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Charter operators benefit as demand in Russia diversifies
Charter operators in Europe targeting the massive potential of Russia are navigating carefully around logistical and operational problems as they develop business. But they are reporting two key factors that are increasing business. A sales tax of almost 40 per cent within Russia is encouraging owners to base their aircraft outside the country, often with management or charter firms. And private aircraft ownership is diversifying.

Charter operators in Europe targeting the massive potential of Russia are navigating carefully around logistical and operational problems as they develop business.

But they are reporting two key factors that are increasing business. A sales tax of almost 40 per cent within Russia is encouraging owners to base their aircraft outside the country, often with management or charter firms. And private aircraft ownership is diversifying. The purchase of larger, long range business jets for travel to North America and the Far East is broadening to the midsize sector as businessmen seek faster and more efficient travel between Russian cities as well as abroad.

ProAir, which has opened a representative office in Moscow and appointed Maria Parshina as sales manager for Russia, is anticipating strong demand for management and charter.

Elmar Monreal, md, says: "We have placed a Learjet 45 and a 31A on our German AOC. Both aircraft will be focused on the charter side. Flights to and from Russia are included on that AOC and we will be working on expanding this fleet in the next 12 months." ProAir provides finance as well as sales and acquisition services. Its European network now includes offices in Zurich, the U.K., Germany and France as well as in Moscow.

Cessna's Tom Perry, regional sales manager for the U.K., Ireland, Scandinavia and the former Soviet Union, says: "We view Russia as an important market for the future. The progressive spread of wealth throughout the economy and rise of more Russian businesses will generate greater demand for mid-size jets. We expect to continue to see steady demand for our aircraft, with two deliveries scheduled for this year, a CJ1+ and a CJ2+. A Sovereign is also on order, for delivery in 2008."

Lukas Lichtner-Hoyer, president of Austria's JetAlliance, says: "It is true that demand for inter-city private charter flights in Russia is growing although our focus is on providing comfortable trips between Russia and central Europe. Our Citation Xs and Sovereigns are ideal for this. The whole market in Russia is very positive and we will undoubtedly be servicing it with more aircraft. Our clients like the Sovereign and the X so we would probably increase the availability of these as aircraft of preference."

He adds: "We are working closely together with Cessna in developing the Russian market because we believe that it holds high potential for business aviation. Over the coming months and years we will be increasing the number of Citations in the local vicinity to meet the market demand."

Charter operators hope that demand for services from Moscow to Europe will increase and that unproductive time waiting in Russian airports will become less of a problem.

Andreas Mundsinger, md of Stuttgarter Flugdienst which has brought a CJ2+ and a Citation Excel into service, says core business in Europe currently takes precedence over fledgling demand from Russia. "There is greater demand for flights to Moscow from Germany than for flights from Russia to central Europe so we have to be careful that aircraft are not kept waiting unproductively."

Fred Eisele, owner and md of German charter operator EFD Eisele Flugdienst says: "Business from Russia is developing but needs careful management. There is a far greater demand from European clients seeking to reach Moscow and other cities in Russia to do business than there is for return journeys. However,

I am pretty sure that the demand

for flights from Russia to Europe

will develop. There will also be increasing demand for private charters between cities."

EFD Eisele Flugdienst charters a CJ, CJ2 and CJ3 while a CJ2+ is on order. The focus is on a European market stretching from Tenerife to Russia but Eisele is reviewing the market for longer range jets.

"We are happy with our medium range fleet and our recently acquired CJ3 gives us added scope that should help us to develop business on Russian and other routes," Eisele says.

"The CJ3 has the capacity to trim journey time which is very useful on longer routes such as Stuttgart to Moscow. From 20,000ft to 40,000ft the average climb speed is 370 knots which means we can reach level cruise

height very effectively and then cruise at level with some 410 to 420 knots. And the CJ2+ is also going to be a

great performer and therefore a useful addition. However, we need to look at widebody longer range jets in the near future."

