business.

D. AIRLINE REFORM

Audit and control mechanism

Financial audit
A financial audit becomes imperative before any reform o f the company.
Management will have to analyze the level o f resources available but w i l l also
have access to the correct information for decision making purposes.
Any action o f reform will need to be measured based on reliable information.
The financial information i s crucial to design the strategk planning o f the
company.
Implementation o f basic control mechanisms
In an immediate term, basic management control & reporting procedures will
be set in place. In a later stage, accounting procedures will be defined and
implemented, in order to assure a constant f l o w o f reliable information for
management and decision making. Accounting systems w i l l then be defined
and integrated into corporate manuals. In addition, management reports
systems and budgeting and planning procedures will provide day to day
supportive data to management.

Development of a Strategy for Competitiveness

4.14 The management o f the airline will develop a sound strategy that will allow the
airline to meet the challenge o f affording foreign competition serving the same routes.
The strategy w i l l comprise a comprehensive business plan to be implemented along a
phased process that will accompany the air transport liberalization reform. The strategy
should include the following:

46
Strategic Planning
Strategy definition

4.15 The definition o f the strategy should involve the introspective look of the
company's management to understand "what airline they want to be". Such a forward
looking perspective w i l l include the environmental conditions and trends, involving not
only the economical and political framework, but also the competition. "The essence of
strategy formulation i s coping with ~ o m p e t i t i o n " A
~ ~strategy
. i s a deliberate search for a
plan o f action that will develop a business's competitive advantage, and compound it.

The strategy w i l l involve the definition o f what kind o f airline the government i s looking
to have, and drawing a strategic plan accordingly.

Definition o f Objectives & Strategic Goals

The strategy will involve the definition o f objectives and goals, along the line of the
defined strategy.

Planning
4.16 Design o f the route map will be designed to guide h o w the strategy with i t s goals
and objectives w i l l be achieved. I t w i l l imply the appropriate allocation o f resources to
achieve the objectives and goals, along a specific time frame. The strategic plan will be
consistent with the staged process o f liberalization o f the aviation policies for Tajikistan,
allowing for a gradual strengthening of the airline against the competitors in the different
markets. For this reason, the plan w i l l have different scopes, for short, medium and long-
terms.

4.17 The strategic planning w i l l consider the industry trends regarding business
models, product definition and aviation policies. In addition, target market will have to
be defined, on a route per route basis. This w i l l lead to the product definition process.

Product planning
Route network
The definition o f the target market should be directly linked with the definition of the
route network. The network may vary along the strategic plan, based o n the phased

53
Michael Porter, H o w Competitive Forces Shape Strategy (Harvard Business Review - Strategy -April
1979)

47
liberalization o f the markets and the changes in the competitive environment. This will
also consider scheduling, frequencies, and punctuality.
The definition o f the route network w i l l involve definitions about airline hubs, selection of
airports, connecting points with other partners and agreements with service providers
(maintenance, ground handling, catering, etc.).

Pricing policy
A key feature o f the product planning i s the pricing policy. I t w i l l include the definition
o f the pricing objectives, pricing strategies, fare structures, criteria used for revenue
management mechanisms and the marketing strategies in pricing.

Type o f service
The strategy w i l l also define the type o f service that w i l l be provided. This will involve
the range o f services and the level o f integration o f other related services (airport
services, VIP lounges, ground transportation, o f f airport check in, in-flight service
classes, policies o n baggage, etc.)

Fleet
Consistent with the strategy, the route network and the type o f service will dictate the
type o f fleet the airline w i l l require, along with other resources compatible to the fleet
structure. The acquisition o f the two aircraft (urgent though this i s in view of the
forthcoming retirement o f the T U - 1 5 4 ~ ) ~should
~, only be undertaken as part o f such a
strategy. N o t to do would result in the high likelihood that the acquired aircraft may not
ultimately fit the strate adopted and end up becoming set o f "white elephants" which
the airline can illafford $l

Marketing
Marketing strategy
The marketing strategy will involve the identification o f market segments, definition of
distribution channels, promotions, and revenue management criteria.
The distribution strategy w i l l include the relationship with the General Sales Agents
(GSA), distribution commissions, selection o f the Computer Reservation System (CRS)56
platform, interfaces with other CRS systems as w e l l as GDSs and e-ticketing.

54 Given the urgency posed b y the retirement o f the two TU 154s, the airline must immediately seek
assistance to commission the advisory services to help it prepare the need strategy).
55 E.g. the decision between a B757 and a B767 would, inter alia, be determined by the role and importance
that freight would play in the competitive strategy developed for the airline.
56 The main CRS are Amadeus, Sabre, Apollo/Galileo and Worldspan.

48
Marketing strategy w i l l involve image o f the airline, including the logo, corporate
message, advertising and media coverage.

Production strategy
The production strategy w i l l involve agreements with other carriers, code share accords,
alliances, joint production o n specific routes, etc. The strategy w i l l reflect the consistency
with the overall strategic plan.

Business Implementation Plan

Allocation o f resources
The Business Implementation Plan w i l l review the resources available to the company
and assess the requirements according to the strategic planning. This task will include
human resources, fleet assessment and renewal options, information technology, systems,
facilities, workshops, offices, etc.

