Russian Business Aviation Collapses
Russian Business Aviation Collapses

Russian Business Aviation Collapses


Business aviation plunged into a crisis: demand fell, one after another air carriers disappear from the market. Segment of flights to the order does not adapt to the new economic situation.

The Russian business aviation market has dropped by more than 4% over the past 30 years. This is noticeable in the number of people and companies leaving the business, as well as in the dynamics of arrival and departure at airports. The number of brokers on the Russian market also decreased by one third.

The bankruptcy of the airlines pursued and the charter carriers of Europe. If earlier in the terminal "Vnukovo-3", intended for private planes, you could always see the 10-15 boards of European operators who were waiting for the order from the Russian market, now you need to spend time searching for the option with acceptable conditions for the client. This trend is a natural continuation of the crisis of 2014.


Features of the organization of the private aircraft market


Business aviation is a branch of civil aviation, focused on corporate and individual flights. In other words, companies operating in this industry specialize in the transportation of wealthy customers by private planes. At the same time, the expenses of businessmen traveling in this way reach hundreds of millions per year for aircraft maintenance.

Such customers do not need huge airliners, so manufacturers produce special series of low-capacity aircraft. The average cost per aircraft for business aviation varies from $ 3 million to $ 80 million. The most popular models are: 10-local Bombardier Challenger 605 and 15-local Bombardier Global 6000 (Canada), 13-local Legacy 600 ( Brazil) and Gulfstream 550 (USA), in the cabin which can be up to 16 passenger seats.

The Russian market is experiencing a critical stage of development. Entrepreneurs who have risen to their feet in the 90-ies, transfer management posts and fortunes to their heirs. In the conditions of the developed economy, there are no longer any prerequisites for radical changes, as before, and customers are beginning to use the private planes more consciously. Wishing to throw out huge money for the wind to show its worth, is no longer there.


Who ruined the crisis


In the management of the airline there was a sharp change in the views. The market was abandoned by the owners of aircraft, which for purchases actively attracted third-party financing - loans and leasing. At the time of purchase, the potential buyer had only the initial amount, the rest was covered by banks.

After the crisis began, European banks substantially reduced the financing programs for such assets (helicopters, yachts, etc.), and many borrowers had to urgently sell aircraft to repay the debt or return aircraft to the bank as collateral.

Banks also wanted to part with the quickly cheaper asset as soon as possible. As a result, a surplus supply of secondary aircraft was formed on the market: prices for resource boards from 2014 year began to go down sharply. For example, if in Falcon2000 in 2011 year bought for $ 25 million, then in 2015 it could be sold only for $ 11 million. Gulfstream 550 in 2016 year was bought for $ 53 million, and three months later it was sold for $ 47 million.

The dynamics of falling prices for some types of long-haul liners amounted to 3-4 million for a couple of months, while the larger planes lost about $ 300 thousand per quarter.

The time of the boards stay in the market exceeded 400 days. Until last year, the exposure range was smaller - from 100 to 200 days. There were a lot of second-hand aircraft, and manufacturers continued to supply not only new aircraft of existing modifications, but also completely new models.


New air transportation format


Refusing to own an airplane, many wealthy businessmen do not want to change into a business class and prefer renting a private jet. Against the background of a general decline in the business aviation market, the demand for rent remained at a stable level.

According to the report of the agency WINGX Advance, in February 2018 in Europe, the growth of business aviation was recorded. There are no such reports on the Russian market.

In total, 57 037 business aviation flights were performed in February, which is an increase of 4,5% over the same period of the previous year. Statistics show global growth against the backdrop of the decline observed in Russia.

Since 2014, the domestic market has shrunk, and larger players have begun to crowd out small ones, an era of consolidation has come. It gave rise to fierce competition: if earlier people bought flights without bargaining, now clients are closely studying the available offers. Already no one is surprised that the service is sacrificed to the price.


Wealthy customers began to save


Prior to the crisis, the customer could refuse meals on board and flight attendant services to save money. Currently, the list of refusals of services has expanded significantly: in 2018, a private jet tenant is ready to fly on a normal looking board 15-20-year-old. In the pre-crisis time, Russian customers did not even consider business aircraft older than 5 years.

Against the backdrop of the general struggle for the customer by reducing the price, the quality of service is also reduced. This is a dangerous trend, because the price of the charter includes the cost of maintaining the aircraft.

If the trend of infinite cost reduction continues, it will affect the quality of aircraft maintenance and the quality of crew training, which directly affects flight safety.

However, there remains hope that the ongoing consolidation and consolidation of airlines will be a positive process. Large companies are controlled by the aviation authorities and would prefer not to cross the red line for perceived gain. Ultimately, the market must balance, reducing the margins of participants, but leaving the necessary margin in the field of reliability and safety.

Because of the tougher attitude towards finance, private planes ceased to be an effective element of business. For one day it is impossible in business class to visit several cities, hold negotiations there and return in the evening to Moscow. But if the customer flies infrequently, less than 100-150 hours per year, the maintenance of a private plane will become quite costly. It is much more profitable to rent aircraft.

The cost of a flight hour in large planes will vary between 5-6 thousand euros, which equals 0,9 million euros on an annualized basis. The maintenance of the same aircraft with this flight will cost 2 million euros per year. It is easy to calculate that the price of a flight hour in this case will be more than 13 thousand euros.

Already, we can state that the change of elites significantly changes the situation in the business aviation market, requiring participants to increase the efficiency of doing business and more creativity in the sale of services.

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