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.