The most recent Western sanctions on Russia, imposed following the country’s invasion in Ukraine, already resulted in an unprecedented situation in the aircraft leasing business. After it became known that all the leasing contracts in Russia should be terminated by March 28, leased planes aren’t leaving the country.
Apart from the obvious and very real risk of such airplanes never being returned to lessors, the current situation poses even more serious threats for both businesses affected worldwide as well as the Russian aviation itself.
According to the source, cited by Economic Times, as of today, there are almost 780 planes on lease that are or recently were operated by Russian airlines, including 515 from foreign lessors. Some 425 of these are most at risk of being seized by an appropriate institution or taken back by their lessors, according to consultants Ascend by Cirium who give a more precise figure of 777 planes currently on a lease in Russia. That’s a huge number given the fact that currently the country’s airlines operate a total of 980 passenger jets.
In a recent webinar, which Aeroclass has held on the topic, our instructor Donal Hanley, who is a well-known professor of Air and Space Law, pointed out a few issues, which are the most alarming – but not necessarily already widely understood.
The first of them is that in the light of the fact that the world of aircraft leasing just became much more different than it was at the beginning of the year, a truly dangerous precedent was created – and as the jurisdictional risk just proved itself to be of the bigger threat than it ever was before, at least in this century, lessors will need to rearrange their current policies.
One of the most obvious such rearrangements will most probably be related to insisting on overseas registration and making sure of having their aircraft records backed up in real time. The latter would of course need additional resources and increase operating costs of the lessors who have already lost not only the hope of retaining their aircraft anytime soon but also a big market which just recently was considered a relatively safe environment for their business operations.
Another serious risk identified by Mr. Hanley is related to security issues as the Western-made airplanes which are continuing to operate on domestic routes within Russia will no longer receive neither new parts nor any technical assistance from the West, which is crucial for their safe operations. “If they are unable to obtain certificated parts, they will start cannibalizing the aircraft that are within Russia and it is in their interest to start with the aircraft they don’t own,” told Mr. Hanley.
In the light of current events unfolding just like that, there is almost no doubt that the ongoing situation will also inevitably change the practice of insurance companies that are responsible for planes leased to airlines worldwide. One or another airplane stripped for parts is the next obvious reason for lessors to declare it as a total loss.
However, as for now, it is now not exactly clear how the insurance companies would react. Yet, the expert points out that both the insurance companies as well as most of the lessors would be lobbying the EU Commission to call attention to the more common view that they, and not the Russian companies, are bearing the brunt of the sanctions.
Aeroclass is inviting you to watch the whole webinar where Mr. Hanley is joined by Patrick Honnebier, Professor of International Aviation Financing and Leasing Laws, and Tadas Goberis, chief executive of leasing company AviaAM Leasing. It is now available for everyone on our platform in an accessible video format.
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