Russian businessmen ready to splurge on jets depite tax obstacles

The world’s leading business aircraft producers have brought their latest models to the business aviation show in Moscow.

Bombardier along with Cessna, Dassault and Embraer are hunting for orders in a rapidly emerging market for business aviation in Russia and the CIS.

Producers have no doubt that these business jets will very soon find their Russian owners.

Business aviation in the country has seen unprecedented growth in the last few years, with sales rising to $US 1 BLN in 2006.

“I think it is the estimate that about 50 new business jets came to Russian owners over the last 12 months and I see no reason why that should slow down over the next 12 months,” reassurs Tom Perry, sales manager of Cessna Moscow.

The market is growing by 30% annually. Business jet makers, however, say sales could grow even faster if Russia reduces import taxes on foreign aircraft.

A business jet could cost from $US 10 MLN to $US 15 MLN. To register a business jet in Russia will add an extra 30% from its initial cost. Russians are ready to pay, but prefer to avoid having a tax burden. All the 160 planes that were bought by  Russian companies or individuals over the past two years were registered outside the country.

The fact that so many aircraft are registered abroad means not only that the country is losing sales tax revenues. It  also creates difficulties for the owners, operating to and from Russia.

“It is detrimental, not for the Western manufacturer or the customer who found a solution in registering the plane abroad, but it is detrimental to the Russian operators. We have a long association with some of them and they are desperate to get this customs tax cut to be able to operate directly in Russia,” points out Alain Aubry, Vice-President of Dassault, Moscow.

If a plane has a foreign registration it still has to give three days notice to enter Russian airspace.

And even domestically based business aviation operators are classified as airlines, and fly by the same rules as scheduled carriers.

“Russian business aviation cannot develop as fast as European or American, for example. Because in Russia you can only fly after you get permission while in Europe after you simply notify the authorities. And this makes a big difference,” says Dmitry Tolstenev, Diamond Avia plane broker, Moscow.

Despite tax and legislation problems Russian businessmen are ready to spend $US 2.5 BLN on business jets in 2009. And market watchers say contracts worth $US 1 BLN have already been signed.