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Unfavorable conditions for the fully-fledged development of business aviation in Russia makes aircraft operations difficult- and reduces the attractiveness of the services offered on the market- while rendering industry growth practically meaningless in economic terms. Solving problems leads to new problems- and solving these new problems is hindered by new barriers.

AvBuyer   |   1st October 2009
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When solving problems leads to new problems...

Unfavorable conditions for the fully-fledged development of business aviation in Russia makes aircraft operations difficult- and reduces the attractiveness of the services offered on the market- while rendering industry growth practically meaningless in economic terms. Solving problems leads to new problems- and solving these new problems is hindered by new barriers.

Does this all sound a little depressing to you? The vicious circle that currently exists in Russia could be broken by a Russian Aviation Code reform- but the Ministry that would be responsible is in no hurry at this time. Drawing a legal distinction between business aviation and passenger airlines would lead to faster growth- along with an expansion into new Russian regions. Yet the current concentration of business flights in Moscow is evidence of an unhealthy market.

Moscow’s airports- mainly Vnukovo-3- are far ahead of other Russian airports in terms of volume of flights- and this is because rapidly growing Russian businesses are looking for the comfort and convenience of associated handling services which cannot be found in other regions of the country that offer only a deteriorating infrastructure.

At the same time- regional aviation has practically disappeared – there’s nowhere to seek revival except in the growth and development of business aviation. State authorities and the business community don’t seem too eager to grasp this notion and lend a helping hand- it would seem- though. Many choose to believe that Vnukovo is far ahead of many other European and US airports in terms of takeoffs/landings- but it doesn’t take much effort to disprove this. Consider the US business flights landing at JFK airport- for example - many more bizjets than Vnukovo has ever seen. In Russia- though- unhealthy monopolies have become normal - and changing the norm is bound to be a challenge.

Initially- in the early 1990s- business aviation in Russia comprised almost entirely of foreign activity as foreigners arrived- and then chartered Soviet-converted airliners for internal flights. By 1998 the situation had changed drastically- with 90% of flights carrying Russian individuals or companies - a new Russian jet-set was formed.

According to Alexey Korolev- head of analysis- Upcast Media- the growth was mainly driven by industries making a major impact on the local economy- primarily the oil- gas and extractive segments in the Urals and West Siberia and Volga region. Then- with the rise of prices- and export volumes of cereals- these were joined by Southern Russia. Notwithstanding the input of these regions- the two main cities – Moscow and St. Petersburg – receive the main share of flights.

Before the credit crunch- when business aviation activity was at its peak- out of 112-000 total business aircraft takeoffs in Russia during the 2006—2007 timeframe- almost 50-000 were recorded in Moscow and St. Petersburg. These regions also boasted a constant upward trend- while several major regional centers like Novokuznetsk- Perm and Krasnoyarsk showed a decline by 15—20% on average.

In mid-2008 the long list of problems obstructing industry growth in Russia’s regions was topped by the credit crunch leading (in the words of Andrei Chernitsov- Director- Business Aviation Volga) to a drop from 60- to 20-or-30 business flights per month at Samara airport. There’s little hope of a radical change- and this is easily explained:

Growth in Russian regions is made difficult by traditional problems for the industry as a whole (registration of proprietary right to the aircraft- unified customs regulations- poor infrastructure- lack of qualified personnel)- but mainly by the air legislation that is pretty limited in its potential for change.

Local legislation does not separate business aviation from the airlines- and most Russian operators and owners are compelled to register their aircraft abroad meaning that in effect- foreign companies (those having an AOC of a country other than Russia) operate these aircraft. Thus- legally the flights of such aircraft are treated as those being performed by a foreign company. Because the flight is formally carried out by a foreign operator- it is regulated in Russia by the provisions of the Chicago Convention of 1944- (i.e. by the bilateral agreements concluded between Russia and the country with whom the operator is registered). There are eight freedoms for foreign operators. The eighth freedom - cabotage - offers the widest commercial possibilities: a foreign company essentially has the same rights to carry passengers within the country in question as a local one.

