Amid ongoing unrest in Ukraine, Russia’s second largest airline S7 has announced that it will suspend all flights to international destinations from tomorrow. In the same announcement, S7 said passengers can request a full refund for flights they booked after tomorrow.
Aircraft leasing companies are set to terminate hundreds of leases with Russian airlines following Western sanctions following the invasion of Ukraine that give the industry a month to act.
Dublin-based AerCap, the world’s largest aircraft leasing company, saw its New York-listed shares fall 12.7% after announcing it would cease leasing business with Russian carriers, while the American company Air Lease fell by almost 8%.
Russian airlines have 980 passenger planes in service, of which 777 are leased, according to analytics firm Cirium.
Of these, two-thirds, or 515 jets, with an estimated market value of around $10 billion, are leased to foreign companies.
AerCap said that in net book value, 5% of its fleet was leased in Russia as of December 31. The company, which recently strengthened its leadership in the specialized aircraft leasing sector by buying its rival GECAS, has the most exposure to Russia and Ukraine. with 152 aircraft, said consultancy IBA.
Its Russian customers include Aeroflot, S7 Airlines, Rossiya, Azur Air and Ural Airlines, according to its website, involving planes worth an estimated $2.5 billion, according to aviation services firm ACC Aviation.
Leasing companies control around half of the world’s fleet and are a vital source of finance for airlines that lack the capital to purchase or prefer to pay monthly rent.
The European Union on Sunday gave leasing companies until March 28 to terminate ongoing leases in Russia, presenting lessors with a major new headache in the wake of crises over the safety of the Boeing 737 MAX and the COVID-19 pandemic.
Russia has warned the West that it will retaliate against sanctions targeting its aviation industry.
RECOVERY OF THROWS
Bankers said Russian airlines have been among the most reliable at paying bills during the pandemic, but leasing companies face the prospect of having to cut deals abruptly and pick up planes in an uncertain climate after the penalties.
Russia is a member of the Cape Town Convention, a specialist but vital treaty that underpins the growing airline finance industry by making it easier for lessors to recover planes when airlines cannot pay, in exchange for cheaper financing for airlines.
But cooperation from the courts is often still needed to enforce the rules and it remains unclear how Russian courts would react to a request to recover planes under sanctions.
ACC Aviation Vice President Viktor Berta said repossessing planes could prove difficult, especially if Russian aviation authorities and airlines do not cooperate with lessors. Given the airspace bans, even sending personnel to Russia to repossess planes could also be a headache, Berta added.
Financial restrictions can also be a burden.
Avolon, the world’s second-largest leasing company, has fewer than 20 planes in Russia and one or two in Ukraine out of a total fleet of more than 550 planes, CEO Domhnal Slattery told Reuters this month.
Slattery said at the time that Avolon feared sanctions on international payment transfers via SWIFT would be halted, making it difficult for airlines to pay their bills.
Avolon declined to comment when asked about the penalties.
G7 leaders said on Sunday that Western allies had decided to cut off “some Russian banks” from the SWIFT secure messaging system to ensure fast cross-border payments, which have become the main mechanism for financing international trade.
Lessor BOC Aviation said it had 18 planes representing 4.5% of its Russia-based owned fleet. He also manages another plane.
“Our policy is to fully comply with all laws applicable to our business,” BOC Aviation said in a statement. “The practical consequences of the new EU sanctions are complex and at this time we are unable to provide further information.”
Dubai Aerospace Enterprise (DAE) has at least three Russian airline customers, including Aeroflot, according to its website. The Dubai-owned lessor did not respond to a request for comment.
Novus Aviation Capital co-chief executive Mounir Kuzbari told Reuters the company has no planes in Russia, but massive lease cancellations in Russia could affect global lease rates and value. planes.
(With contributions from Reuters)
Read all the latest Assembly news, breaking news and live updates here.