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WAITING TO TAKE OFF
Some potentially positive upswings emerge from Russia.


The negative impact of the global economic downturn has naturally had its effect on business aviation in Russia. According to preliminary estimates- the number of flights in the region has dropped by 35% - yet the results appearing for the last month of the year showed signs of hope.

The traditional interest in charter during the December holidays was higher and resulted in almost 100% growth compared to autumn months. January—February 2010 will reveal whether the December increase was the beginning of a positive trend or just a seasonal fluctuation.

The global business aviation market is quick to react to global and internal financial markets and the economic downturn through 2009 led to a slackening of demand worldwide. Russia was no exception: 2009 was mostly lacking in interest for business charters within the region - save for a few slight increases of activity during the year- (the Avinode Demand Index- showed more charter requests in Russia for March and April- probably due to Easter and the upcoming May holidays- and the next rise was for July coinciding with summer vacations).

The number of requests dropped off in August compared to July- but was still higher than in the winter months earlier in the year. Russian operators confirm the Avinode data: “There was a significant rise: in the summer- we were almost up to 2007 levels in flights- although at the start of the year we were down to 2006 levels-” revealed Sergey Vekhov- Director Sales and Development- Air Charter Service.

Igor Grigoryev- Deputy Head- Development- Moscow Sky- spoke of a similar trend and added enthusiastically- that “the number of business charters in July to August rose 30% compared to the worst we’ve seen in this crisis.”

SIGNS OF RECOVERY?
Market players in the region agree that by early autumn 2009- the industry started showing some signs of recovery - but that the major rise was recorded in December when the number of flights rose 1.5 times over December 2008 activity. The seasonal activity has had no effect on pricing- though. According to Air Charter Service- the average flight rates are lower than 2008 indicators by 10-15%.

In the meantime- Russian operators and brokers both note that the downturn has had practically no effect on fleet preferences - namely ULR and large-cabin business jets that remain most impervious to fluctuations of demand. Due to market peculiarities- converted Soviet-made airliners are used for domestic flights. The New Year holidays have shown a change of trend- however. Due to noise restrictions along the most popular routes (Courchevel- St. Moritz) the converted Tu-134 and Tu-154 saw a drop in demand. Apart from that- preferences have stayed the same. Sergey Vekhov observed that spacious bizjets such as Bombardier’s Challenger 300- 604 and 605 were most popular.

Despite the negative effect of the downward market cycle amplified by the global economic situation upon business aviation in Russia- 2009 saw a favorable trend. During this economic turbulence- people started paying more attention to cost reduction and pricing- and business aviation started to become a separate (and indispensable) transport industry for the Russians. Fewer charter flights did not result in a drastic drop in the number of passengers carried. Vekhov observes “the number of flights has gone down 20-30% depending on the month you look at- but the number of passengers on each flight has gone up; people are starting to co-operate- but they’re not switching to the airlines.”

This is a view echoed by Moscow Sky where company representatives believe that bizjet users are hard to convert back to the airlines - even to business class. This would indicate that business aviation has become a serious business tool within Russia and even worsening economic conditions has not forced fliers to abandon business aircraft and the benefits they bring.

FOREIGN VS. DOMESTIC OPERATORS
Bold hopes for a shift of power in the charter market between Russian and foreign operators that were sounded in early 2009 have received ambiguous continuation: Local had lost a large part of the market share to foreign operators- but had the potential to recover some during the crisis. According to Moscow Sky representatives- however- the crisis did not have any serious effect on the standing of companies- the main reason being attributed to the poor financial backing of Russian operators and “strong pricing policy” of foreign companies that became the backbone of their aggressive move into the Russian market.

Foreign companies are also more diversified in their business- and a drop in demand in one region may be balanced out by stability in another. This all contributes to the advantage of pricing flexibility foreign companies have to offer- while still offering service of the highest quality. One of the most active players is VistaJet. Its founder Thomas Flohr sees big prospects within the Russian market for the partner aircraft ownership model. In September 2009 VistaJet took part in the Russian Jet Expo in a big way and ran an invitees-only workshop for Russian brokers jointly with Avinode at Vnukovo-3.

Air Charter Service representatives agree that there has been little shift of power on the Russian market- but add that some companies (for example British Ocean Sky) have left it- freeing up the business charter market slightly. At the same time Austria-based Jet Alliance’s winning a bid for majority interest (51% shares) of business aviation Aeroflot subsidiary - Aeroflot Plus - may set a precedent for deeper competition between local and foreign operators.

According to Jet Alliance representative Sergey Koltovitch the Russian market will remain top priority for Aeroflot Plus. Jet Alliance aims to bring Aeroflot Plus out of crisis- and for this will offer to the company two Cessna CJ3 jets and a Citation Sovereign for three years- free of charge. The jets will be listed on the Aeroflot Plus AOC- and will be allowed to fly domestic routes with a non- Russian registration.

Russian market players remained undecided on the short-term prospects for the market after the New Year vacations were over. Alexey Korolev- co-owner of the local analytics company Upcast Media reckons that “a drop after vacations is seasonal- and repeats year after year. Last year it was a lot worse because of the economic downturn and general uncertainty. I doubt that the drop of 2010 will be as bad as that.”

INDEPENDENT INTERIORS
Russian interior designers and manufacturers have shown less dependence on the economic situation in 2009. They not only kept production levels stable- but started to show a gradual growth. Aircraft Interior Companies Association (AICA) plans to build new workshops in the 2010-2012 timeframe where it will refurbish regional and general aviation aircraft together with Dassault Aviation Group.

In 2009 the Association gave new interiors to 15 aircraft- including a Tu-154 for the President of Poland and a Tu-204 belonging to Vneshtorgbank (VTB). (It is worth noting that all Tu-204 interior elements (furniture- interior- LED lights- electronic appliances) were designed and manufactured by Russian companies to international standards).

According to AICA President Vitaliy Romanyuk- “the technologies used by foreign manufacturers are already well-known and widespread in Russia.” Russian companies have started to re-orientate production lines toward the eco-friendly and lighter materials that help reduce aircraft weight and- therefore- emissions. For example- AICA has designed chairs weighing less than 25 kg.

The Association hopes that soon Russian OEMs will be able to overcome the suspicion towards new names on the global aircraft interior market and move out internationally. This initiative might be backed by foreign certificates that are expected in May-June 2010 and will allow Russian companies to build interiors for foreign aircraft without foreign middlemen.

Anna Nazarova is the staff writer for Moscow-based Air Transport Observer- Russia’s expert airline business publication- where she oversees the Business Aviation Section. She can be contacted at anna.a.nazarova@gmail.com  


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