Russia’s Bizav Boom Continues in the Face of Obstacles

 - November 2, 2012, 12:10 AM
Moscow’s 2012 Jet Expo show demonstrated the continuing growth trend for business aviation in Russia.

Demand for business aviation in Russia and the wider Commonwealth of Independent States is continuing to excite aircraft manufacturers and service providers alike, especially with the nearby markets of Western Europe remaining largely stagnant. Russia was not untouched by fallout from the financial crisis that started in 2008, but for most of the past 10 years has sustained strong business aviation growth. At Moscow’s seventh annual Jet Expo show in late September, Gulfstream Aerospace president Larry Flynn went so far as to say that he now sees more stable growth in Russia than in China, where miraculous rates of economic growth now seem to be slowing.

What makes the growth achieved in Russia so much more remarkable is that it has happened despite high taxes on imported aircraft and inconvenient operational restrictions. This situation has improved recently, giving the business aviation industry further grounds for optimism.

One significant breakthrough has been the Russian government’s decision to suspend the 20-percent import tax on foreign-built aircraft with fewer than 50 seats and an empty weight of between two and 20 metric tons (4,409 pounds to 44,090 pounds). According to Russian consultancy Zest, this change has seen the share of Russian-owned aircraft that are also registered in Russia rise from just 10 percent of the total to 30 percent over the past three years. But large numbers of Russian owners are still opting to register their aircraft outside the country, in many cases placing them under the management of European air operator certificate holders at the request of their banks and insurance companies.

Industry Works with Government

The Russian United Business Aviation Association (RUBAA) lobbied for this partial removal of the import tariffs. But, to the surprise of some Westerners, the industry group told a September 27 press conference at the Jet Expo show that it will not be pushing the Russian government to lift duties on aircraft with a basic operating weight of more than 20 metric tons, even though it is calling for their suspension for aircraft below the existing two-ton limit.

RUBAA’s position is that aircraft with a sub-20-ton empty weight are necessary for economic development in Russia. A more significant factor is that Russian manufacturers currently have no plans to market any aircraft in this weight class, but they do have plans for larger new models. RUBAA appears not to want to endorse a change that would make larger foreign aircraft more competitive against Russian rivals such as the Sukhoi Business Jet and VIP versions of Antonov’s An-148 (see box).

The association’s president, Valery Ochirov, acknowledged that the tax has resulted in somewhat unequal conditions for business jet manufacturers in the Russian market, but he said he is not supportive of removing the tax entirely because of unspecified “other considerations.” Association vice president Eugeny Bakhtin elaborated on RUBAA’s position, saying: “I think that those super-heavy business jets [weighing] in excess of 20 tons are some sort of luxury item…it is a lot more urgent a matter for this country to ease or remove import duties on small airplanes for general aviation. The current taxation policy in this market retards Russia’s economic development and fleet renewal. Those who buy a Gulfstream G650 or other super-luxury aircraft, they will do so regardless of taxes; they will find the money to pay all duties.”

RUBAA chairman Alexander Kuleshov told reporters that he is more concerned about taxes on spare parts and technical services for Russian-registered business aircraft outside the country. Although the tax itself is only around 5 percent, the procedure for payment is complicated and takes time, he said. “Therefore, many aircraft owners now say, ‘Well, I had better register my aircraft abroad, so not to have all these troubles with keeping it airworthy.’” This keeps a large number of business aircraft actually owned by Russians on foreign registers. “Today, keeping a Russian-registered business jet airworthy is more expensive. So, we will continue our efforts aimed at improving the situation,” concluded Kuleshov.

By appearing to pick its battles carefully, RUBAA may be seeking to continue what seems to be a constructive relationship with Russian authorities. The association has been stepping up efforts to introduce more flexible regulations for the vast country’s growing business aviation sector by drafting proposed rules. “I must admit that the state’s power in this area is rather amorphous,” Kuleshov commented. “It has a shortage of highly qualified specialists with the right competence and this makes it hard for them to make the right decisions.” The group believes that this approach could result in fewer operational restrictions for business aircraft.

Another improvement has resulted from Russia signing the Cape Town Convention covering aircraft registration and title procedures. Russian customs authorities also have adopted a new rule that allows for the temporary importation of foreign aircraft into Russia for up to 183 days.

Traffic Volumes Level Off

Gauging the volume of business aviation activity in Russia is challenging, at least partly because authorities there have yet to define this category of aviation clearly. But new official figures from Russia’s Central Department of Operational Services of Civil Aviation (known as TsPDU GA Aerotrans) indicate that traffic levels will rise modestly from 152,000 movements in 2011 to 154,000 this year, representing a stronger rate of growth than the airlines but a slowdown compared with the early years of Russia’s business aviation boom. Foreign operators account for just over half the movements.

Aerotrans chief inspector Leonid Sherbakov told AIN that his organization’s estimates, published in a report called Business aviation in Russia: key trends and forecasts, are based on its own definition of what constitutes business aviation. This, he explained, is based on a survey of the industry that revealed the popular view that business aviation represents “any sort of manned aerial vehicle, regardless of takeoff weight, which is equipped with a luxury interior; any aircraft which is fully or partly owned by an individual; any aircraft that belongs to a person or a corporation who uses the asset as a means of transportation, to reach various remote points, especially those that are not served by scheduled airlines or public services provided are not adequate for business purposes; and all light and ultralight aircraft flying not under a central timetable.”

