Bizav growth in Russia comes back down to earth

 - May 10, 2009, 5:05 AM

With oil prices having fallen dramatically, Russia and its once-growing business aviation industry have seen significant declines. According to statistics from Maxim Fedosov, executive director at United Business Aviation Association (UBAA), the number of business jet flights in Russian aerospace has dropped below 2006 levels, at around 10,000 a month. Russian operators are responsible for 35 percent, or 5 percent fewer than three years ago.

This decline comes after a period of tremendous growth, when some months saw a 45- to 50-percent increase over 2006 and 20- to 25-percent increase over 2007 levels. Roughly, the total number of flights was 105,000 in 2006, 125,000 in 2007 and nearly 140,000 in 2008.

Leonid Koshelev, chairman of Russia’s National Association of Business Aviation (NADA, to use its Russian acronym), told EBACE Convention News that the drop may be even higher. “Although many operators claim they are flying as much as before,” he said, “there really is a decline.”

However, the mood of Russian aviation executives may be getting better as they notice signs of market revival. After a dead period in January and February, charters have picked up again in the spring. “Certainly, charters are up now,” Koshelev said. “It seemed only corporate aircraft flew in the beginning of the year.” 

Charter prices have fallen and stabilized at the bottom, which should stimulate buyers. Still, the number of charters is more than a quarter less compared to the previous year. The drop in income for charter companies is higher because prices decreased by 20 to 30 percent.
 
Aircraft have also not being selling easily in Russia during the past winter, with buyers awaiting the bottom of the market. Many aircraft owners were desperate to sell their aircraft to raise money for their primary businesses. Aircraft prices have fallen substantially, but even this does not boost the number of deals.

“There is a certain group of clients with the money who awaited the bottom of the market, when they thought they could buy an airplane or a real estate cheaply,” said Koshelev. “Now, when the ruble and oil are back on the rise, these people feel ‘Hey, that’s the bottom’ and go shopping. Their activity brings about some optimism to the whole of the market.”

Meanwhile, NADA is intensifying efforts to improve the regulatory infrastructure so that business aviation in Russia will have a better operating environment in the future, when demand is up again. The top priority is to get authorities to change current laws making it disadvantageous for Russians to register aircraft in their own country. “There are many owners who want to move their airplanes into the Russian register,” Koshelev said, “but when they attempt it in practice, most find that benefits do not outweigh the consequences. Most give up.”

In April the Russian government extended the zero import tax for another year, permitting tax-free import of foreign-made aircraft with fewer than 19 seats. Lawmakers also passed new amendments to the law on property registration, facilitating aviation import, and this comes into force in September. “That’s great,” Koshelev said, “but do not expect immediate response. Aircraft owners need time to think it all over. I do not expect any massive migration of aircraft owned by Russians in the next twelve months.”

Less than 1 percent of Russian owners register their airplanes in their home country. With the more favorable legislative base now in place, NADA expects that to increase to 8 to 10 percent. “It may look like a small increase, but it makes a turning point. There are many other factors influencing the decisions of aircraft owners. As time goes on and the practice builds up, we may expect a further rise, of up to 50 percent.”