Various factors, including the high import tax cost of registering aircraft within Russia, mean that many Russian owners prefer to purchase their aircraft outside of the country and place them with Western operators.

Eisele says: "On the surface this looks good for operators in Europe who want to develop business in Russia. However, I take the view that it would be better if the tax burden on operators in Russia was lessened. We would not mind the competition. If operators in Russia are encouraged that would grow the overall market and all charter companies will benefit in the medium and long term."

Lichtner-Hoyer says: "We have a number of customers that are enjoying the benefits of having their aircraft on a European AOC based on the high safety standards for flight crew and maintenance that a company like JetAlliance stringently uphold and conform to."

JetAlliance is taking delivery of a CJ1+ and a CJ2+, later this year. But they will, says Lichtner-Hoyer, be deployed on many routes and especially in the development of business in Eastern Europe. The plan is to develop the Citation fleet for Moscow.

There is a pressing demand in the Russian Federation for consistent improvement and development of business aviation infrastructure at airports. But analysts say that one of the obstacles faced by companies operating air services on a regional basis in Russia is that the government pays much more attention to the very large aircraft enterprises. Regional aviation programmes are regarded as being of secondary importance. The number of local aircraft companies has reduced over the past decade. But Vnukovo, one of the biggest airports for business aviation, has ambitious business aviation expansion plans.

Maksim Fedosov, development and client relations manager at JSC Vipport, which is an established operator for business aviation at Vnukovo, says there has been a great deal of progress.

Vipport integrates all services for business aviation flights including slot coordination permission, ground handling, catering services, hotel accommodation, and crew and passenger transportation. Its strategic partner is RusJet, based at Vnukovo-3. "Future plans at Vnukovo-3 include further apron enlargement, up to 70 parking places, and development of hangars, a heliport and new passenger facilities," says Fedosov.

An MRO facility to support western business jets is under construction following an agreement between Vnukovo Airport and Lufthansa Technik.

"Infrastructure for business aviation at Vnukovo-3 has been developing since 2000 and there is already an enlarged apron, up to 28 parking positions, a domestic and a new international business terminal."

There is also 7,000 sq. m. of hangars for most types of businessjets, including BBJs.

"Now at Vnukovo-3 it's possible to handle more than 100 flights per day," says Fedosov. "Clients can use any of two business terminals, depending on what flight it is, international or domestic."

The Vologda region is one key area that is experiencing increasing demand for charter. Strategically situated in northwestern Russia it is well placed to service both St Petersburg and Moscow and is the size of Belgium, Denmark, the Netherlands and Switzerland taken together.

The economy and transport system has been intensively developed and Severstal Airline, backed by its parent company the big metallurgical firm JSC Severstal, has developed private and corporate charter as well as scheduled business.

Two of its six YAK-40s has been equipped and configured for intercontinental charter for up to 21 passengers and four crew. Severstal Airline reports rising demand for flights to Europe, the Ukraine and Belorus.

The company was restructured in May 2002 into Severstal Airline and is credited with having helped develop the local air transport systems in both the Vologda region and in the northwestern region of Russia. The Vologda region had more than 20 aerodromes in early 1990s but now only around four of them still function. One of the most successful of these is Cherepovets, sited in the heart of an important industrial centre, where Severstal Airline plans further expansion. Its development can be traced back to a decision in 1992 when a company metallurgical plant rented an aircraft, took on engineers and crew, and provided them with housing. The first flights served the plant commercial interests. But a second YAK-40 was acquired in 1995 and, with the reconstruction of a landing strip in 1998, services for third parties became possible. The length of the landing strip was increased up to 2,500 metres and, at the same time, aeronautical engineering facilities were developed.

In 2003 the agent sales network was developed for foreign passengers. International agreements followed and there is now an important focus on developing private charter

The Russian charter market will expand but analysts say growth will be constrained by the facilities and investment available.

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