Aerotrans has also attempted to define “national” [Russian] and “foreign” business aviation activity within Russia, based on the country of origin for the company operating the aircraft. The study conducted on this basis found that in 2010 and 2011 “national” business aviation generated closely similar flight numbers, with an August peak of 10,000 flights and February trough of 3,000. By comparison, in 2006 the August peak was 7,000 flights and February was 2,000 flights. Flying activity by foreign operators over the past two years has been far more stable in terms of seasonality, fluctuating between 5,000 and 7,000 movements each month.

According to the organizers of Moscow’s Jet Expo show, almost two thirds of all business aviation traffic in Russia is in and out of four Moscow-area airports: Vnukovo, Sheremetyevo, Domodedovo and Ostafievo. Almost a quarter of traffic operates into St Petersburg’s Pulkovo Airport. Other popular destinations are Nizhny Novgorod, Samara, Ufa and Novosibirsk.


Russian Bizjets Taxi Towards Western-dominated Market

Almost 30 aircraft graced the static display at Moscow’s Jet Expo show in September and only one of them, the venerable Yakovlev Yak-42D, was made in Russia. The fact remains that Russia has no purpose-built bizjet in the works, but it can offer some marketable VIP variants of airliners.

For example, Sukhoi Civil Aircraft recently confirmed a range increase for the Sukhoi Business Jet version of its Superjet SJ100 airliner from 4,000 nm to 4,250 nm carrying eight passengers. At the same time, the Russian manufacturer also lowered its estimated market for the model to 80 aircraft over the next 20 years, down from the 100 it anticipated when it launched the program in June last year. The company expects to deliver between four and six SBJs by 2014 out of total annual Superjet production of 60 aircraft.

So far, the SBJ has just one customer, with Switzerland-based Comlux Aviation ordering a pair of the aircraft (plus two options) for its managed charter fleet in November last year. Deliveries of the aircraft are slatedZaAS to start in 2014, with Comlux’s facility in Indianapolis set to do the first two cabin completions. Deliveries to Russian clients will be made after completion at the Superjet International facility in Venice, Italy.

The SBJ carries a sticker price of $50 million and for this customers will get a business jet with a top speed of 465 knots and 4,191 cu ft of cabin space–almost twice the size of a Bombardier Global Express. The cabin is almost 11 feet wide and almost 6 feet 11 inches high.

Meanwhile, the first example of a VIP-configured Antonov An-148 regional airliner is due to enter service by year-end, after flying for the first time early in October. Three of the An-148-100EA versions of the twinjet are currently being completed at United Aircraft’s Vaso factory in Voronezh, for the Russian government.

The An-148 is a joint Russian-Ukrainian program, and Kiev-based Antonov is also offering its own VIP versions of the larger An-148-300 (formerly referred to as the Antonov Business Jet or An-168). According to an Antonov spokeswoman, the company sees demand for at least 50 executive versions of the aircraft. Carrying nine passengers and a flight attendant, the An-148-300 offers range of 3,885 nm or up to 3,500 nm with 38 passengers.

Russia Declares Independence for Bizjet Support

Dassault, in partnership with Russia’s Avia Group, has announced plans to establish a new authorized service center for its Falcon series at Moscow’s Sheremetyevo Airport. The facility is set to open next year and will be located near Avia’s new terminal building, which opened for business earlier this year. But Western companies aren’t the only ones taking the initiative to boost support infrastructure for the growing Russian market.

Avcom, Russia’s oldest dedicated business aviation company, has started establishing badly needed maintenance infrastructure in the Siberian cities of Irkutsk, Omsk and Khabarovsk. The group has also just secured approval from Kazhakstan officials to work on business aircraft registered in the country and now plans to open a technical base there as well.

Company chairman Eugeny Bakhtin said that he has explored a plan to open another maintenance shop in the Russian resort city of Sochi. However, he said that airport authorities there have blocked moves by outside service providers to go into business locally.

Until earlier this year, Avcom focused entirely on the Moscow area, running an FBO and maintenance center at Domodedovo Airport and satellite facilities at Sheremetyevo Airport. Bakhtin said that the business case for expanding farther east and south has been substantially bolstered by the Russian government’s decision to ease customs restrictions on imported aircraft, which has encouraged Russian owners to base their jets at home. He estimates that the resulting growth of the Russian aircraft registry is boosting demand for maintenance services in Russia by as much as 50 to 70 percent annually. The Russian market for business aircraft maintenance was worth between $70 million and $100 million in 2011, of which approximately two-thirds went to service providers outside Russia, according to Bakhtin.

“Our vision is that this money should stay in the country, since this sort of work is being done by highly qualified specialists,” he added. Avcom faces stiff competition from European facilities, but Bakhtin is confident the Russian firm will win the business by providing higher-quality service at more reasonable prices.

Meanwhile, Russian aircraft interiors specialist AviaPrestige has forged an alliance with Avcom to make cabin refurbishment more readily available to aircraft owners in Russia. The company announced it has established a facility within Avcom’s engineering base at Moscow’s Domodedovo Airport so that interior work can be done while aircraft are undergoing maintenance there.