More than 500 aircraft leased by Russian airlines to Western companies risk never leaving Russia.
There are no signs of a de-escalation of the war, the West is steadily escalating punitive sanctions, and President Vladimir Putin has approved a proposal to nationalize all Western enterprises that ceased operations in Russia after the sanctions were announced.
If the aircraft is lost, the charter companies could end up with $12 billion to $15 billion in cumulative damages.
How did these planes get stuck in Russia?
About half of the aircraft used by airlines around the world do not belong to them, but are leased from leasing companies. Airlines and aircraft operators prefer to lease aircraft to avoid the large one-time payments that their purchase would entail and to quickly increase capacity, perhaps temporarily, on certain routes or segments.
The New York Times reported, citing consulting firm IBA, that as of Thursday (March 10), 523 aircraft had been leased to Russian carriers by foreign lessor companies. All these planes are now actually stuck in Russia.
What is the problem with flying these planes?
After the war and Western sanctions, the sky of Russia is practically cut off from the rest of the world. Lessors cannot take the plane out of the country, and since Russian carriers have stopped flying abroad, there is no chance of seizing the plane outside of Russia.
Under sanctions imposed by the EU, European-based lessors have until March 28 to terminate contracts with Russian lessees and return their aircraft. Given the way the war is going, with intense Russian military action against civilian targets and a lack of meaningful negotiations, this time is simply not enough.
“EU and UK sanctions effectively set a March 28 deadline for ending aircraft leases, which is frankly an unrealistic timeline for a fleet of around 500 aircraft leased to Russia by operating lessors,” David Walton, Chief Operating Officer of Singapore. This was reported to analysts by the aircraft lessor BOC Aviation Ltd, Reuters reports, citing a transcript of a telephone conversation about profit and loss.
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Nick Popovich of Sage-Popovich, an aircraft recovery company, told the NYT that some of the global lessors who contacted him were mostly afraid of losing the planes. “We will not take on a task that we are not sure we can complete. I’m still learning what we can and can’t legally do,” the NYT quoted him as saying.
According to a report by The NYT, out of the planes leased by Russian carriers, 101 belong to S7 Airlines, the country’s largest private airline, and 89 belong to the national carrier Aeroflot. The rest – other airlines.
Which companies are affected by this situation?
AerCap, headquartered in Dublin, is the world’s largest lessor with more than 1,000 aircraft leased to customers in approximately 80 countries. 142 AerCap aircraft are currently on lease in Russia, the NYT said, citing the IBA. In a recent financial disclosure, AerCap said its aircraft in Russia make up about 5% of its fleet, the report said.
Another lessor from Ireland, SMBC, has several aircraft in Russia. As of February, 18 BOC Aviation aircraft were reportedly in use by Russian airlines.
Will the loss of these planes hurt lessors’ finances?
According to most analysts, it is likely that no rental company will go bankrupt. But there will be significant losses for a range of individuals and institutions, given the complex ways in which aircraft are typically financed.
For Russia, the capture of these aircraft may bring some temporary benefits – however, given that Boeing and Airbus will not supply spare parts, it will become increasingly difficult to keep them in flight over time.