Ukraine Crisis: Aircraft Lessors On The Brink of Losing The Russian Battle

Photo: Karam Sodhi/AviationSource

LONDON – After the harsh sanctions imposed on Russia from the west, the deadline for handing over aircraft to lessors by Monday seems to be challenging, thus putting the lessor lobby on the brink of losing hope to get back more than 400 leased aircrafts worth US$10 billion to Russian operators.

IBA the leading consulting firm for aviation data and analytics has recently affirmed that many of these leased aircraft are operating on a Russian domestic route network as most of these aircraft are either registered in Bermuda or Ireland and their airworthiness certificates have been revoked or suspended.

After the pandemic, the aviation industry was hard hit by the recent Russia – Ukraine crisis with harsh economic sanctions being imposed on Russia from the west and western allies.

But the worst affected business that has been caught in this crossfire is the aviation leasing companies, as they face effects of harsh sanctions as their aircraft are stuck in Russia thus dragging them to long-lasting insurance battle.

Tomorrow’s Deadline…

The deadline imposed by these lessors to return their aircraft were set for Monday 28th March 2022.

Speaking on this issue, Volodymyr Bilotkach, an associate professor of air transport management at Singapore Institute of Technology said that “I’m afraid that we are going to witness the largest sort of theft of aircraft in the history of commercial civil aviation.”

Under the ICAO regulations, dual registration of the air aircraft is not permitted, however, the Russian government has announced on Wednesday that they began re-registering more than half of these foreign-owned aircraft under its own registry after the law was amended.

The Russian government further stated that more than 78 aircraft have already been seized in overseas territories and they will not be flying back to Russia.

Under this ongoing battle of lessors, Avolon, one of the leading aviation leasing firms decided to terminate all its Russian leases and have already repossessed four aircraft from outside of Russia with ten more yet to be brought back.

Despite these aircraft being insured, the lessors are concerned about potential losses and lengthy litigation battles between insurance companies before any hopes for pay-out or recovery can be seen.

Furthermore, if the lessors can successfully repossess these aircraft, the commercial and financial calculations would still look doubtful as the recoverable value would be in question as the maintenance records would need to be accurate in order to trace the traceability of parts and components, as the west has always imposed harsh sub-sanctions of aircraft parts.   

The leasing firms are still standing strong despite the total value of the aircraft being significantly high.

But the impact on individual lessors will be still ‘within limit’ even if they have to face total write-off for Russian leased aircraft, as it contributes to less than 10% of their portfolios.

Speaking on this analysis, Brad Dailey director of Alton Aviation Consultancy said that “What it does do in my view is it changes the future market potential of Russia.”

Are the losses in sight?

Amidst western imposed sections on Russia which has taken another hard hit by the airlines and airline operators, some private carriers in Russia are indicating their willingness to co-operate with the lessors and are ready to hand back leased aircraft back to their rightful owner.

But it is unclear whether the Russian government will be in support of such a hand back.

In this turbulent condition, one of the private Russian carriers UTair has announced on 14th March that it will be withdrawing nine of its leased Boeing 737 NG from the service as it is looking forward to maintaining long-term relations with lessors once the sanction is lifted.

All these nine aircraft have not been airborne since the announcement but are stored in Russia.

Despite being only 10% of the business that lessors gain from the Russian carriers, the lessors have the choice to forfeit security deposit to cover the losses, but it would only contribute fractionally against the total value of the deal that has been signed.

KBRA, the leading rating agency has said that security deposits generally range from one to six months of rent depending on the credit assessment of the carrier. 

In another event, it was said that the Russian flag carrier Aeroflot has been viewed as the best credit risk before the Russo-Ukraine war broke out, but that view is no longer valid on the pretext of Russia’s move to re-register its aircraft in Russian territory.

Simultaneously, the Chinese lessor has said that no such security deposits have been guaranteed by the Aeroflot and thus the insurance pay-outs can only cover the losses in this case.

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