Monday, July 15, 2024

Explainer: why airline lessors are set to lose more than 500 planes and $12 billion in Russia


More than 500 planes leased to Russian airlines by companies based in the West are at risk of never leaving Russia.

There are no signs of de-escalation in the war, the West is steadily increasing tension over punitive sanctions, and President Vladimir Putin has approved a proposal to nationalize all Western companies that halted their operations in Russia after the sanctions were announced.

If the plane is lost, the charter companies could end up with an estimated $12 billion to $15 billion total.

How did these planes get stuck in Russia?

Nearly half of the aircraft used by airlines around the world are not owned by them, but rather leased from aircraft leasing companies. Airlines and aircraft operators prefer to lease aircraft in order to avoid the huge lump sum payments that would incur, and to rapidly increase capacity, perhaps temporarily, on certain routes or sectors.

A report in the New York Times citing consulting firm IBA said that as of Thursday (March 10), 523 planes were leased to Russian carriers by non-Russian leasing companies. Virtually all of these planes are now stuck in Russia.

What is the problem of flying these planes?

In the wake of war and Western sanctions, Russia’s skies have become almost isolated from the rest of the world. It is impossible for lessors to take the plane out of the country – and since Russian airlines have stopped flying abroad, there is no chance of getting planes back outside Russia.

Under EU sanctions, lessors based in Europe have until March 28 to terminate their contracts with Russian lessors and take back their planes. Given the way the war is going, with extensive Russian military action against civilian targets and no meaningful conversations, this is not enough time.

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“EU and UK sanctions have set, in effect, a March 28 deadline for the termination of aircraft leases, which is frankly an unrealistic timeline for a fleet of about 500 aircraft leased to Russia by operating the lessors,” David Walton, chief operating officer of Singapore, said. Headquartered BOC Aviation Ltd., told analysts citing the text of the earnings call.

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Nick Popovich of Airbus Repossession Sig Popovich told the New York Times that some global lessors who have contacted him often fear losing planes. “We will not accept a task we are not sure we can do. I am still doing research on what we can and cannot do legally,” The New York Times quoted him as saying.

Among the planes leased to Russian airlines, 101 are with S7 Airlines, the country’s largest private airline, and 89 are with national airline Aeroflot, according to a New York Times report. The rest is with other airlines.

What companies have been affected by this situation?

Dublin-based AerCap is the world’s largest charterer, with more than 1,000 aircraft leased to customers in nearly 80 countries. The New York Times report, citing the IBA, said as many as 142 AerCaps are under lease in Russia. In a recent financial disclosure, AerCap said its planes in Russia account for about 5 percent of its fleet, the report said.

Another Ireland-based lessor, SMBC, has several aircraft in Russia. According to reports, as of February, 18 BOC Aviation aircraft were in use by Russian Airlines.

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Will the loss of these planes impede the finances of the lessors?

Rental companies probably won’t go bankrupt, according to most analysts. But there will be significant losses to a range of individuals and organizations, given the complex ways in which aircraft are typically financed.

For Russia, capturing these planes may bring some temporary benefits – however, since Boeing and Airbus will not provide spare parts, keeping them in flight will become increasingly difficult over time.

Rainerio Manuel
Rainerio Manuel

"Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst."