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

More than 500 aircraft leased to Russian airlines by companies based in the West are in danger of never coming out of Russia.

There are no signs of a de-escalation in the war, the West is steadily turning up the heat on punitive sanctions, and President Vladimir Putin has cleared a proposal to nationalise all Western businesses that ceased operations in Russia after the sanctions were announced.

If the aircraft are lost, the lessor companies could end up taking a combined estimated hit of $12 billion to $15 billion.

How did these aircraft get stuck in Russia?

About half the planes used by airlines around the world are not owned by them, rather they are leased from aircraft leasing companies. Airlines and aircraft operators prefer leasing planes in order to avoid massive lump sum payments that buying them would entail, and to quickly increase capacity, perhaps temporarily, on certain routes or sectors.

A report in The New York Times, quoting consulting firm IBA, said that as of Thursday (March 10), there were 523 aircraft leased to Russian carriers by non-Russian lessor companies. All these aircraft are now effectively stuck in Russia.

What is the problem in flying these aircraft out?

Following the war and Western sanctions, Russia’s skies are all but cut off from the rest of the world. It is impossible for the lessors to fly the aircraft out of the country — and since Russian carriers have stopped flying abroad, there are no chances of the aircraft being repossessed outside Russia.

Under the sanctions imposed by the EU, Europe-based lessors have until March 28 to end their contracts with the Russian lessees and get their planes back. Given the way the war is going, with intense Russian military action against civilian targets and no meaningful talks, that’s just not enough time.

“The EU and UK sanctions set, effectively, a deadline of 28 March for termination of aircraft leases, which is frankly an unrealistic timetable for a fleet of approximately 500 aircraft leased into Russia by operating lessors,” David Walton, Chief Operating Officer of Singapore-based aircraft lessor BOC Aviation Ltd told analysts, Reuters reported, quoting an earnings call transcript.

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Nick Popovich of the aircraft repossessions company Sage-Popovich, told The NYT that some global lessors who had contacted him mostly feared the planes were lost. “We won’t accept an assignment that we’re not sure we can do. I’m still doing research on what we can and can’t do legally,” The NYT report quoted him as saying.

Of the aircraft on lease to Russian carriers, 101 are with S7 Airlines, the country’s largest private airline, and 89 with the national flag carrier Aeroflot, according to The NYT report. The rest are with other airlines.

Which companies are impacted by this situation?

Dublin-headquartered AerCap is the world’s biggest lessor, with more than 1,000 aircraft leased to customers in around 80 countries. As many as 142 of AerCap’s aircraft are currently on lease in Russia, The NYT report said, quoting IBA. In a recent financial disclosure, AerCap had said that its aircraft in Russia accounted for about 5 per cent of its fleet, the report said.

Another Ireland-based lessor, SMBC, has several aircraft in Russia. According to reports, as of February, 18 of BOC Aviation’s planes were being used by Russian airlines.

Will the loss of these aircraft cripple the lessors’ finances?

Probably no lessor companies will go bankrupt, according to most analysts. But there will be significant losses to a range of individuals and institutions, given the complex ways in which aircraft are typically financed.

For Russia, grabbing these aircraft may bring some temporary benefits — however, given Boeing and Airbus will not supply spares, keeping them flying will become increasingly difficult over time.

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