Russian market expected to grow as rules relax

 - September 30, 2009, 6:42 AM

The new Russian Business Aviation Association (RusBAA) has confirmed that the exceptional growth the country’s emerging business aircraft sector achieved in the past few years has been quickly rolled back to 2006 traffic levels as the global downturn has gripped the Russian economy. But speaking to the press on the opening day of Moscow’s JetExpo business aviation show on October 16, RusBAA chairman Leonid Koshelev predicted that the Russian industry is primed for recovery. However, on that same day Russian Deputy Prime Minister Igor Shuvalov told Parliament that the country’s economy will not emerge from the financial crisis until 2012.

Business aircraft flights in Russia today average about 10,000 per month. On this basis, this year is expected to result in a 14-percent dip in activity compared with the 140,000 total movements seen last year. In 2007, there were 125,000 movements, a 19-percent jump on the 2006 total of 105,000 movements.

Much of this growth was driven by the high crude-oil prices at the time, which were a significant boost to the Russian economy. Today’s crude-oil price of about $70 per barrel is less than half of last year’s average of around $145.

Koshelev praised the Russian government for two measures that he said should create a springboard for business aviation recovery. The first was last year’s abolition of the 20-percent import tax for foreign-built aircraft with fewer than 50 seats. The second is a legal change made last month to allow financial institutions to retain legal ownership of an aircraft bought with credit by clients who are the legal operators. “Today, the conditions for owning a business jet in Russia are not much worse than those in Europe,” Koshelev concluded.

The reform of aircraft ownership rules should prompt Russian customers to put their aircraft on the Russian registry rather than contriving to keep the registration outside Russia to circumvent the previous restrictions. Today less than one percent of Russian-owned business jets are on the Russian registry.

“But we do not expect an immediate boom since the new buyers and existing owners need time to think it over and make decisions,” Koshelev cautioned. RusBAA believes that the next five years could see between 3,000 and 5,000 new general aviation aircraft (including helicopters) sold in Russia.

However, Russia’s legal structures continue to cause headaches for the business-aviation community. For example, rules governing aircraft registration and ownership are still not consistent with the terms of the Cape Town Convention, which is now used as an international benchmark for transactions. RusBAA pledged to continue pressing for legal reform but claimed that the current problems are not insurmountable obstacles for aircraft to be sold in Russia.

The new association, formed from the merger of the United Business Aviation Association and National Association of Business Aviation, is also working to boost safety standards through various measures, such as translating U.S. and European documentation into Russian. It is also seeking to educate Russian lawmakers on safety issues relating to general aviation and introducing new concepts, including safety management systems.

Another RusBAA initiative is to introduce an accreditation process for charter brokers in a bid to ensure that they adhere to international best practice in their dealings with clients and operators. “We invite brokers to apply at their convenience to the association, get registered with us and be inspected,” said Koshelev. “We will then tell them what they do well and what [they do] wrong. Our intent is to improve the quality of the broker services being offered.”

Despite the somewhat discouraging economic backdrop to the 2009 JetExpo event, the show was supported by most of the major business-aircraft manufacturers, including AgustaWestland, Bell Helicopter, Bombardier, Cessna, Dassault, Gulfstream and Hawker Beechcraft. Embraer, Boeing and Airbus were absent, but service company Jet Aviation made the trip to Moscow. Noticeable by their absence as exhibitors were most Russian charter operators and service companies, with the exception of Aerotrans and Moscow Skies.

Gulfstream was the only airframer to stage a press conference at the show and its president Joe Lombardo emphasized that the U.S. company still regards Russia as an important market. While Gulfstream would not reveal how many jets it has sold into the country, Lombardo said that a number of Russians are among some 200 customers who have paid deposits for the new G650 model. There could yet be more with a number of wealthy JetExpo visitors heard expressing dismayed astonishment that they could not pay for and take delivery of a G650 that same day and would instead have to wait until 2016.