Dominating the capacity game: Avia Solutions Group CEO Jonas Janukenas from local challenges to global achievements

Avia Solutions Group, is a leading end-to-end capacity solutions for passenger and cargo airlines provider, majority-owned by a Lithuanian businessman, Gediminas Ziemelis, and run by Lithuanian managers. The Group that manages over 100 offices and production facilities, with over 9,500 highly skilled professionals on the payroll worldwide and serving more than 2,000 clients throughout Europe, Asia, North America, Australia, and far beyond, can be Lithuania’s best introducer, yet, sometimes it is not enough. “Indeed, we see certain institutional inertia towards us, I would assume due to the importance of the industry we represent. In the Baltics, and especially in Lithuania, there is a lot of our Group’s brainpower, but there are no local brand names under it. Hence, being a worldwide multi-sector avia business, we are very little known to the local public,” Jonas Janukenas, CEO and Member of the Board of Directors of Avia Solutions Group, told The Baltic Times Magazine. Under his auspices, Avia Solutions Group holds more than 500 licenses for its constantly growing range of activities across multiple business sectors and the Group’s vast portfolio of services includes ACMI (Aircraft, Crew, Maintenance, and Insurance) leasing and cargo operations, trading, MRO services, business aviation and VIP airline procurement, charter and cargo aviation, pilot and crew training, recruitment services, along with multiple additional services across a wide range of associated operations. Janukenas kindly agreed to answer the questions.

You’ve been with Avia Solutions Group for nearly six years now. What do you find the most fascinating about the stint?

Being head of such a big aerospace services group is really a unique experience. When we speak about aviation, we are not limited by physical borders and boundaries. I understand that sounds like a cliché, but that’s how it is. So, essentially, our market is the whole world – endless and limitless. As an airline capacity and service provider, we estimate that the global passenger and cargo spending is close to USD $1 trillion and view it as a potential market size. Few other industries can boast such statistics when speaking about their markets. Unlike many other markets, aviation is regulated pretty much the same everywhere – be it Europe, North America, Latin America, the Middle East or Africa. So again, the possibilities are endless.

Avia Solutions Group could be the national pride, the business card of Lithuania, but, in recent years, the company often had to stave off the suspicions or accusations of some media or individuals over the company's alleged ties with Russia, now China. What do you make of it?

As a group with a service center in Lithuania, our eyes have always been on the Western markets. Of all our turnover, the share of services provided to Lithuanian companies is less than one percent. Of course, we realise where we come from – we are proud of our roots, Lithuania, and we are well aware of tense geopolitics. Indeed, we react sensitively to any speculations, interpretations or accusations. And yet it still hurts when false information is spread. The Russian chapter of our business is long closed for us. And we stand firm with this decision.

It is true that, like many companies from around the world, Avia Solutions Group has had historic business in Russia – specifically as a minority shareholder in the construction of a passenger terminal at Zhukovsky Airport. We have always been transparent about this and the information has always been available to the public. 

In 2018 we withdrew from the project due to the escalating tensions between Russia and Western countries, clearly demonstrating that our focus was very much on developments in the West, and out of Russia.

Besides, on the second day of the war in Ukraine, Avia Solutions Group, and our subsidiaries, terminated all operations in Russia. All Russia-based clients and suppliers were blocked in Avia Solutions Group Client’s database and blacklisted Group-wide. The Group had been decreasing this share of business since the Russian annexation of Crimea in 2014.  

As a matter of fact, we never earned any material profits while operating in the Russian market. All expansion was financed by the proceeds from former stock exchange listings totaling to €57M back in 2011-2014, bonds issue in 2019 on Dublin Stock Exchange (USD $300M) and structured equity investment in 2021 (€300M), totaling to almost €657M. 

Until recently, our share of the revenue from the CIS market (the Commonwealth of Independent States, CIS – TBT) was around 3-4 percent of our total revenue – really not a tangible number. 

When it comes to China, we still retain some business activities there, but we have taken geopolitics into consideration and reevaluated our expansion plans to follow the sanction list completely. Over the first 9 months of 2022, only 0,5% of the whole group’s revenue came from the region.

Furthermore, when it comes to sanctioning compliance, we are even more stringent than others – roughly 20 people in our Group work on sanction compliance. 

Not only the two mentioned countries are of our concern. As a global business, we interact with more than 150 countries, so we need to be careful whom we are dealing with. Daily. When being a global aviation industry player, trusted and reliable, we and any other company of our size will inexorably run into a situation where some countries are acceptable geopolitically and (where) others are not. That’s how it is, we respect it and comply with such requirements and, we do not even make a very big deal out of it. Especially, since for the last five years or so, our main market has been Western Europe, which generates roughly 80 percent of our revenue and where around 60 percent of our physical workforce is.

Geopolitics seem to constrain your growth and search for new markets. Does it not?

Since our main income stream comes from Western Europe and the US, there wasn’t a big impact on us per se. But we have to find new growth areas nevertheless – South Asia and Latin America are two of the regions we are looking into. To stay competitive among the other well-known worldwide providers, we have to be there. At Avia Solutions Group, we realize very well that we can find ourselves in situations where some of the countries there may not be geopolitically acceptable. While this might cause us to miss out on development opportunities, we never look for ways to cut corners and fully comply with all requirements and sanctions.. That’s the reality that any company of our size comes across. Even as the West is pivoting from working with China, for example, companies are still looking for supplies in South-eastern Asia, like Indonesia, Vietnam, Cambodia and the other countries in the region. Importantly, the countries’ growth and the populations’ well-being depend significantly on how the local aviation sector does.

