CJI (London) – understanding the Russian market
This year, for the first time ever in the history of Corporate Jet Investor, business aviation in Russia became one of the main panels at the conference. Like Mr. Churchill said, “Russia is a riddle, wrapped in a mystery, inside an enigma”. Apparently, these famous words can be applied to the current situation on the Russian business aviation market. The new customs regulations and temporary tax cuts need more explaining not only to our colleagues in Europe, but also to the Russians.
The Russia panel covered the most important aspects of business aviation in the country – discussing the fleet, new zero VAT for aircraft, and the future of business aviation.
Mikhail Alenkin was invited to share his thoughts and was able to shed some light on these issues.
So, let’s try to understand the Russian fleet and its current situation. Mikhail started off by explaining what has caused a souring of the Russian business aviation industry “Economic stagnation, sanctions against Russian individuals have impacted the number of business jet sales and acquisitions deals. Having said that, and our European colleagues will agree with me, a very large proportion of private jets operated in EU belong to Russian citizens.”
Up till now there have been only a few jets with Russian registry due to taxes, VAT, a complicated registration process, and law regulations. However, the steps that the government is taking now – the tax cuts and new regulations – are designed to encourage Russian companies and individuals to register their aircraft in Russia. At the same time, there is a massive crackdown on any violators of temporary admission regulations and “grey charters”, i.e. privately registered aircraft performing commercial flights within Russia. All in all, the business aviation market in Russia is becoming more transparent and regulated, although the abruptness with which changes are being introduced have caught many off guard.
Although the tax cuts will encourage an increase in number of aircraft with Russian register, no drastic changes will be seen in the near future. State-run companies will probably be among the first ones to do this. There is a “but” coming – it will be more difficult to provide funding for the aircraft with Russian registry as well as obtain permit for flights to Europe. VAT abolition is definitely an incentive, but it has been always possible to reimburse it. However, all the most popular business jets in Russia remain to be the subject to customs duties.
There is a number of temporary solutions, which allow operations within Russia even after the new regulations took effect. One is using an 83bis agreement with aircraft registered in several foreign registers.
There is also a temporary admission solution known as the ”Form 53” that allows aircraft to enter and leave Russia, if not used for commercial purposes, with simplified customs clearance as long as they do not stay in the country more than 30 days in a row and over 180 days in any given year.
On the sales side, although the Russian market has been flat lately, there are still a few sales and acquisitions deals happening. The region will see a number of new top-of-the-line aircraft such as the Global 7500, and their owners will start selling their current machines. At the same time, some other countries in the region will be active in the near term and provide some good opportunities. There is a silver lining after all…