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https://www.ft.com/content/fee2e47e-712 ... jxq71b6sYMEuropean aircraft lessors in race to recover $5bn of planes from Russia
Groups face huge logistical challenge to remove planes by end of March as sanctions hit
European aircraft leasing companies are facing a huge logistical challenge
to recover hundreds of planes worth an estimated $5bn from Russia by the end of March 2022
under sanctions imposed after the country’s invasion of Ukraine.
Russian aviation is a key target of the sanctions imposed by the European Commission.
The measures prohibit the sale, transfer, supply or export of aircraft or any components.
Leased aircraft are included as they fall under “supply”, three people briefed on the situation confirmed.
As such, no new contracts can be entered into and existing ones have to be terminated within 30 days.
“The 30 days is going to be really difficult for lessors to figure out how to terminate [contracts],”
said one person in the industry who asked not to be named.
“The bigger issue is how do you repossess that many aircraft in that time?”
Leasing contracts include provisions that allow the lessor to recover its planes in case of sanctions.
However, the rapidly evolving situation, including growing restrictions on Russian airlines being able to use European airspace,
means groups face a tough task to recover the planes, according to one of the people.
“All aircraft must be removed from Russia by the end of March 2022.
Whether the airlines will comply or not, no one knows,” said the person.
The Russian aircraft market is dominated by lessors, including Russian state-backed banks and foreign companies.
Non-Russian lessors have 515 planes in Russia, with a combined market value of close to $10bn,
according to data from Cirium, the aviation consultancy.
One industry executive estimated that European lessors account for up to $5bn of this.
Among western lessors, those based in Ireland are the most exposed.
The Irish government on Sunday confirmed the March 28 deadline for terminating Russian aircraft leases as part of EU sanctions.
It also said it would close its airspace to Russian planes.
There are 238 commercial aircraft, with a market value of $4.1bn,
leased to customers in Russia from 10 Irish domiciled operating lessors, according to Cirium.
AerCap, the world’s biggest lessor, has 154 planes leased to Russian customers,
with an estimated value of $2.2bn, 5 per cent of the value of its global fleet.
SMBC Aviation Capital is the next most exposed in Ireland, with planes valued at an estimated $1.3bn leased.
Avolon has planes with an estimated value of $266mn leased, according to Cirium, 1.6 per cent of the value of its fleet.
“If those lessors are given only one month to terminate leases and recover the aircraft from the customers to a storage location outside of Russia,
that will be a significant logistical challenge perhaps made even greater,
if not impossible, by the increasing airspace restrictions,”
said Rob Morris, head of consultancy at Ascend by Cirium.
SMBC Aviation said it was “carefully monitoring developments in Ukraine and are engaged with all relevant authorities.
The business will respond accordingly to ensure the fullest adherence to any relevant sanctions when the full details emerge.”
AerCap and Avolon both declined to comment.
Experts said the leasing sanctions were the most immediate worry for the industry.
Initial concerns had focused on whether airlines would continue to be able to pay
for their leases after the EU, the UK and the US sanctioned several Russian banks.
Lessors usually take their payment in US dollars or euros.
Aeroflot, Russia’s flag carrier, has leased about 50 per cent of its fleet by value from non-Russian lessors,
according to industry consultancy Alton Aviation.
The airline took delivery of several Airbus and Boeing aircraft last year.
Aeroflot declined to comment.
The sanctions on the provision of spare parts — vital to keep planes in the air — are already having an impact,
with Dutch carrier KLM on Saturday asking two flights bound for Russia to turn back.
Russia’s airlines could also face maintenance issues.
Aeroflot’s technical maintenance is mainly tied to the German hub, and any restrictions by Germany will be of grave significance,
the person close to Aeroflot said.
“If maintenance, the supply of spare parts is limited, this would be truly critical,
because the company would not be able to operate aircraft. There is critical dependence there.”
Rolls-Royce said it had “paused all activities with effect from February 25 2022” with regards to Aeroflot.
The UK aero-engine group is a key supplier of new engines, servicing and parts to the Russian carrier.
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