Newest EU members prepare for bizav growth

 - December 17, 2007, 11:25 AM

Six months ago, when 10 new states joined the European Union (EU), the lifting of trade and political barriers enlarged the world’s largest borderless marketplace to 450 million people. Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Slovenia, Cyprus and Malta joined the existing 15 member states on May 1. In 2007 Bulgaria and Romania are likely to join the EU, with Croatia and Turkey to follow eventually. Such enlargement will increase the EU’s population to more than half a billion people.

With largely youthful and well educated populations, the Eastern and Southern European countries concerned offer Western companies (including those from North America) a major new source of customers and–perhaps more significantly in the short-term–of relatively inexpensive labor. But their own business communities are far from passive and they are fast expanding their trade horizons across the now defunct borders.

By eliminating cabotage restrictions, the EU membership has stimulated in the new states a wave of new airline services. However, many of these services are operated by low-cost carriers, which generally do not offer the flexibility business travelers require.

Airline limitations have therefore caused interest in business aviation to ferment in the new EU states, and this in turn has encouraged aircraft operators and service providers to make plans to boost capacity and infrastructure in the member states. In fact, the May 1 accession date of the new states did not trigger an explosion in business aviation because activity had already been markedly increasing for a couple of years as companies jockeyed for position.

“For 16 months or so during the run-up to the joining date we saw solid growth as companies were out there looking for deals and waiting for restrictions to be lifted on land and company ownership,” said Chris Cartwright, founder of Feras, an executive handling company specializing in Eastern Europe, as well as Russia and the rest of the CIS.

Cartwright told AIN that Western companies are still making a lot of trips into the new EU states seeking new partnerships and acquisitions. He said that there is generally more bizav activity at this deal-making stage and that trips might actually become less frequent when companies conclude their transactions.

The number of turbine business aircraft registered in the new EU states remains very small (although it is harder to gauge the number of aircraft that are effectively based there but registered elsewhere). According to statistical publisher Buchair, the Czech Republic currently has the largest fleet with just 11 aircraft–five jets and six turboprops. In contrast, the 54-ship Turkish fleet is much more impressive, with 32 jets and 22 turboprops.

Business jet registration figures from UK aviation statistical group Airclaims show that the number of aircraft in the new member states has increased only slightly over the past decade, and Buchair’s figures from 1994 bear this out (although the figures do not provide a complete and separate breakdown of all the countries concerned). As of May, Airclaims calculated the average age of business jets registered in the new EU states as 10.5 years.

According to Paul Davey of Vienna-based Aviation Business Consulting, in Eastern European countries turboprop equipment is more commonly used for executive transportation than it is in the West. However, he added that a steady influx of modern turbofan equipment is now arriving on the scene, with smaller jets in particularly great demand.

In September, EADS Socata made its first delivery to the Czech Republic of a TBM 700 turboprop single. The aircraft, a TBM 700C2, went to businessman Jindrich Zivotsky, who will operate it for his Okay business, a chain of consumer electronics stores throughout the Czech and Slovak Republics. The company has plans to expand into neighboring Poland, and will be using the aircraft extensively to this end.

Growth of Business Aviation Services
Over the last couple of years, the NetJets fractional ownership program has started to make inroads into Eastern Europe. According to Mikael Malmberg, NetJets Europe’s senior vice president for the region, the company now has several clients in Poland, the Czech Republic, Hungary, Turkey and Croatia, as well as in Russia and the Ukraine. He and his sales team are increasingly fielding inquiries from an emerging class of wealthy entrepreneurs in this part of the world.

A NetJets Europe spokesman told AIN that the company is putting an increasing amount of effort into sales in Eastern Europe and is planning to display one of its aircraft in Warsaw before the end of the month. At the same time, a growing number of NetJets owners are making flights into the new EU states in pursuit of burgeoning business opportunities there.

Feras, which is part of Universal Weather & Aviation’s UV Global Network, has established its European operations coordination center in the Czech capital, Prague, and has employees at airports throughout Eastern Europe. It no longer uses independent agents, preferring to recruit and train its own employees, who are then trained either in Prague or at the company’s main Russian base at Moscow’s Vnukovo Airport.

In addition to the traffic that comes Feras’ way through the UV Global Network, another benefit of the alliance for Feras is that the company can plug its customers into a network of similarly qualified handling companies in many other locations worldwide. “Universal audits all the UV Global Network partners, and because we know how thorough this process is, we feel confident sending clients to the other companies,” said Cartwright.

In addition to its UV Global Network partnership with Feras in Eastern Europe, Universal also has handling affiliates in both Malta and Cyprus. Roy Lira, a trip support specialist for the company, told AIN that to date it has not had many new corporate clients operating out of the new EU states themselves.

