The hope of a handful of Western companies seeking to return planes leased to airlines in Russia has quickly faded as local authorities intend to keep foreign-registered planes in the country and President Vladimir Putin openly discusses the nationalization of foreign companies’ assets.
As of Thursday, 523 aircraft had been leased to Russian carriers by companies outside the country, according to consulting firm IBA. Of these, 101 are leased by S7 Airlines and 89 by Aeroflot. Both airlines have stopped international flights, which eliminated any possibility of seizure of aircraft in foreign territory.
“The general consensus is: that’s it, we won’t be able to restore them,” said Vitaly Guzhva, professor of finance at Embry-Riddle Aviation University.
Dr. Guzhva and others who attended a recent industry conference in San Diego said the leasing industry’s predicament was the subject of discussion at an event hosted by the International Society for the Transport Aircraft Trade. According to them, experts generally agree that companies could face huge losses. Overall, the cost of the aircraft is estimated at $12 billion, according to aviation consulting firm Ishka.
AerCap, the world’s largest commercial aircraft charter, has 142 aircraft leased in Russia, more than any other company, according to the IBA. AerCap declined to comment but said in a recent financial report that its aircraft in Russia make up about 5% of its fleet. SMBC Aviation Capital, which did not respond to a request for comment, is the second most vulnerable business with 35 leased aircraft in Russia.
Under European sanctions, Ireland-based lessors such as AerCap and SMBC have until March 28 to terminate contracts with Russian airlines and return their aircraft.
On Thursday, David Walton, chief operating officer of BOC Aviation, a leasing company based in Singapore, said the March 28 deadline was a “blatantly unrealistic timetable” for withdrawing hundreds of aircraft from the country. As of the end of February, Russian airlines operated 18 aircraft owned by BOC, or about 4.8% of the company’s fleet.
Nick Popovich, whose Indiana-based Sage-Popovich firm handles aircraft repossession, said he has been contacted by some of the world’s major lessors interested in reclaiming their aircraft from Russia. He declined to name the companies, but said they basically admitted it was a lost cause. Mr Popovich said he was still exploring what could be done but did not immediately see a viable way to get the planes back.
“We will not take on a task that we are not sure we can complete,” he said. “I’m still learning what we can and can’t do legally.”
While a few aircraft may have been returned overseas before international flights were halted, they are of little use to their owners without the careful accounting of the maintenance that accompanies each aircraft and is often stored by the airlines themselves, experts say. And the longer the plane gets stuck in Russia, the more fears that work on the body, engines and flight systems of the aircraft may not be registered, which will lead to a sharp drop in its value.
“If you don’t have these records, the aircraft is practically useless,” said Quentin Brasi, founder and CEO of ACI Aviation Consulting. “They are literally more important than the asset itself.”
The financial implications of keeping aircraft in Russia could also be far-reaching. Such aircraft are financed in a variety of ways, including funding from banks, the leasing companies themselves, and investors in securitized debt.
Insurers and reinsurers could also be on the hook, experts say. According to the Russell Group, data and analytics companies in particular are concerned about military aviation insurers, which have faced the biggest potential losses since the 9/11 terrorist attacks. Aircraft insurance premiums have been on the rise for years as the industry has struggled to make up for recent annual losses.
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Lack of basic metals. The price of palladium, used in car exhaust systems and mobile phones, is skyrocketing amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. Nickel prices, another key Russian export, are also on the rise.
financial turmoil. Global banks are bracing for the fallout from sanctions designed to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies critical to trade. Banks are also ready for retaliatory cyberattacks from Russia.
As prices rose during the pandemic, insurers were cutting coverage, according to Suki Basi, founder of the Russell Group. At least the situation in Russia is likely to have a similar effect.
“You pay more and get less coverage,” he said. “If he doesn’t do anything about the bonuses, he will.”
This will have lasting consequences for Russia as well. The crisis is likely to increase the cost of doing business in general and may lead some leasing companies and insurance companies to abandon the Russian market.
And while the nationalization of aircraft may bring Russia a short-term benefit in keeping domestic flights, soon Russian carriers will become desperate for spare parts. With Boeing and Airbus refusing to offer parts and support to Russian airlines, these carriers are likely to start stripping their existing aircraft, depreciating those aircraft.
Ken Hill, who also handles aircraft confiscations, knows this firsthand. Two years ago, an American leasing company hired Mr. Hill to evacuate three Boeing 737s at a small airport near Moscow, he said. According to him, the owner of the company that leased the planes resisted his attempts to return them, but a few days later, Mr. Hill gained access to the hangar and found that the plane was gutted.
“The planes were there, but guess what wasn’t there? Engines, he said. “They robbed all three planes. In fact, it was just unnecessary carcasses.
What will happen next, one can only guess, even among specialists. “We all have a lot of questions,” said David Tokop, chief executive of consulting firm mba Aviation, summing up conversations at a conference in San Diego. “We all have many opinions. And we don’t have many answers.”