In the wake of debilitating sanctions placed on Russia, the country is exploring a new way to keep its fleet of leased commercial aircraft – most of which are supposed to be returned to their lessor by March 28th. The new law, if successful, marks a new chapter in the efforts of Western governments to reclaim their aircraft.
Western countries moved swiftly to implement debilitating sanctions against the Russian government, its economy, and Russian corporations after the unprovoked invasion of Ukraine by the superpower. These wide-sweeping sanctions have affected nearly all sectors of the Russian economy including commercial flights. Nearly universal bans of each other’s airspace combined with sanctions prohibiting many goods and services from being sold into Russian have effectively cut Russia off from much of the world, leaving their aviation industry in tatters.
Bans extend to things like maintenance bulletins, technical assistance, parts, and of course planes themselves. Some experts predict that it will be only a matter of a few weeks before Russian carriers are essentially unable to fly, making efficient travel across the vast 11 timezones of the country nearly impossible.
Notably, the European Union has given firms until the end of March to conclude leasing agreements with Russian carriers and to recover any aircraft. This point, in particular, is a potential death blow to the Russian industry and would involve returning more than 500 leased aircraft.
523 to be exact, are leased by Russian airlines representing over $10 Billion US dollars in value according to a Bloomberg report. Russian airlines employ a leasing method for a huge portion of their fleet of jets, often using Western companies who actually own the jets. Notably, Irish company AerCap Holdings NV has more than 150 planes leased to Russian companies totaling around $2.5 Billion.
However, these sanctions mean the companies have to recover the aircraft – a valuable asset to whoever is in physical possession of them. Unsurprisingly, Russia is loathe to return them. The crippling sanctions imposed on Russia have resulted in their currency being devalued by historic levels, making it even more difficult for Russia to pay its leases and the removal of many Russian banks from the SWIFT financial system has made it more complicated to actually pay.
Russia’s response? Yeah, we’ll just keep the planes.
According to a Yahoo News report, Russia is proposing a new law that will allow Russia to keep paying its leases in Roubles, the Russian currency, and allow for Russian companies to simply keep the planes if a leasing agency terminates the leasing contract. Most airline leases require payment in US currency and provide various options to terminate leases – which have been exercised in the wake of Russia’s invasion of its neighbor Ukraine.
Repossession of aircraft will become far more complicated if this law is instituted creating a myriad of legal complications and insurance issues. One report questioned the complications that will arise related to insurance claims for planes that are unable to be recovered, adding another legal layer to the mess, noting, “An insurance industry source said it was unclear if lessors unable to repossess planes would be covered for losses under their own policies, which typically contain clauses cancelling coverage in the event of sanctions.”
“The number one fear right now is that these aeroplanes are gone forever.”Steve Giordano, managing director of the Nomadic Aviation Group
However, while these matters play out in various international courts (perhaps for decades), Russia will likely retain possession of most of the aircraft, and as they say, “possession is 9/10 of the…”