The Czech Republic, Hungary and Poland are widely viewed as the most dynamic of the new EU states in terms of attracting investment from the West, followed by the smaller Baltic states of Latvia, Lithuania and Estonia. But, in the same way that the new EU states saw an increased number of business aircraft in the months leading up to their membership, the four so-called candidate states (Romania, Bulgaria, Turkey and Croatia) are now themselves drawing more executive flights. Cartwright said that lately there has been a “huge increase” in traffic to and from Croatia. Not all of this is business-related since the country’s resorts on the Adriatic Sea are now attracting growing numbers of affluent vacationers.

Southern Promise

The legacy of the Cold War has generated great political interest in the accession of the Eastern European states to the EU. The two new Southern European member states, Malta and Cyprus, have often been somewhat overlooked. In fact, both of these Mediterranean islands are well placed for trading links with north Africa and the Middle East and also benefit from having populations long accustomed to using English as a working language.

According to Stanley Bugeja, owner of Maltese executive aircraft handling company and charter broker Sierra Aviation, business aviation on the island has grown steadily for the past five years. “As far as the effect of EU membership is concerned, it is still early days and it is really too early to say how much of the growth can be attributed directly to this,” he told AIN.

Malta had already been on the receiving end of significant investment, and not all of it has come from within the EU. For instance, U.S. software giant Microsoft has now established itself there, partly to establish a convenient and user-friendly bridgehead for the nearby north African market. However, Bugeja suggested that pending private corporate involvement in sectors such as water and telecommunications may soon bring more business aviation traffic to the island.

At the same time, Malta is increasingly proving to be a magnet for wealthy individuals seeking vacation homes and a place to keep their yachts. Some are now billing the island as the new Monaco or Malaga. Sierra Aviation is now handling almost three times as many NetJets fractional ownership flights as it was last year. The charter brokering side of the company’s business has been growing significantly, especially through its association with yachting firms such as Sunseekers.

Sierra Aviation was launched in 2002 nd has developed itself as Malta’s only dedicated business aircraft handler. The company has been advocating the construction of an executive terminal at Malta International Airport (formerly known as Luqa, and now under the majority ownership of Vienna International Airport). Bugeja conceded that this development is progressing slowly, with the Maltese government cautiously evaluating proposals with a view to proceeding next year–perhaps. Sierra would like to court the involvement of a significant business aviation service group in a bid to give the project greater momentum.

For the time being, Sierra has to bring its clients through the main airport terminal, but Bugeja said that procedures are now so much more straightforward (at least for flights within the EU) that this doesn’t cause any significant delay. The company has its own offices both on the ramp and in the terminal.

Just over 1,000 miles east in Cyprus, EU membership has not lived up to the expectations of local handling agent and charter provider Abelair Aviation. According to manager Kyriacos Tsoupanis, the amount of business aviation traffic on the island has remained virtually unchanged since May. He blamed steep increases in passenger taxes and landing fees (which in some cases are almost doubling) for the lack of growth. “We did expect to see more business from EU membership, but it hasn’t happened yet,” he said, adding that Cyprus should ultimately benefit from the higher profile and administrative rationalization that EU membership is bringing.

Charter Drives Growth

According to Cartwright, as many as half of the business aircraft flights into the Eastern European states are operated by executive charter firms. He confirmed that there are still relatively few locally based aircraft, while acknowledging that the number of locally owned aircraft that are registered, for a variety of reasons, in other states may blur this picture slightly. Certainly, there is still fairly limited locally based charter capacity, and many of these flights are serviced by operators based in neighboring states such as Austria, Switzerland and Finland.

VIP Avia, based in Riga, Latvia, operates three Hawkers and a Challenger 604 in the charter market. According to Cartwright, Latvia has a relatively friendly tax regime for business aircraft ownership.

Other locally based charter operators in the new EU states include the Czech Republic’s Silesia Air with a Citation V, Avies in Estonia with a Learjet 60 and a Jetstream 31 twin turboprop, Apatas in Lithuania with a Learjet 55, Poland’s Aerobaltic with a Piper PA-34 Seneca piston twin, Seagle Air in Slovakia with a pair of Czech Let L-410 twin turboprops and Gio Doo BizAv with a Citation II. Cartwright said that some Eastern European charter operators are getting bookings from Russian clients who are eager to benefit from positioning costs lower than those charged by western operators further afield.

Grossmann Jet Service is one of the first Western-based charter operations to set up shop in an Eastern EU state. Founder Dagmar Grossmann is now finding work for a Dornier 328Jet and a Challenger 600 that split their time between Prague and Vienna. By year-end, she also intends to offer a Gulfstream IV.

