The modern Russian airline industry, born out of the demise of the Soviet Union and the reorganization of one-time state behemoth Aeroflot, is slowly regaining some of the momentum lost with the chaos and economic slowdown of the early 1990s.

"Demand for air transportation depends upon the soundness of the economy," said Igor Samoilov, head of the analytical department at the State Research Institute for Civil Aviation in Moscow. "And since economic prospects in Russia are good now, the prospects for Russian airlines also look good for the future."

But it won't be a totally smooth ride, most experts agree, and the airlines are just getting off the runway in their bids to build passenger and cargo traffic back to 1990 levels. They have more than enough planes to build up their business, experts say, but face several obstacles, such as the low ticket-buying power of most Russians and competition from foreign giants.

During the communist era, the country's only air carrier was the government-run passenger and cargo giant, Aeroflot. With the breakup of the Soviet Union, each of the newly independent states aquired a portion of Aeroflot's assets. Some formed national airlines, such as Uzbekistan with its Uzbekistan Airways, or Belarus with Belavia. Others privatized.

During the first wave of privatization, in 1992 to 1994, many regional divisions of Aeroflot became separately owned carriers, such as KrasAir of Krasnoyarsk and Dalavia of Khabarovsk. Today, Aeroflot is competing with its former divisions and other independently formed carriers for Russia's passengers and cargo, worth an estimated $2 billion in business a year.

Russia's domestic airline sector has suffered since it was dealt a huge blow early last decade, when the economy slowed and demand for air transportation tumbled. It only got worse as the uncertainty following the breakup of the Soviet Union intensified and confusion over the fate of the country's airline industry grew. In 1990, 94.3 million passengers and 2.46 million tons of cargo took to Russian skies. Throughout the '90s, volumes fell to 21.5 million passengers and 493,800 tons by 1999.

"The domestic passenger air-travel market is one-third the level it was 1990," Samoilov said. "And it is not likely to reach that year's performance until at least 2015. [Performance] will most likely stagnate for another two to three years before starting to pick up."

As airlines look for more business, the cargo market is outperforming the passenger sector. Although it, too, shrunk from 1990-1994, the market has seen growing volumes ever since and has reached the 1990 level based on ton-kilometers. The prospects for the air cargo transportation industry's development are better, experts say, because it can respond faster than the passenger market to improvements in the overall economy.

Despite their bad reputation abroad and the age of most of their fleets, Russian airlines generally have good safety records, according to Samoilov. Nobody died in a plane crash on regular routes in 1998 or 1999, officials said.

In developing business in the 1990s, most airlines were able to buy inexpensive, Russian-made aircraft from foreign operators that had purchased them in previous decades from the Soviet Union.

Eastern European airlines, such as those in Hungary, the Czech Republic and Poland, became better off financially and could afford Western-built jets, so they resold their old planes to the new Russian carriers. And as Russian airlines grabbed up the planes at bargain-basement prices, they now own more aircraft than they can make use of.

"The fleet of Russian airlines is more than abundant," Samoilov said. "They could easily transport more passengers and cargo than they do now. Supply is four to five times bigger than demand for air transport services."

Despite the excess capacity, most air companies cannot reduce their fares any further than they have because operational costs remain high. The cost of air fuel tripled in 1990 as oil prices soared, said Samoilov, who added that overall costs are likely to increase in the future as airlines replace their fleets. "The operational costs of new aircraft are even higher than with the older planes," he added.

Some experts caution that the Russian domestic passenger airline market may have reached its peak level, regardless of what fares do. Most of those who fly are businesspeople or the extremely wealthy and already fly whenever they must travel. Other people see air travel as unaffordable and would not consider it even if fares were to stay the same or come down a bit. "The airlines lost ordinary people as customers back in 1991 and 1992 [when the economy deteriorated]," Samoilov said.

Russian air carriers are experiencing growth on their international passenger services, with a 20 percent gain since 1990, but many still don't see the sector as a priority because of their inability to compete with major foreign carriers.

"Russian airlines are strong on domestic flights, not on international flights," said Alexander Andreyev, an expert at Brunswick Warburg in Moscow. "Even Aeroflot, which is Russia's only important player in the international market, does not see international flights as a competitive advantage."

Andreyev said that Russian airlines would most likely form alliances with foreign carriers for international flights. "Aeroflot will be one of those to form that kind of alliance, and one or two others are likely to do so," he said.

Here's a look at Russia's top 10 airlines, based on their aggregate passenger and cargo transportation volumes in 1999, according to Aviation Market Bulletin:

Aeroflot

Aeroflot, which was formed in 1932 and for many years was the country's only airline, remains the leading carrier, even though many of its former regional divisions have become competitors.

The Russian flagship – the state still has a 51 percent share – hopes to enter an alliance with Delta Airlines of the United States and Air France no later than 2003, company officials said. Among the projects currently under consideration is the construction of a new terminal at Sheremetyevo II international airport.

While focusing mainly on domestic routes, Aeroflot also is exploring new international destinations. It has recently opened a route linking Moscow with Shanghai, the first route between the Chinese provincial capital and a European city. It also has many flights to Western Europe and the United States.