Ownership transformation options

I t i s advisable that the airline will become an independent corporation, even if retained as
a state owned company.
The status o f Independent Corporation will assure the independence f r o m political
influence and freedom from the state apparatus possible red tape.
Ownership options will be evaluated at some point, allowing for the consideration of
private sector participation in the company, as an alternative for cash injection and
managerial acquisition.

49
 5. CONCLUSIONS AND NEXT STEPS
A. CONCLUSIONS

The aviation sector in Tajikistan i s struggling today under a very restrictive air transport
policy. Together with it, the whole economy o f the country i s being deprived f r o m the
derived benefits o f better connectivity, such as trade, travel and technology transfer.
While maintaining safety as the highest single priority, the Government recognizes that
the air transport policy should allow for a liberalization o f the markets, allowing better
connectivity with more efficient services at lower prices.
The only possible way to ensure the implementation of a liberalized policy, an
appropriate institutional framework needs to be in place, allowing for the complete
separation between the policy maker, the technical regulator and the operation. With
respect to the operation, the airline, the airport and the air traffic control will be
separated, in order to assure truly competition.
Currently, all operations activities are concentrated at TSA. T S A i s today an inefficient
company that provides a poor service to i t s customers at prices that are high and provide
an involuntary price umbrella for the ~ o m p e t i t i o n ~I t~s .present existence was granted by
a protective environment, where a concentrated institutional framework allowed
regulation to be tinted by policy motivations.
Instead o f promoting transparency in accounting and efficiency in operations, there have
been initiatives to grant further loans that would end up fueling costs and inefficiencies,
while not achieving any o f the promised results.
At the bottom line, a l l these inefficiencies are paid by the migrant worker community
that travels to Russia at unjust air fares, representing a substantial part o f their earnings.
A new policy that would liberalize the sector will promote efficiency and lower the costs
o f travel, relieving the tax on a huge mass o f people that i s crucial to the economy of
Tajikistan.

57. For example: When Turkish Airlines started, they, reportedly, were required to get price approval from
the TSA finance department and had to set their prices higher than TSA.

50
Y
 B. A C T I O N PLAN

In recognition o f these issues, the Government o f Tajikistan w i l l take action towards the
reform o f the sector in three different stream lines:

Policy Actions

Policy actions will be in line with the promotion o f a deregulated environment, in terms
o f capacities, prices and liberalized technical restrictions. These actions are not time
bounded, but they w i l l be carried out on an ongoing process.
Promote a liberalization o f traffic rights, by pursuing a gradual
liberalization o f the agreements, tariff deregulation and facilitation o f
cross border investments. This involves a process o f definition of
guidelines to be followed by the policy makers, and the subsequent
implementation o f individual actions towards those guidelines.
Promote the competitiveness of the regulatory environment. As an
ongoing process, this action will involve the revision o f all the restrictions
that result in higher operating costs in Tajikistan, damaging the
competitiveness o f the country's air transport sector.
Separation strategy o f the three different businesses. This process will
come after the implementation o f the management control procedures,
since the preliminary results are crucial for the separation strategy design
o f the three businesses.

Institutional actions

This stage will commence with an institutional reform process with the ultimate goal of
separating the functions o f policy making, regulation and accidents investigation.

Institutional strengthening reform design: This will involve the definition

o f each department function and responsibilities, staffing, training and
financial sustainability.
creation o f an independent policy making body (Civil Aviation Board or
similar)
strengthening program for the technical regulator (CAA) and free f r o m
political or Tajik Air interference
creation o f an airport authority with responsibility to run the airports o f
the country (this body w i l l eventually concede the operation to the private
sector and may retain economic regulation functions o f the concession),
taking over the airport operation today under T S A
the provision o f the air traffic control as a separate unit, taking over the air
traffic entity today under T S A

51
 development o f a capacity building program
0 Legal and organizational implementation: The implementation will
involve legal and organizational inputs.

TSA reform

The reform o n T S A will pursue the accountability o f the company as i t i s today

(comprised o f the three different entities), and the definition o f the business strategy.
This process w i l l involve five specific actions:

Financial audit: i t w i l l imply a comprehensive audit o f a l l costs and

revenues as well as the precise definition o f balance sheet. The outcome
will be the production o f complete financial statements for the group and
for each one o f the different business entities.
Implementation o f basic management control & reporting procedures: By
the second month o f the audit study, the implementation o f management
control procedures w i l l be implemented, with the intention t o monitor the
development o f the company f r o m the moment the audit becomes
available, until a formal accounting system i s in place. These procedures
w i l l remain as a k e y tool for managerial decision making, interfacing with
the accounting system in place. This process will involve design, training
and implementation.
Implementation o f I A S accounting systems: This will involve the
acquisition and implementation o f a full accounting system that w i l l
consider the three different business entities as business units o f the same
group, facilitating the later separation.
Legal and organizational implementation o f the separation strategy of the
three different entities bundled today under TSA: At this stage, the
implementation will take place, involving legal and organizational
support.
Airline business strategy: a business strategic analysis should prepare the
company to be ready to meet the challenges o f competing o n a free market
environment, along the gradual liberalization process o f the aviation
policy.

52
 C. SCHEDULE OF IMPLEMENTATION OF RECOMMENDATIONS

The following timetable shows the sequence o f recommended actions.

Tajikistan Air Transport Reform

Time frame for implementation o f recommendations (first year)

separation strategy of the three different businesses

--
I-

........... ...............

on going process

53