Russian state-owned airlines are not co-operating with Irish aircraft leasing firms on requests to release billions of euro worth of aircraft to comply with EU sanctions over the war in Ukraine.
The industry is bracing itself for not being able to recover the aircraft from Russia and the potential fallout resulting in certain bank defaults paying letters of credit on aircraft deals, consequent insurance claims and potential litigation arising from those claims.
It is understood that state-owned airline Aeroflot and carriers it owns are not responding to requests for the return of the aircraft once lease agreements are terminated that will allow Irish and other European leasing firms to comply with the sanctions.
Contracts
All EU-based leasing companies have until March 28th to terminate existing contracts with Russian airlines under the sanctions and have begun seeking the recovery of the aircraft.
“Russian state-owned airlines, Aeroflot or Aeroflot-owned airlines, are not cooperating in any way and other Russian airlines are pretending to co-operate but are not,” said an industry source.
“There are no aircraft coming out of Russia at this point and there won’t be any aircraft coming out of Russia. There is zero prospect of any aircraft getting out.”
In the wake of the sanctions, the Kremlin signalled that it would take retaliatory action against the EU measures, which ban the export of aviation products and services.
There are growing fears within the Irish aircraft leasing industry that Russia’s government will move to seize ownership of aircraft leased from overseas to protect Aeroflot from the sanctions.
This raises the prospect of billions of dollars in potential losses for Irish leasing companies and subsequent insurance claims and litigation should insurers challenge the claims.
One source said that the crisis had left the industry in “no man’s land” while another aviation industry executive has described the predicament as “mission catastrophic”.
Almost 700 aircraft are leased to Russian airlines, with more than 200 leased by Irish companies, putting the Dublin-based aviation leasing industry in the midst of this crisis.
Dublin-based AerCap, the world’s largest aircraft leasing company, is the most exposed to the crisis, with 152 aircraft in Russia and Ukraine valued at €2.1 billion, representing less than 5 per cent of its fleet value.
A spokeswoman for the company declined to comment on whether Russian airlines were co-operating on the return of aircraft.
Parts
SMBC Aviation Capital is the second most exposed with 34 aircraft valued at €1.2 billion.
A spokesman for SMBC Aviation Capital said it was “carefully monitoring developments in Ukraine and are engaged with all relevant authorities.”
“The business will fully adhere to any relevant sanctions and we are now in the process of terminating all leases with Russian airlines,” he said.
Dublin-based Avolon, the world’s second largest aircraft leasing company, has 14 aircraft leased to Russian airlines, valued at €320 million.
It repossessed one of the leased aircraft at an airport in the Turkish capital Istanbul 10 days ago.
Aircraft Leasing Ireland, the Ibec-affiliated industry group, said it was working with the Government, EU and other authorities to ensure compliance with sanctions.
Russian airlines face further difficulties with an interruption in the supply of parts from the EU that is needed for regular maintenance of the aircraft and to keep the planes in constant use.