International agreements mainly limit operations of foreign companies in Russia to the first five freedoms- but to connect Russian cities they must be given the eighth. For all practical purposes cabotage is effectively forbidden. A multimillion-dollar jet owner in Barnaul (for example) will be extremely limited in the ways they can use their aircraft if registered abroad. They will only be able to fly to Russia from other countries- but even then they will have to employ a local operator to fly within the country.

Everyday practice shows that people tend to find ways around this particular problem - but illegal cabotage makes business aviation less comfortable- undermining industry growth.

There is no shortage of potential here: revival of regional airports- the creation of MRO centers- FBOs/fuel stations – all would attract capital and create jobs around Russia. This is missed or ignored by the powers that be- though- and most of the money spent on keeping aircraft airworthy fills foreign pockets.

According to Leonid Koshelev- president of the merged Russian United Business Aviation Association (RUBAA)- up to 95% of aircraft owned by Russians are operated in other countries. In all probability the disinterest from (or inability of) Russian authorities to harmonize the local air legislation with efficient foreign counterparts has created more problems for the economy of Russia’s regions than for business aviation customers.

Partial amendments of the Air Code won’t solve all of the problems though. There is the pressing issue of personnel. Business aviation in Russia could be described as ‘a parasite’ in terms of staffing- with most jobs taken up by people moving across from the airlines. A language barrier with the outside world is one of the minor issues- and pales in significance in the shadow of the serious lack of flying schools.

Even now European and American professionals need to be employed to fly the active foreign-built fleet- and even here Russian operators face difficulties. According to the Russian Air Code only a Russian crew is allowed on a Russian aircraft. The air authorities have yet to make amendments to allow pilots with a Russian license (not citizenship) to fly – and they are again in no hurry. This is yet another reason for registering abroad.

According to Koshelev- if the training system and such regulations are not reviewed- the active business jet fleet and corresponding money flow will remain outside of Russia.

The news isn’t all bad- though. Although the growth of business aviation in regions is riddled with problems- new market players - and even entire business concepts - appear from time to time. The first air taxi in Russia- Dexter- is aiming to take the entry-level segment with its consistently expanding network.

The company founders have not been put off by the failures of DayJet in the much more sophisticated US market. Eugene Andrachnikov is sure that the Russian regional market will keep growing in the next five years- and that Dexter’s unique business model will cover rapidly-rising demand at the entry level. By 2011 Dexter’s network is planned to comprise 25 regional centers that will keep demand stable and equally divided among major cities in Russia.

Andrei Chernitsov shares the optimism. He is sure that business aviation possesses the potential for growth in the Volga region- and that as the economy recovers- oil and gas- processing- and construction industry executives - constituting the local customer core - will show a renewed interest in these services.

More investments from the federal center and foreign companies coming into existing and newly-founded industries will become an additional driver. In addition- we touched upon it in our last visit to the region in July… Another major event has led to an increasingly optimistic outlook here: In August the two local business aviation associations finally merged into one – the Russian United Business Aviation Association (RUBAA). A serious player like this may reap better results from talks with the Russian authorities.

Koshelev stated that the united association will promote solutions to the most pressing issues: taxes- financing- and state regulations. Koshelev believes that a serious milestone has already been achieved when taxes for aircraft with an operational weight of two through 20 tons were cancelled. “We want to shift the limits both up and down to cover the entire range of aircraft from light personal airplanes to heavy business jets though-” he said.

In addition- the association will promote the notion of bringing the existing customs legislation in line with international standards regarding long stays of foreign aircraft in the Russian Federation. When these issues are resolved- the association seeks to assume responsibility for the state regulation of business aviation. This is impossible without reforming the local civil aviation authorities and the harmonization of basic provisions of the Russian Civil Code with ICAO recommendations and effective foreign legislations - primarily those of the US and Europe.

Mr. Koshelev voiced hopes that Russia will introduce simplified rules – something along the lines of FAR 135 – that will help drive the development of regional commercial air transport. The introduction of all these will help business aviation grow in the Russian regions. This will lead to a switch from limited- subsidized regional transportation to the wide variety of commercial and corporate air transport.

Such improvements will aid the spread of business and the growth of the Russian regions. It will ultimately lead to the growth of the economic integrity of the country.

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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