Russian strongman Vladimir V. Putin has declared that Russian airlines can effectively keep leased jets and continue to operate them within the Russian Federation. But the new presents a new challenge to Russian airlines that has only tragic outcomes.
Putin Declares Russian Airlines Can Keep Leased Jets
As we reported last week, Russian airlines hold 780 leased jets, with 515 leased from abroad. Due to western sanctions imposed upon the Russian Federation, lessors have until March 28, 2022 to reclaim those aircraft or face penalties themselves. Lessors have responded by cancelling leases and asking that aircraft be returned. Russian airlines have responded by suspending international service, to avoid repossession attempts, and pausing debt servicing, effectively holding the jets hostage.
Thanks to their tax-friendly climates, most of the leased jets are registered in Bermuda or Ireland. This week, both nations suspended the airworthiness certificates of all leased planes in Russia, pointing out that they have no insight to ascertain whether these aircraft are safe. As part of the sanctions against Russia, Boeing and Airbus can no longer ship or sell spare parts to the Russian Federation.
But Putin, in a bill rubber stamped by the Duma, has now placed the imprimatur of the state on the theft of these leased aircraft, declaring that the aircraft can be re-registered in Russia. Practically, that means that these aircraft will receive fresh clearance from Moscow to operate…but also places airlines in a very difficult position.
The conflict in Ukraine will end at some point and when it does, major Russian airlines hope to again serve destinations outside Russian borders or those of friendly former Soviet republics. Re-registering the aircraft in Russia violates lease agreements and places the contracts in immediate default status. But failure to re-register in Russia practically will ground these aircraft, since they will need fresh authority from Russia in order to operate.
Russia calls this a move “to ensure the uninterrupted functioning of activities in the field of civil aviation” but practically this move will ensure a permanent reduction in value of the aircraft since spare parts are not available and maintenance records cannot be verified. When the war ends, this will lead to a nasty legal battle over the valuation of these jets between lessors, lessees, and insurers.
This latest move from Putin virtually guarantees that Russian airlines will face serious consequences even for years after the Ukraine conflict ends.
Putin has signed new law effectively declaring that airlines can keep their leased jets instead of returning them to western lessors. But in an inner-connected world in which war will at one point be over, all this move does is exacerbate an already-serious problem and likely render these leased aircraft, including a brand new Airbus A350 jet delivered to Aeroflot on the day the conflict began, permanently compromised.
The reality is that if Putin does succeed in taking control of Ukraine the “conflict” will never end. Thus the sanctions, bans, etc could also theoretically go on for years. It may simply be that the lessors will eventually just write them all off and make insurance claims where they can. And, like Iran did for years, Aeroflot and others will have to scrounge out spare parts etc to keep them flying where they can.
What do you expect him to do when the west “stole” his money. Why would this be a surprise? Irish got screwed here. Royally. They should have some experience, getting screwed.
Russia airlines will only be able to operate domestic flights. Any attempt to operate internationally will result in aircraft being seized subject to creditors rights, regardless of Czar Putin’s attempt to declare them his feudal gain.
Russia is and will remain a pariah state, its attempted land grab a loss for Russian and Ukranian citizens with no good outcomes. Losses will far exceed any possible gains.
Putin is a war criminal, forever isolated and subject to criminal prosecution.
I would also guess that it will be a very long time before any leasing company will let anything go to a Russian airline again.
This is why you never do business with Russians. A hopelessly corrupt and dirty species.
Yikes. Racist much?
Russian is not a race.
Ryan, as a russian businessman who never supported putin, moreover hates him since 2003 i must say thank you for calling me a dirty species. Ordinary people of russia who dont support the war clearly see that hate from both sides: wild population of russia who support and war and from western world that we admired the time. Now when people like me deal with the consequences of war we never supported, same as crimea conquer in 2014 what do you think should we do? Only suicide or some kind of terrorism act against putin regime on red square comes to my mind, because i see we are not welcome anywhere any more
One thing is sure..the Russian people, the Russian Economy and certainly the Russian civil industry are all going a very dangerous and downward path . These western aircrafts leased or not will certainly be unsafe to fly when spare parts are not available anymore. They will be only allowed to fly within Russia as per decree by Putin. After the war Aeroflot, S7 etc. will definitely have a huge problem sorting their business with their lessors and insurers. Most of all the belief that Russia has overcomed being the bad egg and has now come back and destroyed the trust they have built since the end of the Soviet Union. Now we are back in the Cold War as if the 70s and 80s have not been gone. Flying around Russia to reach Korea or Japan or Northern China. Even the shortest routes von North America via Russia to the Middle East or South Asia will not be available and will be longer as usual.
The fear of price hike will be obviously foreseeable as the price of oil will constantly rise.