Ukraine Crisis: With Putin Stealing $10bn Worth of Aircraft, What’s Inside The Latest Storm Hitting the Aviation Industry?

Aeroflot Boeing 777 Landing at Heathrow Airport.
Photo Credit: Karam Sodhi/AviationSource

LONDON – The 2020s have been a difficult decade for the aviation industry.

The hopes for a rebounding post-pandemic market were dashed with the Russian invasion of Ukraine. The largest conflict on European soil since WWII has led to a loss of life, property, and normalcy for millions of Ukrainians.

Internationally, Vladimir Putin’s aggressive war has unleashed waves of condemnation and sanctions that have ended the golden era of international aviation.

After the fall of the Soviet Union, the iron curtain that split Europe’s skies was opened to new routes through Russian territory. Now Cold War aviation is back.

In response to western sanctions, Putin has signed a law allowing Russian airlines to register leased planes as their own property. Of the 980 planes in Russian skies, about 550 of them are leased from international companies, collectively worth about $10 billion.

This means that, for more than 100 aircraft-leasing companies, many too small to survive the loss of these significant assets, there are now billions of dollars worth of stolen aircraft within Russian territory.

The resulting combination of financial, geopolitical, and safety risks are putting leasing companies in a very tight spot.

Just as the aviation industry was ramping up for a productive post-pandemic summer, Putin’s decisions are laying foundational risks to a struggling industry.

What About Insurance?

The new Russian law stipulates a government committee will decide whether airline companies in Russia will need to pay leasing companies, or whether they can simply keep the planes they have leased.

This puts leasing companies between a rock and a hard place: this impasse could result in their planes simply being stolen by Russian airlines.

And if they get paid at all, wIth Russia locked out from accessing American dollars, leasing companies would only receive what are now almost worthless Russian rubles.

Best of all cases?

Leasing companies can receive insurance payouts for the stolen planes, although experts say that could take years of court battles.

According to the insurance provider Lloyd’s of London, while the war definitely represents a major claim, insurer liability on the aircraft stuck in Russia is just about 10% to 15% of their total value.

Leasing companies are looking at major losses––in the tens of billions of dollars range––whether they are paid in rubles or by claiming insurance. Even if Putin gives back all the internationally leased aircraft, significant losses are expected in the industry.

Maintenance Means Value

The likelihood of Russia returning the leased aircraft is slim.

However, even if the planes were returned, that would only help leasing companies if the planes were properly maintained.

And that’s significantly unlikely now that Russian companies have been sanctioned from acquiring new plane parts and outside expertise.

Almost the entire worldwide airline industry is serviced by either Boeing or Airbus, and those two western companies are sanctioned from working with Russian companies.

According to Quentin Brasie, founder and chief executive of ACI Aviation Consulting, aircraft maintenance records are crucial to a plane’s value. As he recently told The New York Times, “unless you have those records, the aircraft is totally worthless.” 

Opportunities from a New Cold War

But as routes above Ukraine and Russia close, new routes open, which actually present some opportunities in the aviation industry.

For example, during the height of the Cold War, Anchorage, Alaska became one of the largest air transit destinations.

The closing off of Soviet airspace has meant that many detours through that northern state capital are now necessary again. Routes between locations like Tokyo and Amsterdam now take an additional four hours, with an Alaskan layover.

This has led to opportunities for maintenance companies to service these planes.

What’s more, western airlines are adapting to accommodate these changes in flight routes. For example, Northern Pacific Airways is stepping in to revitalize Anchorage as an aviation hub. This means opportunities for leasing companies to make new deals.

The longer Russian skies are closed to international travel, the more the new routes will solidify in the industry, and we’ll likely continue to see airlines step up to take advantage of these changes.

But even with new contracts, it’s unlikely that leasing companies will be able to completely offset the big losses from Putin’s new policy of appropriation.

While the world watches in horror at the tragedy of war, the airline industry will continue to be hurt by the disruption and the growing list of sanctions.

If these sanctions help to bring an end to the tide of Russian violence, they will certainly have been worth it.

And there may be more opportunities for leasing companies to compensate for their tremendous financial losses. But they must survive first.

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