How to carve out and retain your market niche? What's a broker for in an aircraft sale or purchase deal? What legal and technical hurdles to look out for? When to trust brokers? We're covering all this and much more in ArcosJet CEO and founder Mikhail Alenkin's interview to BizavNews.
Mikhail, we often hear aviation people say how they've always been in love with airplanes and how aviation had been the life of all their predecessors to the seventh generation. As for you, though, I've heard you got into the aviation industry purely by chance. How did that happen?
Well, 'purely by chance' is what it looks like only on the face of it. Those who get here 'by chance' don’t stay here for long. By chance was that I found out that business aviation existed at all, but starting a career there was my deliberate choice. My first encounter with it took place when I was a student at the Moscow Aviation Institute University. In the early 2000s, I had a student job at the Moscow Aerospace Salon (MAKS), at which the French were exhibiting a Dassault Falcon 2000, and my life has never been the same since. I was shocked by the beauty of the aircraft and very keen to know what it is and what it is for. I started my career in business aviation with working for several years in business jet charters. Over time, I began to see this segment as a necessity, a means of transportation for business. Business aviation is often seen as indispensable from champagne and black caviar, but it's not the most important part; above all, it's a very effective means of transportation.
Whatever I've done in my life, I've always been keen to know it inside and out. Working in this market has helped me see open opportunities and unfilled niches.
How did you manage to find your niche, in a market with all the lucrative segments long occupied? Did you have a lot of competition to fight?
In fact, it's not that simple with lucrative market segments of the Russian market. Russia's business aviation market is mostly charter market, with a huge chunk of associated services outsourced to European and American companies, although Russian specialists already have great potential in this regard. Before the situation began to improve over the last 5-7 years, international players dominated Russia's private jet sales and purchases, to the extent that they essentially took up all the business in the country. This was the appealing niche that we decided to fill with ArcosJet.
And you say you didn’t have to fight. What about foreign companies?
Well, some elbowing sure took place.
How did a new startup manage to elbow seasoned veterans with decades of experience?
In any regional market, advantage is always with those more familiar with the language and mentality. In one way or another, international players in Russia have always worked through the few Russian middlemen. Back in 2014, realizing Russian market's lack of skilled professional aircraft sale brokers with a good knowledge of the market and local specifics, we decided to make that our focus.
But even in the early 2000s, tens of Russian companies were claiming to provide a complete range of services related to buying and selling a private aircraft. I even remember some seminars held on the subject…
Yes, you're right, but there's a long way between first experience and true professionalism. Sure enough, by the time ArcosJet was founded, some individual Russian brokers had been there on the market, working in half-professional mode, so to say. They earned their commissions, but only few of them really went through the whole deal alongside the customer. While many companies would cite aircraft sale and purchase deals as part of their business, not many were familiar with the real process. With ArcosJet, we brought to the market a professional player that specializes in aircraft sale and purchase deals.
How long did you stay in that niche? You did expand your business activity after all, right?
Not quite. We still work in the same niche, not trying to expand to adjacent market segments. To us, it's important not just to make money, but to uphold a reputation as well. The selling and buying part of the business is usually connected either to operators or charter brokers; and if you're in the charter business, it's tough to close a deal with an outside company, as they will be cautious that you may take their clients. We're going away from such competition; we say, 'Guys, we're not taking away your jets; if we do a deal with you, your clients stay with you. ArcosJet consciously remains purely a seller of aircraft. We always hold up our end of the deals, never getting in the way of operators and charter brokers.
Is it often that you get to help your competitors?
We aviation brokers are very often competitors and partners at the same time. For example, in a situation when one broker is representing the buyer, and another, the seller. We all play on the same field, and partnerships happen, of course.
If there's a seller and a buyer on a market with online platforms, why would they need a broker with their commission? Doesn’t it just increase the costs?
