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The Russian economy is struggling. Falling oil prices, economic sanctions and the decline in the value of the Rouble have pushed the country into recession. Fortunately its national airline, Aeroflot, can still count on a steady income stream, thanks to the overflight fees it levies on foreign airlines flying across Russian airspace.
Aeroflot has had the right to levy overflight fees on airlines using the trans-Siberia route since the Soviet era. Various reports have put this as being worth anything between $170m and $420m a year. Given that Aeroflot’s reporting operating profits have often been less than $200m in recent years, these fees can be the difference between making a profit or a loss.
Following negotiations between the European Commission and Russia, overflight payments to Aeroflot were supposed to have been phased out by 1 January 2014. It was agreed that overflight fees would not to be abolished entirely, but replaced with a cost-related and transparent fee that was payable only to the responsible authority, namely the Russian Air Navigation Service Provider.
That date came and went. The Russian Vice-Minister of Transport then promised to implement the agreement by mid-2014. That deadline was missed too. As of February this year, the agreed process to phase out overflight fee payments to Aeroflot has still to be implemented. The European Commission is not happy.
The airlines have been very quiet on this issue. This is not a surprise. Aeroflot poses no great competitive threat, and therefore such subsidies can be safely ignored.
More importantly, the airlines fear that any criticism of the Russian government’s policy on this issue could lead to them not being able to use the trans-Siberian airspace. On nonstop flights between Europe and Asia, the trans-Siberia route is estimated to save up to four hours of flying time. As the aviation industry knows too well, time is money. One estimate is that Lufthansa alone would lose $4 billion a year if it could not use the trans-Siberian routes.
The European Commission is on its own here. In the meantime, we are adding this to our growing list of airline subsidies that are acceptable to the aviation community.
