European sanctions could block planes rented from Russia

BERLIN — Western sanctions intended to punish Russian President Vladimir V. Putin for invading Ukraine may also have dealt a blow to Eur...


BERLIN — Western sanctions intended to punish Russian President Vladimir V. Putin for invading Ukraine may also have dealt a blow to European companies that leased commercial planes from Russian airlines.

The majority of commercial aircraft flown by Russian companies are leased, more than half of them to foreign companies. Most of these companies are based in Ireland, a member of the European Union, which has banned the sale or lease of planes to companies in Russia as part of its sanctions package.

At stake is the fate of hundreds of aircraft worth an estimated $12 billion, according to Ishka, an aviation industry consultancy. Those based in Ireland are particularly at risk, with $4 billion to $5 billion worth of planes in Russia, he said.

The sanctions give companies leasing the planes until March 28 to terminate existing contracts, the Irish government confirmed on Monday.

But recovering the planes will not be easy. The repatriation of leased aircraft is normally planned years in advance. Airlines in Russia may not cooperate or be ordered by Mr. Putin’s government to put up obstacles. Another challenge is that Europe and Russia have closed their airspaces to each other’s planes.

“The logistics are huge. We’re talking about hundreds of planes that need to be flown,” said Phil Seymour, aviation specialist at IBA, a consultancy. He listed the questions that the companies owning the aircraft now face. “Where in the world can they go? Will they play ball? Will there be an edict from above saying not to cooperate? he said.

AerCap, the world’s largest commercial aircraft leasing company, said on Monday it would fully comply with sanctions requiring it to stop leasing planes to Russian airlines.

Dublin-based AerCap is probably the company most exposed to sanctions, with 152 planes valued at nearly $2.5 billion in Russia and Ukraine, according to IBA. Nine other leasing companies based in Ireland also have aircraft in Russia.

In an investor filing, AerCap said its contracts with Russian airlines, which its website says include Aeroflot and Rossiya, accounted for about 5% of its fleet, by value at the end of December.

The company recognized at the end of the year that doing business in places like Russia was inherently risky. AerCap said at the time that recovering the planes would be difficult if it was forced to cancel contracts due to government sanctions.

“We may encounter impediments and are likely to incur significant costs and expenses in repossessions,” the company said in a securities filing.

For a company as big as AerCap — the company had assets of $75 billion at the end of 2021 — the losses could be bearable, aviation experts said. But the sanctions could devastate companies with much smaller fleets and those with more exposure to Russia.

Even when aircraft leasing companies work with cooperative customers, they have sometimes encountered problems. For example, the aircraft may no longer have the engines originally installed because the airlines have swapped out others for maintenance or other reasons.

“It could prove very costly for the backers,” Mr. Seymour said. Normally, before a plane is returned, he said, it must be overhauled, it must have a spotless interior and the paperwork documenting its maintenance history and any issues must be in order.

If the leasing companies weren’t able to get their planes back, they would end up assuming all the risk associated with the plane, said Paul O’Driscoll, a consultant at Ishka. Once the contracts are cancelled, Russian airlines no longer have to make payments for the planes or maintain them.

“The local airline is released from liability,” Mr O’Driscoll said. “You are really stuck. You have to leave the metal there.

Niraj Chokshi contributed reporting from New York, and Liz Alderman from Paris.

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Newsrust - US Top News: European sanctions could block planes rented from Russia
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