European aircraft leasing companies face a huge logistical challenge to recover hundreds of planes worth an estimated $ 5 billion from Russia by the end of March, as part of sanctions imposed after the state invasion of Ukraine.
Russian aviation is a major target of sanctions imposed by the European Commission. The means prohibit the sale, transfer, supply or export of any aircraft or components. Leased planes are included because they are in “supply,” three people confirmed were briefed on the situation. Thus, new contracts cannot be contracted and existing ones must be terminated within 30 days.
“The 30 days will be really hard for landlords to figure out how to finish [contracts]”Said one person in the industry who asked not to be named.” The bigger problem is how are so many planes being returned at this time? “
Leasing contracts include provisions that allow the lessor to recover his aircraft in the event of sanctions. However, the rapidly evolving situation, including Increasing restrictions on the ability of Russian airlines to use European airspaceThis means that groups are faced with a difficult task to recover the planes, according to one of the people.
“All planes have to be taken out of Russia by the end of March. Whether the airlines will stand or not, no one knows,” the man said.
The Russian aircraft market is dominated by tenants, including banks supported by the Russian state and foreign companies. Non-Russian charterers have 515 aircraft in Russia, with a combined market value of close to $ 10 billion, according to Cirium, the airline consulting firm. One industry executive has estimated that European landlords are responsible for up to $ 5 billion of that.
Among Western landlords, those based in Ireland are the most exposed. The Irish government on Sunday approved the deadline for March 28 to end the lease of Russian aircraft as part of EU sanctions. She also said she would close her airspace to Russian planes.
According to Cirium, there are 238 commercial aircraft, with a market value of $ 4.1 billion, leased to customers in Russia from 10 operating lessors resident in Ireland.
AerCap, the world’s largest lessor, has 154 aircraft leased to Russian customers, valued at $ 2.2 billion, 5% of the value of its global fleet. The next two most exposed are SMBC Aviation Capital and Avolon.
“If these landlords are given just one month to terminate leases and restore the aircraft from customers to a place of storage outside Russia, it will be a significant logistical challenge that may increase even more, if not impossible, due to increasing airspace restrictions.” Said Rob Morris, head of consulting at Ascend by Cirium.
SMBC Aviation said it “closely monitors developments in Ukraine and liaises with all relevant authorities. The business will respond accordingly to ensure full compliance with relevant sanctions when full details are revealed”.
AerCap and Avolon both declined to comment.
Experts said leasing sanctions are the most immediate concern for the industry. Initial concerns focused on whether airlines would continue to be able to pay for their leases after the EU, UK and US imposed sanctions on a number of Russian banks. Renters usually take their payment in US dollars or euros.
Aeroflot, Russia’s flagship company, leases about 50 percent of its fleet at the value of non-Russian lessors, according to industry consulting firm Alton Aviation. The airline received supplies of several Airbus and Boeing aircraft last year. Aeroflot declined to comment.
Sanctions on the supply of spare parts – essential to keeping planes in the air – are already having an effect, when the Dutch airline KLM asked on Saturday for two flights to Russia to return.
Russia’s airlines may also face maintenance issues. Aeroflot’s technical maintenance is mainly related to the German center, and any limitation of Germany will have a serious impact, said an acquaintance of Aeroflot. “If maintenance, supply of spare parts is limited, it will be really critical because the company will not be able to operate aircraft. There is a critical dependency there.”
Rolls-Royce said it has “suspended all activities since February 25, 2022” regarding Aeroflot. The UK Air Engine Group is a key supplier of new engines, service and parts to the Russian company.
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