Emerging Markets: Are Russia and China really ready to join the party?
The sales and marketing gurus at the world’s major business jet manufacturers have long counted Eastern Europe, Asia and Latin America as “potential” growth markets–all while focusing their attention on the “real” markets for business airplanes, namely the U.S., Western Europe and the Middle East. But now, solid economic growth and bullish forecasts for Russia and China are giving sales executives good reason to make extra visits to Moscow and Shanghai.
“Business is doing very well in Russia,” said Jeff Barnett, member services coordinator for the U.S.-Russia Business Council in Washington, D.C. “Business is booming there in most sectors, the oil and gas sectors specifically.” Russia has raked in billions of dollars with high oil prices, Barnett said, and that spilled over into other sectors. “They’re experiencing a big consumer boom there.”
Renee Veerman, a sales executive with Mechtronix Systems, a Canadian producer of flight simulators with a growing list of clients throughout Eastern Europe, said these positive economic forces are contributing to the growth of business aviation in Russia and the former Soviet states.
“If you look at Russia, that’s where business aviation is big. There are lots of rich people there now,” he said. “The entrepreneurial spirit is rapidly expanding in Russia. They are seeing the power of moving somewhere very fast and very efficiently with business jets.”
Emblematic of the trend, 40-year-old Russian oil tycoon Roman Abramovich, with an estimated net worth of $18.2 billion, the richest Russian and the 11th richest person in the world, according to Forbes magazine, owns a VIP Boeing 767-33A/ER and several Eurocopter helicopters.
Business jet makers are betting that the potential of emerging markets like Russia will soon translate into a healthy number of sales and deliveries to satiate the sudden demand. Robert Baugniet, director of corporate communications for Gulfstream, said that while the new, smaller G150 jet is appealing to customers who do most of their flying within North America and Europe, the company is also seeing growth in other parts of the world because it now has aircraft that can fit various mission profiles. Gulfstream recently opened a sales office in Moscow with a G550 on site, he said, and is also exploring new business throughout India, South America and China.
The G550 was displayed at Jet Expo 2006, a business aviation show held September 20 to 22 at the Avia-Business Terminal Vnukovo-3 railway station in Moscow. According to a Russian civilian aviation Web site sponsored by New York-based Russian charter operator Clintondale Aviation, the show also featured Raytheon’s Premier IA, Hawker 850XP, Hawker 1000 and a King Air B200. Clintondale Aviation’s subsidiaries RusAir in Russia and KazAir West in Kazakhstan offer a variety of aircraft for charter, including Bombardier’s Challenger 604 and the Russian-made Yak-40D business jet and Yak-42 airliner.
Anders Aslund, senior fellow at the Institute for International Economics in Washington, D.C., and former economic advisor to the Russian government, said that owning a private jet is not only considered a status symbol for the country’s elite, but is a necessary part of doing business in the vast Russian territory. “They frankly have to have airplanes for their domestic transport if they are to run these kinds of companies,” he said, noting that Unified Energy Systems, Russia’s public energy monopoly, owns at least half a dozen business jets.
As for infrastructure, Aslund said that there are plenty of underutilized airports in Russia, many of which were built as Soviet military airfields. “In Russia you have an abundance of land that needs very little treatment to become a decent airport,” he said. “It’s not a problem in Russia to find an airport where you can land. Every industrial place has an airport.”
Like Russia, China and India are quickly becoming two of the hottest growth markets for business aviation in the world. With more than two billion people between them–and an ever-expanding middle class–aircraft manufacturers, charter companies and others are watching these countries carefully, hoping an economic spark ignites a bonfire.
“Business aviation in Asia has the potential to increase economic development, make the indigenous companies of the region more competitive in a global marketplace and enhance the quality of life for its citizens,” said NBAA president and CEO Ed Bolen last year when the 2007 Asian Business Aviation Conference & Exhibition (ABACE) was announced. The conference is scheduled to take place February 6 and 7 in Hong Kong and is the region’s first annual show dedicated solely to business aviation.
The first ABACE was held on Aug. 9, 2005, in Shanghai. NBAA reported that more than 2,000 attended the event, which was hosted by more than 50 exhibitors. (In case you’re wondering why Shanghai, consider that China’s first Ferrari dealership recently opened for business in the bustling, cosmopolitan city on the country’s western coast. Clearly, China’s culture is changing as a result of the economic growth there.)
ABACE is modeled after similar NBAA-sponsored events in the U.S., Europe and Latin America. Attendees at the February show will have access to exhibits at the Asia World Expo, a static display of aircraft at the Hong Kong Business Aviation Center and a variety of informational sessions covering regional and global business aviation issues.
Meanwhile, the Sydney-based Centre for Asia Pacific Aviation is preparing for its third annual Asia-Pacific and Middle East Aviation Outlook Summit, to be held November 9 and 10 in Singapore. Invited speakers include executives from major airlines throughout the region, Singapore’s Minister for Transport and leaders from the Airports Authority of India and the Indian Ministry of Civil Aviation. The center also hosted its third annual India & Middle East Low-Cost Airline Symposium in Mumbai, India, on September 29 and 30.
While these conferences focus primarily on the Asian airline industry, they are relevant to business aviation, especially in India where the owners and operators of private aircraft are benefiting from the infrastructure that is being developed to support the nation’s commercial airline boom.
Business aviation is also growing in Latin America, with more than 950 jets and 22,000 turboprops in 16 countries. The region has seen an annual increases in total fleet size of nearly 30 business jets per year since 1999, with Bombardier and Cessna aircraft comprising the majority. However, many of the aircraft operating in Latin America are pre-owned airplanes that came from the U.S.
Still, Ernesto Rois-Méndez, president of the Latin American Aeronautical Association, said the region has shown significant promise in spite of the troubled political climate that prevails in so many countries there. “What is amazing is that with instability and unrest so typical in Latin America, there is such growth in business aviation,” he said.
This year’s Latin American Business Aviation Conference & Exhibition (LABACE), jointly sponsored by NBAA and the Associação Brasileira de Aviação Geral (ABAG), scheduled for August 10 to 12 in São Paulo, Brazil, was canceled due to complications from a construction project at the city’s Congonhas Airport.
Critics contend there isn’t a strong market for new airplanes in South America and there probably won’t be in the predictable future. But NBAA has vowed the event will return. Given the high expectations of business aircraft OEMs, it will be interesting to observe whether China’s ABACE show or LABACE eventually flourish.