Domodedovo

Domodedovo airlines, Aero-flot's former division based at Moscow's Domodedovo airport, was the second-largest Russian carrier last year. The company parted with Aeroflot two years ago and has operated as a joint-stock company, 100 percent of its shares being owned by the state.

Domodedovo airlines says the company's main focus is on long-range passenger flights to domestic destinations such as Magadan, Petropavlovsk-Kamchatsky, Vladimvostok and Youzhno-sakhalinsk.

The airline has signed commercial cooperation agreements with several CIS airlines, including Ukraine's Donbass airlines, Dniproavia and Belarus' Belavia on an interline basis. Domodedo uses mainly Il-type aircraft.

KrasAir

KrasAir, Russia's third-largest airline in 1999, is based in the Siberian city of Krasnoyarsk. It also flies from Irkutsk, Vladivostok, Moscow and Norilsk. Last year, the company's profits doubled over 1998, officials said.

The airline was launched in 1993 as a joint-stock enterprise with the regional administration, which has a controlling share of 51 percent, and was in decline until 1998, when a new management team was hired.

According to most observers, the new management has been able to dramatically improve performance, and the company has spent a significant amount of money upgrading its fleet, which consists of 53 Il and Tu aircraft.

East Line

East Line is Russia's leading cargo carrier. Formed four years ago, the company, based at Moscow's Domodedovo airport, has been focusing on international cargo transportation.

Last year, it reported a year-on-year increase of 30 percent in volume at a time when the cargo transportation market shrank by 20-25 percent, the company said.

East-Line's main international destinations are India, Italy, Turkey, the United Arab Emirates and China.

Pulkovo Airlines

Based at St. Petersburg's Pulkovo airport, the airline conducts flights to 13 international and 53 domestic destinations. It also conducts charter flights during the tourist season, primarily to Egypt, Greece, Spain and Tunisia.

It has recently begun restoring air connections to Central and Eastern Europe. Earlier this year, flights to Budapest and Sophia were introduced.

Volga Dnepr

Volga Dnepr is one of Russia's leading cargo airlines. Formed in 1990 in the city of Ulyanovsk in the Volga region, it is operating as a charter cargo carrier. The company employs nine An-124-100 giant jets with a capacity of 120 tons, three Il-76TDs and three Yak-40s.

It has been carrying military and airspace equipment, trucks, machinery and other bulky items. "This is a very promising market – it's growing about 12 percent a year," said Alexander Stepanenko, a spokesman for Volga-Dnepr. According to Stepanenko, Volga-Dnepr reported a year-on-year increase in 1999 of 25 percent last year

Atlant-Soyuz

Atlant-Soyuz airline was formed in 1993 in the Ukrainian city of Simferopol, but later moved its operations to Russia. It is a joint-stock company, in which Moscow's government has a share.

Atlant-Soyuz has been focusing on charter cargo transportation to China, Vietnam, South Korea and Europe. It carries freight for Russia's two arms exporters, Promexport and Rosvooruzheniye. It has also been conducting charter passenger flights to Spain, Turkey, Greece and other popular tourist destinations.

The airline, which flies two Il-86, one Il-96-300 and about 15 Il-76s, is hoping to replace its fleet with Il-96s, Tu-204s and Tu-214s, said Vladimir Prokopenko, Atlant-Soyuz's director.

Sibir

Novosibirsk's Sibir is one of the fastest growing Russian airlines. Formed in 1994, it has reported sustainable growth over the last two years. It recently signed a commercial agreement with German flagship carrier Lufthansa on cooperation in the form of code-sharing.

Sibir recently announced an agreement with Sberbank under which it will obtain a $15.8 million loan to be spent on expanding and upgrading the company's fleet. The initial portion of the loan will be used to finance an agreement with the Avializing corporation on leasing a Tu-204 passenger jet. Sibir intends to buy several more Tu-214 aircraft in the future.

Vnukovo airlines

Vnukovo airlines started as a division of Aeroflot, but separated in 1993. The company's performance in the last few years has been unstable, but now, management says, the situation has begun to improve.

The company has 53 Il, Yak and Tu aircraft, of which 23 are currently in use. It does not intend to purchase new aircraft, saying the existing fleet will still be good for another 17-20 years.

Last June, it announced a $6 million refurbishing program, under which 10 Tu-154s and six Il-86s will acquire new seats and cabin equipment. This will bring them in line with international first-class and business-class standards. The company hopes the move will attract VIP customers to its flights to Novosibirsk, Krasnoyarsk, Makhachkala, Sochi and Mineralniye Vody.

Several foreign manufacturers will take part in the project as designers and suppliers. At the same time, the company hopes to retain its existing economy-class customer base on internal flights.

Dalavia

Dalavia is the only state-run company on the top-10 list of Russian airlines. Based in the Far-East city of Khabarovsk, it is focused on serving the needs of the region. "The regional authorities of Khabarovki Krai agree that the company should continue operating as a state-run enterprise, since there is no way of getting to some areas of the Far East other than by air," said a spokesman for Dalavia. "There are loss-making routes, which we are subsidizing with incomes from other routes," he said.

Dalavia is predominantly a passenger airline. It flies from Khabarovsk to about 20 cities in Russia and the CIS, as well as Japan, China, Israel and South Korea.