The Russian business aviation market is witnessing a revival. The new players have emerged in the Moscow ground services segment over the past couple of years, and the number of business jet flights is growing for the third year in a row after a period of crisis-induced stagnation. These two factors suggest that the market has emerged from the recession and is prepared for further development.
Historically, the state of Russia’s bizav market is gauged not by the successes and failures of aircraft manufacturers as is the case in the U.S. but by the number of flights performed. All economic stars aligned last year for a steady growth in the frequency of bizav flights. As usual, the healthy oil-and-gas and processing sectors and an increase in the number of high-net-worth individuals were the key drivers of the Russian business aviation segment. Even though both these parameters (the price of oil and the number of billionaires) dropped slightly compared to the 2012 levels, they stayed high enough to stimulate the market. The average price of Urals crude, which is Russia’s primary export, stood at $107.88 per barrel, comfortably above the $100 psychological barrier. According to the CNN Money ranking, there were 108 dollar billionaires in Russia last year.
The favourable economic conditions were reflected in the number of bizav flights and passengers carried. The Moscow airports alone handled some 29,000 flights (of these, more than 19,000 were served by Vnukovo 3, Russia’s largest bizav terminal). Vnukovo 3 thus almost reached the pre-crisis numbers of flights served, but the passenger traffic structure was a different story. Business charter passengers have grown more pragmatic since the fat years of 2007-2008. Hiring a business jet for several people at once is now a noticeable trend: in 2007, 19,500 flights carried slightly over 103,000 passengers, whereas in 2012 and 2013 a comparable number of flights transported 137,000 and 133,000 passengers respectively.
The ranking of the most popular bizav terminals remained virtually unchanged last year. According to the Eurocontrol statistics, which includes airports serving at least one business flight a day, Vnukovo 3 remained the leader in the average daily number of flights handled (30.5). Sheremetyevo with its 7.3 flights per day came second just like the year before, followed by Pulkovo (5.4), Domodedovo (3.8), Ostafyevo and Adler (0.9 each). Based on the Eurocontrol figures, Russian business aviation remains concentrated in Moscow and partially in St. Petersburg, although the presence of large industrial enterprises and financial institutions in Novosibirsk, Yekaterinburg, Krasnoyarsk and Vladivostok is driving expansion to those regions. The unavailability of regular commercial flights, inconvenient schedules and remoteness from central Russia, Europe or Asia generates a steady demand for business and private air travel among property owners, stockholders, and senior managers. Major international events, such as the 2013 Winter Olympics in Sochi, also stimulate regional growth of business aviation.
The average annual growth rate of Russian business air transport somewhat slowed down in 2013 compared to the previous years, when the frequency of flights would increase by 12% per year on average. This moderate growth rate suggests that the Russian market has finally achieved maturity, with the sky-rocketing growth at 30-40% in 2007-2008 having been replaced by a steady advance of 2-3% per year - not unlike in Europe.
Less than a decade ago, comprehensive ground services for business jets and their passengers in Russia were difficult to come by. The situation has since changed thanks to the development of the bizav market, mainly due to the growing business jet fleets in the region. Business aviation centers and FBOs crop up in different locations across Russia, including in Irkutsk, Kazan, Yekaterinburg, and Sochi. The greatest development of the past two or three years was the revitalization of the Moscow ground handling market, which welcomed new players and major projects.
The first business strong enough to challenge the virtual monopoly of Vnukovo 3 was Avia Group. The company built comprehensive infrastructure for business aircraft and passengers at Sheremetyevo, complete with a stylish, spacious two-storied terminal capable of handling 30-35 departing passengers and the same number of arriving customers; two modern warm hangars with a total area of 15,000 square meters; and a joint FBO with the Finnish provider Airfix Aviation.
But then the project ran into problems: the 2014 U.S. sanctions against a number of Russian citizens affected businessman Gennady Timchenko who is believed to own Avia Group. Some Russian market sources say Avia Group’s Western partners have frozen a number of its accounts. As the result Timchenko has to sell the company, which is not among his core businesses anyway. In early the Russian media cited his representative who confirmed that Timchenko sold his shares in Sheremetyevo as well as in Avia Group Nord that operated bizav terminal in St Petersburg Pulkovo airport in March. He also reportedly withdrew from AirFix Aviation. No details about the deal and the new owners of these assets have been revealed so far.
The murky prospects of the Sheremetyevo terminal do not mean that the airport’s appeal for business aviation is shrinking. The Moscow market in general remains extremely lucrative, as evidenced by the sudden developments at Domodedovo’s Avcom-D business aviation center. This Russia’s oldest business aviation terminal changed hands in May 2014; the original operator, Avcom, was replaced by a group of private investors known as Domodedovo Business Aviation Center, whose assets include the business jet operator Sfera Jet. The new owners immediately made it clear that the Domodedovo terminal will not be used exclusively by Sphera Jet. They also partially revealed their massive development plans. Domodedovo Business Aviation Center plans to implement U.S. and European best practices in ground operations, with several handling and catering providers working side by side at a single FBO. This competitive environment is expected to improve of the quality of services offered and result in more flexible pricing. A new spacious terminal will be built by 2016, the adjacent territory will be improved and an extra hangar erected to accommodate more business jets. Total investments will exceed $10 million.
Avcom is not leaving the bizav market either: the company is planning to open a business aviation center at Ramenskoye airfield by 2015. This airfield that serves for test purposes and traditionally hosts Russia’s premier air show MAKS is reconstructed now into a commercial airport. The project will feature extensive use of modular structures for the terminal, hangar and FBO facilities for time-saving and cost-cutting purposes.