Over the past week, Russian companies have repeatedly been subjected to sanctions by Western countries. Banned from European and North American airspace, deprived of support from Airbus, Boeing and maintenance companies such as Lufthansa Technik, they are also at risk of losing most of their aircraft. The Russian fleet of nearly 1,000 aircraft is largely made up of leased Airbus and Boeing aircraft, which are owned not by airlines but by financial institutions: lessors, often referred to as “lessors.” Some of them are Russian, mostly subsidiary banks, but Western players also participate in them. In accordance with the sanctions, the latter now have until March 28 to terminate contracts with Russian companies and, if possible, return their aircraft.
AerCap, Air Lease Corporation (ALC), SMBC Leasing and Finance, Carlyle Aviation Partners… Thus, a number of Western companies are directly involved. The world’s largest lessor with over 2,000 aircraft and 900 engines, AerCap is also the most vulnerable in terms of aircraft numbers. Based in Ireland (like many of its counterparts), it has more than 140 aircraft working with Russian companies, according to British analyst firm IBA, which elaborates that part of this fleet is the result of the acquisition of the American Gecas in late 2021. According to the lessor, this accounts for 5% of its assets, valued at $75 billion at the end of 2021.
According to the IBA, they are followed by ALC and SMBC, each leasing just over thirty aircraft in Russia, followed by Carlyle, Castelake, CDB Aviation, Avolon Aerospace and Aviation Capital Group (ACG) with almost twenty aircraft each. These lessors appear to be much less vulnerable than AerCap, but that still amounts to around 150 aircraft and several billion dollars in total assets. Moreover, some of them have a large share of their portfolios invested in Russia. This, for example, applies to Fortress Transportation and Infrastructure, up to 7% of its fleet, according to the IBA.
More than 500 aircraft will leave the Russian fleets
Thus, only a few hundred aircraft should stop flying by March 28. According to another analytical company Cirium, quoted by Reuters, we are talking about more than 500 aircraft, that is, half of the fleet operating under the Russian flag. The impact is all the more severe as it represents the bulk of the Airbus and Boeing aircraft (of which there are more than 700) in service in the country. If the measures are implemented, the Russian fleet will be reduced to about 200 Airbus and Boeing aircraft without support from aircraft manufacturers, and about the same number of local aircraft such as the Sukhoi SSJ100.
The rest of the fleet is mainly owned by Russian and Chinese lessors, as well as Dubai-based DAE Aviation. Most of the Russian players are directly connected to the banks that are also in the turmoil of the sanctions: VTB-Leasing, a branch of the state bank VTB, VEB-Leasing, a spin-off of the Russian Development Bank, PSB-Leasing, merged with the private bank PSB… all are now excluded from international system Swift. In general, Sberbank-Leasing is doing somewhat better: Sberbank, its parent company and the country’s main bank, has left the European market and has so far avoided Swift’s expulsion. This also applies to the state company STLC, which is not directly related to the bank.
This situation is fraught with consequences for rental companies. First of all, they will have to break their leases and, if possible, exfiltrate their devices. This will depend primarily on the goodwill of the Russian authorities and companies. And closing European skies to flights from Russia could further complicate matters by forcing planes to land in a third country.
If we draw a parallel with maintenance, with the end of support for Russian companies, the repatriation of spare parts also seems difficult (at the moment it is not required by European and American authorities). Asked by La Tribune during the Lufthansa group’s annual results, CFO Remco Steenbergen said spare parts and consumables tentatively placed in Russia remain in place for the time being, even if they are no longer available to Russian companies.
If he gets their fleet back, the landlords will end up with planes instead of getting rent. There is also the issue of current lease payments, as well as maintenance provisions that companies must pay to cover future aircraft repair costs between two leases, which can be high. . Due to the exclusion of Russian banks from the Swift system and the potential reluctance of companies to pay these fees after their aircraft have been recalled, the bill for lessors could be overwhelming.