Well, that's a one-sided approach. A broker helps cut other costs – such as time, which always translates in money. Sounds obvious, but besides being a hugely complex machine, an aircraft is an asset that requires a lot of paperwork with tons of legal and tax subtleties and risks. The seller and the buyer are those who use a business jet, but they're not professionals in the bizjet market. They cannot (and are not supposed to) know all the nuances, be they technical or legal, and neither can their assistants, lawyers, or accountants. Knowledge like this is accumulated with years of experience, while a buyer and a seller only need it once in several years.
As for professional brokers, it is what they do on a daily basis; it's their professional routine. It takes years to establish a reputation on the market and build a network of professional ties and partnerships. A reputed broker can do so much more in terms of finding the right aircraft for the client, coming up with the optimal way to structure the deal, and driving the deal to a successful closure. We at ArcosJet remain as open as possible, talking frankly and honestly with customers; we really value relationships, mutual trust, and respect.
Yet all the risks are on the client?
Far from that. The task of buying or selling a business jet requires infrastructure and expenses, which we take. Besides, finding a buyer and a jet for that buyer requires legal and technical support that unexperienced staff simply cannot provide, and we have our own legal and engineering departments to assess the technical condition of an aircraft. The matters of structuring and closing a deal are not cheap at all, and to ArcosJet, they are not just an extra service but part of the whole deal. There are few players on the market who can do that: find financing, buy out aircraft, and, most importantly, be ready to take risks.
You are known as very expensive.
Yes, perhaps our rates are not the lowest on the market, but I've already shown you why. The commission we take helps our clients avoid lots of hidden expenses they would face if they went on their own or with a less experienced broker. We remove part of the risks by offering competencies that the client neither has nor is not supposed to have.
What’s going on right now on the market? Is it true that supply is down and prices are up?
Right now is 'seller's time', as they say, but… On the one hand, the number of jets for sale is pretty small, but on the other hand, the prices are not that far up yet. I'd say what we have now is a more or less balanced market where good money can buy you good assets, although there are never too many good airplanes. At first, we expected to see more business jets go up for sale in late 2020 and early 2021 due to the closing of the fiscal year. We were wrong. Moreover, we are seeing many manufacturers actively sell new aircraft right now, although last year broke a 10-year sales volume record. But year 2021 is going even stronger, which shows on the pre-owned aircraft market as well. I think it's deferred demand working, because last year, many customers had trouble making the final decision.
Is Russian market the most important one for you?
Let's say Russia and the CIS are our key market, but I wouldn’t divide markets in primary or secondary. This business cannot be built locally, for the market itself is global by nature: today, a jet belongs to a Russian owner; tomorrow, it flies in the Middle East or China. This is why we have offices in Russia, the UAE, Austria, and Cyprus. During the pandemic everyone realized that Dubai is a hub that connects Middle East, Africa, and Asia.
Recently, we expanded our team with strong new members such as Mehrzad Sepasi, a unique professional with over 30 years of experience in business aviation. After many years of building successful customer relations all over the world for Bombardier, Mehrzad will take charge of aircraft sales and market development in the Middle East, where we see great potential. The Middle East and Dubai are also gateways to Africa, Asia, Pakistan, and India, where we also have our customers.
Another new teammate of ours, Yuri Dzun, will boost our presence in Europe, leveraging his great experience of establishing connections and building relationships in the professional community. At ArcosJet, Yuri will do sales and marketing in Europe.
Are you feeling that confident in Russia and CIS now that you are ready to pursue global ambitions?
Of course, we are not alone in Russia, and there is room for growth here, but this growth requires global capacities; they are critical to our staying competitive. Today, we see ourselves as a global player, and establishing a network of our own offices and partners across the world is what I think is the only true way of development for ArcosJet.
Didn’t the pandemic make you rethink your views on globalization?
Rather it made us rebuild ourselves. Sure enough, the pandemic has affected our business. We realized how much we could do remotely. At the same time, flight restrictions and closed borders cannot stop businesses and people from flying. We realized that we need to push and boost our expansion to other regions – the more countries we cover, the better. It is the pandemic that forced us to think about scaling out and expanding our business.