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17 Apr, 2008 18:20

Russian airlines crippled by high import duties

Russian airlines say they are being crippled by soaring fuel prices and import duties on new foreign planes. The government has recently reduced import duties on two categories of aircraft, but the industry says this hasn't changed the situation and is ur

Russian airlines pay 40% in VAT and import duty – on top of the list price – when buying a foreign aircraft and this is immediately reflected in the price of the air ticket.

High import duties were imposed to protect the domestic aircraft industry but the industry, which has been in crisis for over a decade, has not yet supplied any alternative to foreign models so far.

The government recently cut import duties on planes with more than 300 and fewer than 50 seats.

Valery Okulov, General Director of Aeroflot, said this hasn’t had any impact on his company.

“We don’t use these types of airliners in our fleet. It’s positive for regional carriers, but to improve the situation import duties have to be abolished on aircrafts of all sizes,” he said.

The head of Russia's United Aircraft Corporation, Aleksey Fyodorov, promises the situation will change in 2025.

“We produce only a handful of planes. By 2025 we should start building up to 300 aircraft per year for domestic and global markets. This means annual production growth of 30 per cent.”

Until then, the airlines will have to buy from abroad and some doubt whether UAC will regain the market share it’s currently losing.

Experts also point out that in order to produce the number of aircraft Russian airlines need UAC needs private capital, not only state funding.

UAC plans to raise billions of dollars in an IPO it may hold in three years’ time.