I reckon that some other developing and emerging markets you did not mention, say, Brazil, Pakistan or India, can also end up in hot water – for one reason or another. Are you now more cautious when planning your future investments?

Well, many things happen, happened and can happen. Just over the last two years, we had the COVID-induced crisis, then the war. Partly due to crises, Avia Solutions Group expanded more actively over the last two years in Western Europe and, currently, in the United States, where we tangibly increased our headcount. On certain services, we expanded to Canada and we are continuing to strengthen our presence there. Shortly, the developing and mature markets will remain the core of our activity. 

If permitted, we will be doing business with a number of countries in Africa, Southeast Asia, Middle East, i.e. the markets in the eyes of all other companies in our fields. Being barred from operating in some of them would, again, mean missing out on growth. Despite their risky political environment, the potential the regions and the countries have is big. For example, due to positive demographics of the continent and improving safety and security, Africa is expected to become a hub for travel growth in the upcommings decades. 

Last year, Avia Solutions Group entered into a strategic partnership with Certares Management LLC, a leading US-based investment specialist dedicated to the travel, tourism and hospitality sectors, in which Certares will provide your Group a 300 million euro structured equity investment. Isn’t it the largest investment Lithuania has ever had after the restoration of independence in 1990? How will Avia Solutions Group benefit from it?

To my understanding, it might well be. As a group with a representative office in Lithuania,we are very proud of the investment, that is for sure. I see it as a sign of appreciation for our business and performance. The acknowledgement is especially dear, as the investor is well-known and trusted.

The investment strengthened our capital base and will boost our further expansion in services in passenger and cargo aviation, maintenance and engineering, crew training, ground handling, and logistics.  

The COVID pandemic has been bad for most, and Avia Solutions Group is not an exception. In 2020, your Group posted a 52 million euro loss before rebounding in the following years. How did the contingency prompt you to adapt and adjust your business models?

Indeed, unlike geopolitics, that was something that no one could foresee. You are right – it was difficult for the entire aviation sector. Yet we weathered the pandemic much better than some other aviation industry companies. Unlike others, we did not receive any specific state aid during the public health crisis. Many big European aviation names received tangible state aid to survive through it. Passenger traffic was extremely heavily affected – in some months, the number of passengers had plummeted 10-20 percent against the pre-pandemic level, which could put in jeopardy any passenger aviation-related business.

I am proud that we survived on our own. Before the pandemic, we were still heavily relying on the supplying capacity to passenger airlines – big names were still selling tickets and flying with us – we were providing aircraft, crew, maintenance, insurance (i.e. ACMI). But, luckily, before the pandemic, our Group had already pivoted partially to the cargo aviation sector, which was essential during the pandemic. Anyone who carried goods during it did very well – the cargo volumes went through the roof, ours as well. In the second half of 2021, with no clear signs that the passenger aviation sector will soon get back to normal, we started to increase our capacities for the passenger airlines we were working with. In the peak season of 2022, Avia Solutions Group was already flying 140 aircraft, which is significantly more than the Baltic regional air carrier airBaltic (approximately 40 aircraft – TBT) has. For comparison, Polish LOT’s aircraft fleet consists of around 74 aircraft, SAS has a little over 80 aircraft. And we’re not about to stop – we are further increasing our capacity both in passenger and cargo sectors.

Aviation is a cyclical business activity, so understanding the cycles and being able to downsize in a down cycle and quickly scale up when the cycle goes up is crucial, demonstrating the foresight and strength of Avia Solutions Group.

Besides, we’ve had several acquisitions over the last couple of years. I’d like to highlight the acquisition of Bluebird Nordic in early 2020, which allowed us to step into the narrow-body ACMI  cargo business. We replaced part of our old aircraft with new and more efficient and sustainable ones. Differently from the long-haul wide-body cargo business, narrow-body demand is growing fast, driven by electronic trade and others.

What do you see coming next for Avia Solutions Group?

We are still looking for other capacity providing companies to add to our business list. But, as in our case, supply creates demand, we look forward to increasing our presence in the ACMI sector. 

Speaking on the whole, the European market is very seasonal – roughly 35-37 percent of passengers fly during the summer season more often than in the winter season. Hence, the tangible seasonality of our business in the European market. However, the other aforementioned markets, like that in South America or Southeast Asia or Africa, in some of which we have our foot already in or are eyeing, are the opposites, i.e. having opposite traffic patterns to those of European passengers. So, after providing our capacity to the Western airlines in summer, we have to move it to the other parts of the world in winter. Secondly, by having our passenger operations, we can leverage our cargo operations. If we were to look 10-15 years ago, the ACMI capacity supply was more of an emergency response – most of the time, there were only small avia companies with a couple of aircraft, rarely flying and responding to emergencies mostly. 

They were nowhere close to serving the big aviation industry names we work with. In fact, it is we who are mainly driving the ACMI market now. 

Furthermore, being a reliable supplying service provider, we create a demand for it – the airlines which had to downsize quite significantly during the COVID-19 pandemic do not always need to bring back all the capacity they once had. They can rely on our capacity, more than that: it has been a gamechanger. For the industry and us too.