The Russian market of business aviation is on the verge of big changes, due to the beginning of the recovery of the industry from the financial crisis and its consequences, and the resuming of implementation of large-scale investment projects.

Last year the Russian market of business aviation fell by 15%, which, however, became less than the figures of decline in 2015, which was equivalent to 30%.  Still, there is a possibility that the market will resume its growth this year.

Sergey Panchenko, executive director of Sirius-Aero, one of Russia’s leading companies in the field of business aviation, said that the demand for business aviation services in Russia directly depends on the rate of business activities in the country, which has been steadily recovering since the middle of 2016.

According to him, the financial crisis in Russia, which was mainly caused by Western sanctions, has resulted in the change of market structure with the decline of demand for international business aviation trips, and a simultaneous increase of flights on the domestic routes.

Sergey Panchenko  comments: “There is an ever growing interest to the business aviation flights on routes such as Moscow-Sochi, Moscow-Simferopol, Altai, Crimea, as well as to other domestic cities with a population of over one million inhabitants. At the same time the biggest decline is observed on the destinations where common airlines can offer regular flights, along with good business or first class services ».

Still, despite Western sanctions and financial uncertainty in Russia, the demand for business travelling to destinations most appreciated by rich Russians such as Alps, the Riviera, Paris or London, remains high. Last year, despite the overal decline of the market, the number of flights on private aircraft on the majority of these routes grew by 10-12%, compared to 2015 figures and there is a possibility that the growth will continue this year.

In the case of domestic routes, last year the growth was equivalent to 25%. In contrast to the beginning of the 2000s, many Russian businessman currently prefer not to purhase a business jet, but to charter it for certain period of time.

 In the meantime, according to Maxim Sokolov, the crisis has not resulted in the massive sell-outs business jets by Russian owners. According to him, instead of this they prefer to purchase just more economical option.

Maxim Sokolov comments: “Due to the consequences of the financial crisis in Russia, local rich persons have started to choose just less expensive business jets, such as Embraer, which go cheaper to operate, compared to Gulfstream and some other models. In general, the segment of leisure flights had been mostly affected by the crisis, however Russian business tourists continue to use private aircraft with the same periodicity as before the crisis. It is obvious that business jets remain an effective tool to do business, especially by giving the opportunity to attend several meetings in different cities in one day».

According to analysts of the Russian Ministry of Transport, top-managers of various corporations currently prefer to rent business aircraft, whereas local businessmen from the Forbes survey generally use their own aircraft, operated by their management companies.

The majority of Russian large corporations often own a small fleet of business jets. Most of them are registered abroad and used for the transportation of the top-managers.

Development of infrastructure

In the meantime, the ongoing recovery of the market from the crisis has already resulted in the resuming implementation of early suspended industry projects, and in particular those, which involve building of infrastructure for the needs of Russian business aviation.

One of such projects involves the building in the next two years of the first airport dedicated to business aviation in Russia. It will be located in Volokolamsk, in the near Moscow region.

This has already been confirmed by recent statements of the department of transport of the Moscow region.

The idea of building a dedicated business aviation was mentioned for the first time in 2013. However, due to the introduction of Western sanctions on Russia along with the economic crisis effects in the country, the project was suspended.

Still, it is planned that the project will be resumed in the coming months. The new airport will be built linked to Moscow by the Novorizhskoe highway, one of the longest highways in the area.

The needed invesment for the project is estimated at RUB 20 billion (US$330 million). Part of the funds is expected to be allocated by some European investment funds, while the remaining will be provided by Russian business. Among the potential investors are some well-known Russian businessmen, such as Roman Abramovich, Syleyman Kerimov and some others.

In accordance with the project business plan, the new airport will be designed for at least 100 business aviation flights a day, while its fleet will be about 120 aircraft. The territory of the airport will include 60-80 sites for the storage of aircraft. It will be located on a forest area of 500 hectares in the green zone of the Moscow region.

In addition to initial investors, some Western business jets manufacturers and air carriers, which plan to use the airport as a base for their flights to Moscow have also expressed an interest for the project.

The project has already received a support from the Russian governmnent. According to Maxim Sokolov, building new facilities for the needs of Russian business aviation is very important, as the existing terminals and airports for for this activity in the country lack landing and air spaces, as well as radio communication equipment. In addition, Maxim Sokolov explains that many Russian airports give priority first to regular flights and large flows of passengers, instead of the development of business aviation.

In the meantime, despite the support from the state, the new project has already been criticized by ecologists.

According to Olga Balabanova, a coordinator of the Moscow Region Nature Conservation Society, building of the new airport may result in further deterioration of the forests in the Moscow region, a problem which currently remains complex.

Olga Balabanova comments: «The so-called compensatory planting, which is proposed by investors, will turn into a full-fledged forest only after 20 years. At the same time, the absolute majority of residents of the Moscow region will not afford to use the services of this VIP airport. In other words, the domestic business elite is reshaping our habitat for its commercial interests».

