The Coronavirus Has Delayed Growth of Business Aviation in Russia: What’s Next?

Falcon 7X

Falcon 7X

A year ago, the question arose, now that Russia had taken the first two most important steps to create normal market conditions for the development of civil aviation in Russia, what would come next? Step one was to shut down the use of foreign-registered aircraft that were not customs cleared for commercial use on charter flights within Russia and other countries within the Eurasian Union. Step two was the exemption from import VAT that came in the form of a new zero percent (0%) rate of VAT on the import of civil aircraft as of January 1, 2020.

As of December 8, 2020, the answer is that very few, possibly only seven business jets were imported into Russia during 2020 to take advantage of the exemption from import VAT and the absence of illegal competition from domestic operation of foreign registered aircraft. The benefit of the exemption from import VAT, and the removal of competition, was offset by economic hard times due to the Coronavirus pandemic.

Yet, looking ahead into 2021 and beyond, there is reason to expect that the Coronavirus pandemic has only delayed the business case for the import of more Western business aircraft into Russia. The volume of business aviation flights within Russia was up 33% in August 2020 as compared to August 2019. Of the increased volume of flights, 29.5% of the flights were domestic flights within Russia.

This level of growth in demand for business aviation flights, based on the partial information available with regard to only the first two thirds of 2020, suggests that year-end results, once they become known in early 2021, will show that there are now compelling arguments for Russian and Western operators to import more business aircraft into Russia. More aircraft may be put to profitable use on commercial flights within Russia and the other countries of the Eurasian Union, and to feed passengers to hub airports for connecting flights on business aircraft registered outside of Russia.

As a year ago, much seems possible that was previously effectively blocked by import VAT and the prevalence of illegal charter flights. Committed market participants will, no doubt, find viable paths forward to grow their aviation businesses in Russia. It is likely true that those who make the first moves to take advantage of the new tax and regulatory circumstances in Russia will reap a reward when macroeconomic circumstances in Russia improve.

The Federal Agency for Air Transportation (Rosaviatsia) publishes two lists of aircraft registered in Russia and their Russian operators. One list is of aircraft that are registered for commercial use (the “List of Commercial Operators“). The second list is of aircraft registered for general aviation (the “List of General Aviation Operators“). The second list includes aircraft that are for private, not commercial use, though a close reading of the two lists shows much overlap, so some aircraft are registered for both private and commercial use.

The current version of the List of Commercial Operators and the List of General Aviation Operators includes operators of Western business jets, turboprops and helicopters-that are registered in Russia as of September 2, 2020, including airlines operating commercial airliners.

The following extract from the List of Commercial Operators excludes airlines and commercial airliners and shows the following business aircraft, turboprops and helicopters were registered in Russia and operated by the following operators as of September 2, 2020. This list includes, but does not separately identify, all business jets that were imported to Russia during 2020. Following this extract is a second extract from the List of General Aviation Operators.

My understanding, subject to correction by anyone who with additional information about this matter, is that among all the business aircraft referred to in the table below, only the following seven are aircraft that were first imported into Russia during 2020: one Falcon 7X and one Gulfstream G650 operated by North-West Air Company (both of which are registered in both the List of Commercial Operators and the List of General Aviation Operators), and one Hawker 800XP and two Hawker 700B’s operated by Weltall-Avia (certain of which are included in only the List of General Aviation Operators), and two Falcon 8X’s delivered from Dassault to Gazprom Avia (neither of which are yet registered in either the List of Commercial Operators or the List of General Aviation Operators, suggesting they were registered after September 2, 2020 and will be included in a future list to be published by Rosaviatsia) bearing serial numbers 462 and 463 and operated by Russair under registrations RA09608 and RA-09611.

Igor B. Artemyev, a member of the management of Jet Express, advised the author by phone: “Clearly, there has been no flow of business jets flowing on to Russian certificates of commercial operators after January 1, 2020. Instead, there have been very few aircraft imported into Russia during 2020.”

Alexander Evdokimov, CEO of Jet Transfer, commented: “The exclusion from import VAT factor, in my opinion, is one of the main factors that will certainly increase the number of aircraft that owners will wish to have Russian registration. But do not wait for an instant effect. Our clients who want to take advantage of these benefits will start active actions later. Most likely in 2021.”

In addition to the information presented in the List of Commercial Operators, at least one Hawker 800XP, and possibly two Hawker 700B’s, have been imported and registered in Russia by Weltall-Avia. These aircraft are not included in the List of Commercial Operators maintained by Rosaviatsia as of September 20, 2020, but are referred to in the List of General Aviation Operators.


The Growing Demand for Charter Flights within Russia

In September 2020, Vnukovo-3 published information that the number of flights served in Vnukovo-3 in August increased by 33% as compared to 2019.

Vnukovo-3 reported that it had served 3,707 flights in August 2020, which is 33% more than at that point during 2019. Among these flights, 2,619 flights were made on international routes and 1,088 flights were domestic. Compared to August 2019, the passenger traffic of Vnukovo-3 increased by 43% and amounted to 13,192 passengers.

Igor Artemyev advises that charter business within Russia has surprisingly benefited from the pandemic. That company had entered the domestic charter market in the middle of summer, and had seen a much higher charter demand in the summer and fall than their projections in the business plan, and conducted a large number of domestic flights for first-time customers who were new to business jets. Such customers had previously flown business class, but now have turned to chartering business jets for their business trips and for their families because of the pandemic. Pilots were flying more than twice as much as the projected number of flight hours per month – up to the maximum 90 hours per month permitted by regulations.

In sum, as of December 2, 2020, it appears that Russians who are buying aircraft are primarily registering them outside of Russia., though apparently at least four new, high-end, long-range aircraft have been registered in Russia by North-West Air Company and by Gasprom Avia. There is, however, growing demand for charter flights on business aircraft within Russia and the Eurasian Union that should generate convincing business cases for the import and registration of additional business aircraft in Russia for both commercial and private use.