Not only has Europe banned Russian planes from its airspace, European sanctions mean that Russian airlines face repossession of more than half of their planes. That’s because they’re leased and those leases become illegal, and void.
The problem is, according to Air Insight Group and Ernest Arvai,
- 236 planes need to be repossessed. In one month.
- If the airlines are willing to return the planes, where do they go? They can’t fly to Europe. They can go to the Mideast, for instance Dubai, where lessors can collect and store them.
- But Russian airlines may not return the planes. If you can get crew into Russia to repossess the planes “there simply aren’t enough repossession crews in the world to be able to retrieve all of these aircraft in the” time remaining.
- Some may be used to fly routes where air space isn’t closed, but that’s risky if the airline is still trying to use aircraft whose leases have been cancelled. The planes could be repossessed on arrival.
- Insurance on these aircraft is mostly cancelled as a result of sanctions. If these planes are sitting in Russia many (with European insurers or re-insurers) also uninsured. At the very least the question of insurance coverage is something that’s going to be litigated.
- The Russian government may restrict the planes to Russian airspace, forbidding the repossessions. Or they could even be ordered into the Russian air force – again, uninsured. (And even if insurance remains on the plane, the policy probably excludes use of the aircraft in war.)
If the war doesn’t resolve quickly, and sanctions against Russia remain in place, what could happen to the aircraft that have been successfully repossessed? On possibility is… Iran.
[D]iplomatic breakthroughs with Iran are likely over the next couple of months, so stay tuned – the Russian aircraft may end up in Teheran, which can also help with deficits in oil production and ease pricing. In politics, the good guys and bad guys sometimes change positions, and the enemy of my enemy can become a friend.
On the other hand some airlines may be allowed to park some planes with the leasing companies willing to ‘wait it out’ in hopes that the current situation doesn’t last, expecting to restart leases once those are permitted. Leasing companies then take a loss that grows as sanctions extend.
I’ve written several times extremely concerned with Russia’s attack on Ukraine, including my own thoughts on things that we can do here in the U.S. to help. I am appalled and have zero sympathy for the Russian position that provoked these attacks, and even less since Putin’s intentions were accidentally leaked by state media (before being deleted). The atrocities are horrible.
The aftermath of a Russian attack on a residential district in Borodyanka, Kyiv region. Notice the children’s play set. pic.twitter.com/cFz85dDJ9m
— Christopher Miller (@ChristopherJM) March 1, 2022
Russians bombed a military base in Zhytomyr this evening, city’s mayor say.
These are the effects of a stray missile that apparently hit a residential area in the city pic.twitter.com/6EIadsqZCM
— Matthew Luxmoore (@mjluxmoore) March 1, 2022
Without taking anything away from this, there are two sides to each transaction, and imposing sanctions or bans on Russian action entails harm to their counterparty as well. One company, AerCap, has 154 aircraft it owns leased to Russian airlines. They’re all currently at risk. The burden of sanctions against Russian isn’t just being felt by Russia, and it won’t be felt evenly in the West either. We could see some companies fail, because they did business with Russia when it was considered proper to do so.
Meanwhile flooding the market with over 200 serviceable aircraft would depress the value of each plane, an issue not just for leasing companies but also for the assets on the books of commercial airlines around the world that suddenly find the value of their fleets depreciating. That’s a paper loss, to be sure, except when an airline looks to unload planes to raise cash. Of course it will help other airlines that are seeking to bolster their fleets on the cheap, too.