Branson to Start Airline in Russia

bloombergRichard Branson speaking during an investment conference on Thursday.
It could be one of his most ambitious projects yet. Virgin Group chairman Sir Richard Branson, one of Britain's most prominent entrepreneurs, said Thursday that his firm was in talks with local partners to establish a new Russian airline, one of several possible new ventures.

Virgin is in talks with "two or three" local carriers and expects to make an announcement about a new partner in the next three months, Branson told reporters at an investment conference in Moscow.

"We are in discussions about setting up a Virgin Russia airline," said Branson, adding that he saw an opportunity for a well-run carrier to take away market share from the current participants.

"We think we can maybe do it better than it is being done at the moment," he said. "There's lots of potential to take business away from the rail service."

Questioned on everything from oligarchs' yachts to philanthropy, Branson -- dressed in an open-necked pink shirt, blazer and jeans -- entertained investors with stories of his own experiences as an adventurer and maverick businessman.

London-based Virgin Group runs more than 400 businesses, ranging from selling wine to limousine chauffeur services, and includes the Virgin Atlantic carrier, which is 49 percent owned by Singapore Airlines.

Virgin is already successfully operating internal airlines in other markets, including Australia and the United States. In Nigeria, Virgin set up a local airline after a spate of crashes on internal flights had left the reputation of the West African country's airline industry in tatters, Branson said.

But Branson -- no stranger to conflict with the established players after a long-running, bitter battle with British Airways -- may find Russia a tougher nut to crack.

On the sidelines of the seminar, Deputy Transportation Minister Boris Korol said that while Russia was open to money from abroad, the authorities are wary of too much foreign influence in the airline sector.

"Every government naturally tries to protect its own industry to some extent, but we don't reject investment," Korol said.

Current legislation prevents foreign operators from owning a blocking stake in any of its domestic carriers. Korol said the government had no plans to change the rules anytime in the near future.

"But we are scaring our domestic airlines with this threat," he joked.

State-owned flag carrier Aeroflot, which has over the last few years gone to great lengths to shake off its image as a lumbering Soviet relic, appeared unconcerned about the prospect of a new airline on the domestic scene.

"Why should we fear competition? We have always struggled with competition, so what do we have to fear?" Aeroflot chief executive Valery Okulov said on the sidelines of the forum.

Branson declined to name the airlines Virgin was holding talks with, but internal budget carrier SkyExpress confirmed Thursday that it had held discussions with the company.

"There have been some meetings so far," SkyExpress spokesman Vitaly Korenyugin said. "The talks are about a partnership and not about a buyout."

Launched last January as Russia's first low-cost airline, SkyExpress is the brainchild of Air Union chief Boris Abramovich and received start-up funding from the European Bank for Reconstruction and Development. Now Russia's seventh-largest carrier, it operates nine routes.

Virgin is also in talks with Red Wings, a low-cost airline being formed by Alexander Lebedev's National Reserve Corporation, Korenyugin said.

Lebedev did not immediately respond to a request for comment Thursday.

Another possible partner for Virgin is Alfa Group-linked Avialinia-1, another low-cost project in the pipeline, said Oleg Panteleyev, an aviation analyst at Aviaport.ru.

Both Korol and Okulov acknowledged the massive potential for Russia's nascent budget airline sector.

Panteleyev said that if Branson were able to gain a blocking stake in a domestic airline, it would shake up the industry.

Among the British entrepreneur's most ambitious projects yet is Virgin's space-flight program, where budding space travelers can stargaze for just $200,000. Russia's Federal Space Agency is the only other player in the market, offering flights to space tourists for a cool $20 million. While there are no immediate plans to bring Virgin Galactic to Russia, Branson said, he would be "delighted" if the demand arose.

Branson also said he was looking at breaking into the Russian media market with plans to bring Virgin Radio to the country. He offered no further details, however.

Just days after traveling to China in the company of British Prime Minister Gordon Brown, Branson emerged as the leading contender to rescue Northern Rock, the troubled British bank that has been pushed to the brink of bankruptcy amid the subprime credit crisis. The Bank of England has provided a ?24 billion ($48 billion) emergency loan to the bank to safeguard depositors' savings.

Branson said his consortium, which also includes insurance giant AIG, would submit its final bid for the mortgage lender Monday.