In the meantime, Russia’s leading business aviation analysts were less critical. Anton Filatov, a senior engineer of the Aviation Center of the Moscow region, said the new airport will provide an impetus for the development of business aviation in Moscow and the entire Russia.

Anton Filatov explains:  “There are currently serious delays in the departure of business aircraft from Russian airports, which usually reach 90 minutes. In addition, ground handling services are so expensive that it is more economically-viable for domestic business jet owners to fly to the near Finland, stay there, and return to Moscow just before the flight. There will be a strong demand for this airport only if the departure delays issue is solved, that is to say if they do not exceed a maximum of half an hour.

Future flights from Volokolamsk will be carried out on business jets of various capacities from 5 to 30 passengers. Payback period of the project is 16 years.

The Volokolamsk airport will not be the only Russian business aviation in the country in the coming years : a similar facility is planned in Kubinka, at 60 kilometers away from Moscow, on the basis of the local “Kubinka” military airport.

The initial amont of investments for this project is estimated at RUB 10 billion (US$150 million).

The first flights from Kubinka are planned for the end of 2019, while in 2020 the capacity of the airport will be increased up to 60 people per hour, that will be equivalent to 500,000 passengers per year.

The Kubinka’s runway has a length of 2.5 km and is in good technical condition. It will remain property of the state.

In the meantime, the other leading players in the Russian business aviation market have no massive expansion plans.

In the case of Vnukovo-3, a center of Russia’s business aviation, which has a traffic of 120 passengers per hour, the airport has no plans for a significant increase of its capacities by building of new terminals and runways in the coming years. Several months ago a new helipad was officially launched to serve the needs of domestic business aviation. Vnukovo-3 expects an increase of its capacities in the middle term and is further investing funds in the development of ground infrastructure. According to Vnukovo-3 press office, a particular attention will be paid for the increase of the area of local hangars and the helipad.

Several years ago Vnukovo-3 already conducted expansion of its infrastructure with the incorporation of hangars of the former Vnukovo Aircraft Repair Plant (VARZ). They are currently used for the storage of aircraft and MRO operations.

According to analysts of the Russian Ministry of Transport, concentration of Russia’s business aviation in Moscow remains one of the major features of the Russian market today.

Moscow also remains one of Europe’s largest business aviation hubs, being the fourth largest city in Europe, in terms of business aviation activities after London, Paris and Geneva.

According to recent statements of Alexander Kuleshov, head of the Russian Association of Business Aviation (OAADA), the list of leading foreign destinations for Russian business includes Nice, London and Geneva.

Tax lifting

In the meantime, the Russian government from its side plans to create conditions for further development of domestic business aviation through the implementation of a package of measures to support the industry. The most important one will involve lifting of duties on the imports of business jets to country, as well as the abolishment VAT.

According to the government plans, the provision of tax benefits willl allow the return of business jets owned by Russians to the domestic juridiction. Today, the majority of private aircraft owned by Russian business are registered abroad. However this situation could change already this year.

To date, the new proposal has received the support of the Russia’s President Vladimir Putin.

Cyril Stepanov, deputy minister for the development of the Russian Far East, said the current rate of duties on the imports of business jets to the country varies between 16.8% and 22%. This is significantly higher than in the EU and prevents their imports and registration within the country.

According to Stepanov, due to this, many domestic business jets owners use the procedure of temporary imports to the territory of Russia, which provides just a partial exemption from duties and taxes.

The current fleet of business jets, owned by Russians is estimated at about 500 units and only 72 of them  are registered in the country.

According to Stepanov, the presence in the Russian registry gives some advantages and benefits to aircraft owners, especially on domestic flights, but travelling abroad becomes more difficult, as the needed clearances to fly to some foreign destinations may take 24 to 48 hours to be obtained.

At the same time many local businessman refuse to register their jets in Russia due to the lack of confidentiality, high bureaucratic cost, as well as imperfect domestic legislation in the field of business aviation.

According to state plans, zeroing of duties and VAT will lead to an increase of the domestic fleet of business aircraft and provide an impetus for the development of local infrastructure.

Valery Okulov, Russia’s Deputy Transport Minister also believes that this will also result in the creation of new jobs in the industry and in the growth of budget revenues.

The most popular business jets appreciated by Russians are large, heavy aircraft (weighing more than 15 tons and costing up to US$60 million), Bombardier Challenger and Global, Gulfstream, Embraer, Falcon and some others are part of those.

At the same time the Russian government plans also to stimulate domestic production of business jets. According to recent statements of Russia’s Prime Minister Dmitry Medvedev, the government will restrict purchases of business jets for state needs after the expansion of the domestic production of business aircraft, which is scheduled for the next several years.