In her view, the new Eastern EU states have great potential as a business aviation marketplace, but it will take some time and patience to capitalize on that potential. “Some people have short-term expectations that are too high, and I think it will take at least a year for the [market] to really develop,” Grossmann told AIN.

This year, Geneva-based charter group rivatAir has reported an increase in the number of requests for flights into the new EU states from companies, governments and international organizations. According to COO Dave Kinson, the operator has also been fielding inquiries about providing regular shuttle flights to ferry employees in and out of certain locations in Eastern Europe. Factory modernization programs in these states are driving some of this demand because the programs require a steady flow of engineers and technicians (with equipment) to complete the work. A U.S. corporate flight department recently audited PrivatAir with a view to contracting with the company to provide just such a service on its behalf.

Martin Bernegger, senior vice president and general manager of Jet Aviation Business Jets, reported that the company’s existing charter and aircraft management clients are increasingly flying to the new EU states. Jet Aviation’s Zurich, Switzerland-based European division currently has no specific plans to establish permanent operations in these countries, but is now focusing more specifically on how it can better serve the Russian market for executive flights.

According to David Macdonald, marketing director with charter broker Air Partner, the marked upturn in flying activity was already apparent some time before the May 1 accession of the 10 states to the EU. And although Turkey is still some way from being approved for EU membership, Macdonald identified it as a potential center of significant business aviation growth.

Macdonald said that there are signs that operators are buying aircraft with a view to basing them in the new EU member states and that some of this would manifest itself in the shape of new local charter providers in countries such as the Czech Republic and Latvia. At the same time, the UK-based group is still able to source plenty of suitable charter capacity in neighboring countries. “At face value you might conclude there still isn’t much business aviation in these countries, but relatively speaking it has actually grown faster there than in, for example, the UK,” he commented, reflecting on the still quite small number of business aviation aircraft in the new EU states.

Limited Handling Infrastructure

For the most part, the new EU states do not yet offer anything resembling a Western FBO. Some cities, such as Prague and Budapest, have dedicated general aviation terminals (GAT) but these are generally just old airline passenger terminals that have been partially renovated. “A lot of airports don’t yet have enough traffic to support an FBO or GAT,” explained Cartwright, while at the same time predicting that Poland’s Warsaw and Krakow airports might eventually merit new buildings.

Nonetheless, earlier this year Aviation Service Handling established an executive handling operation at Prague’s Ruzyne International Airport with its own ramp and adjoining hangar and office space. Davey, who previously managed a number of FBOs serving the Austrian capital, assisted with the launch of the executive handling operation. He told AIN that the Prague operation can now offer a standard of service that is very similar to the service available from FBOs in the West. But he also added that Western FBO groups are now keeping a close eye on how business aviation demand will develop in the new EU states, and may be preparing to move into the region.

At airports like Warsaw and Riga, business aircraft passengers and crew still have to use the main terminal building for arrivals and departures. This is where companies such as Feras come into their own. Their local staff know exactly how to smooth their customers’ passage, arranging for a fast-track processing lane where possible. At some airports handling agents can rent the government-controlled VIP hall to serve as a temporary passenger lounge. But this usually doesn’t come cheap–about $140 per head at Riga, for example.

Despite the fact that business aircraft passengers rarely spend more than a few moments in even the best-appointed FBOs, they tend to miss them when they are not available. “They soon notice that they are having to go through the airline terminal,” said Cartwright. “They like the exclusivity of a GAT and take them for granted until they are not available.”

Procedures Easy in Theory, Not Yet in Practice
In theory, EU membership has greatly simplified customs and immigration procedures (at least for other EU citizens) for the new EU states. But according to business aviation professionals who are now working there, the degree of regulatory and administrative harmonization can by no means be taken for granted.

“Estonia, Latvia and Lithuania have really embraced the EU and now have effortless customs and immigration controls,” said Cartwright. “Other states in Eastern Europe are better than they were, but not everything is in place yet.”

The experience of the Universal trip planners has been that despite the supposed advantages of EU harmonization, several states still march to their own drum beat when it comes to overflight and landing-permit requirements. “Some countries still require full details of exactly who is going to be on the aircraft, along with proof of insurance coverage, airworthiness certificates and full routes with entry and exit points,” Lira explained.

Just about all the experts interviewed by AIN agreed that complex bureaucracy and slow official decision-making are still all too common in the new EU states–and especially in the formerly communist Eastern Bloc countries. All advocated that foreigners looking to do business there should enlist the assistance of local professionals, and particularly an attorney. While the English language is rapidly becoming the lingua franca of commerce, it certainly still pays to have partners speaking local languages to ensure that both sides fully understand business situations.