Aircraft Leasing Firms Grasp for Ways to Salvage Value From Jets Held in Russia

(Bloomberg) -- Aircraft leasing firms are exploring ways to protect the value of hundreds of jetliners now held in Russia without running afoul of international sanctions, according to people familiar with the matter.

The inquiries are aimed at securing access to authentic parts and regular maintenance of owned aircraft that’s rented to Aeroflot PJSC and other Russian carriers, while making sure any actions comply with prohibitions imposed after Russia invaded Ukraine, the people said, asking not to be named discussing a sensitive matter. 

Without verified records, the jetliners won’t be insurable, preventing their use later outside the country, and their value will plummet. Foreign owners have leased out jetliners to Russian operators worth an estimated $10.3 billion altogether, according to aviation consultancy Ishka. 

The outlook for protecting those investments is increasingly dire, as Russia moves forward with new rules allowing the government to prevent their return. It’s unclear whether there’s a way at all, given European Union rules banning the supply of aircraft, parts, maintenance and insurance for aircraft linked to Russia. 

Leasing firms based in Ireland have until March 28 to exit contracts. U.S. companies are subject to export controls with similar effect, and banking restrictions have made barred Russian entities from many financial networks.  

Lessors are reaching out to lawyers, sanctions experts and aircraft repair firms in neutral countries like India and Hong Kong, working through aircraft brokers as intermediaries in some cases, the people said. 

Off Limits

Access to components is a major concern. Airbus SE and Boeing Co. have stopped supplying parts and service for aircraft tied to Russian operators, as have many of their so-called Tier 1 suppliers. Parts purchased from overseas now require a so-called end-user certificate prohibiting their use in Russia, one of the people said. 

One possibility being explored is to use stockpiles built before sanctions came into place. Indian repair shops are eager to capture Russian business but don’t have large stores, the people said.

Russia is seeking spare parts in China and other Asian countries, Reuters reported, citing a Transport Ministry’s comments in a briefing to lawmakers.

China has refused to supply parts, Tass reported Thursday. It said inquiries have been made in India as well as Turkey, which also haven’t sanctioned Russia. The Transport Ministry declined to comment.

Little Time

As lessors weigh their options, Russia is moving forward with a legal framework that will allow its airlines to keep operating jetliners, even after foreign owners cancel their contracts. 

Russia’s Transport Ministry published a draft rule this week giving a state commission the power to decide whether to comply when lessors demand the return of planes, Interfax said. The government can tell airlines to keep rented planes through the life of the original contract, paying in rubles at a set exchange rate, even if lessors cancel them.  

The framework also provides mechanisms for insuring the aircraft within Russia, and servicing the equipment using “organizations that have a document confirming their compliance with the requirements of federal aviation regulations,” Interfax said.

The new rules apply to leasing contracts signed before Feb. 24, the day of the invasion, the outlet said. A public discussion period ends March 23, it reported. 

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