Friendly Russian Skies?

Bombardier Business Aircraft announces plans to open operations in Russia.

Mikhail Khodorkovsky's unceremonious nine-year jail sentence this past May, and the breakup of his Yukos oil empire, did little to reassure foreigners that Russia was open for business. So it left some scratching their heads when, in August, Bombardier Business Aircraft announced plans to expand its operations there.

Bob Horner, vice-president of sales for Bombardier Business Aircraft in Europe, Middle East and Africa, has heard the Yukos question before. The ruling, he repeats, has not quelled the company's Russian ambitions. “We haven't seen the business dented or inflated in any way as a result.”

A dozen years ago, Bombardier was the first western company to try selling business jets in Russia. Horner admits that the roads were lousy and the bureaucracy worse, but says conditions are improving. Russian buyers now seek “to conduct business properly,” he says, and employ western legal and accounting firms. He adds: “The Russian government is mindful that future policies should encourage foreign investment.”

Bombardier's efforts paid off about six years ago, when Bombardier sold a Challenger 604 to its first Russian customer, a bank. Since then, the company has become the leading vendor of business aircraft in the country, with the 604 and the longer-range Global Express gaining popularity–particularly among executives in Russia's burgeoning resources sector.

Now Bombardier wants to consolidate its position. It's hiring more salespeople, and plans to install a maintenance facility at one of Moscow's airports by year's end to service the growing fleet. “The days of it being dangerous to go to Moscow are long gone,” he says.

Independent experts say Horner might be right, at least when it comes to how worried Bombardier should be about the Yukos ruling. Ben McTernan, managing editor of risk assessment firm the PRS Group in East Syracuse, N.Y., says the ruling amounted to the settling of a political vendetta, but held little relevance to foreign companies.

That's not to say Russia is without risk. Various ratings agencies place it in the moderate- to high-risk range, better than Iraq but far worse than, say, Belgium. One problem is a lack of clear policy direction, says McTernan. “Putin, as part of his political strategy, seems to have set up competing camps within his own government: the centralizing camp and the liberal reform camp,” he says. “He's holding his cards very close to the vest in terms of where he stands on the foreign presence in the Russian market.”

The biggest risk, though, is corruption. The INDEM Foundation, which attempts to track it, claims that the value of the average Russian business bribe has increased 13-fold since 2001. McTernan says foreign business people will likely encounter Russian officials demanding bribes. Failure to pay could lead to serious delays. But thanks to tough new international bribery laws, foreigners who give in might end up suffering Khodorkovsky's fate.