AerCap Halts Russia Contracts as Lessors Seek Return of Jets

(Bloomberg) -- Plane-leasing firms including AerCap Holdings NV said they’ll stop trading with Russian airlines and seek the return of hundreds of jets as sanctions over the Ukraine invasion tighten, jeopardizing flights at carriers including Aeroflot PJSC.

Ireland’s AerCap, with more than 150 planes in Russia, said Monday it will comply with broad measures against Moscow imposed by the European Union, U.S. and other countries, while AviaAM Leasing China has requested that Russian carriers ground and return 13 planes.

All told, the six largest foreign lessors have about 300 aircraft in Russia, according to London-based aviation consulting firm Ishka Ltd.

“AerCap intends to fully comply with all applicable sanctions, which will require us to cease our leasing activity with Russian airlines,” the Dublin-based group said, without commenting on whether it will seek to seize back planes.

Shares of AerCap, the world’s biggest leasing firm, traded down 13% as of 10 a.m. in New York, where the firm is listed. About 5% of its plane portfolio is affected, with a market value approaching $2.5 billion, based on analysis from IBA Group.

EU sanctions announced on Sunday ban the supply of “all goods and technology” linked to aircraft, giving leasing firms the challenge of terminating contracts and recalling planes as the war continues to rage.

Russia hit back at the measures and widespread airspace closures to its jets by banning airlines from the EU and a host of other countries from its own skies. That puts a key route from Europe to Northeast Asia off-limits for major carriers such as Air France-KLM and Deutsche Lufthansa AG.

More than half of the active commercial fleet in Russia is leased, mostly from companies based abroad. AerCap has 96 planes with Aeroflot and 17 at its discount arm Pobeda, based on data from consultant Avitas.

Repossessions may already be taking place.

A European lessor is recalling three Boeing Co. 737 aircraft from Aeroflot’s Pobeda unit, Interfax reported, citing an unidentified source at the flag carrier. Russian media outlet RBC said that an Irish leasing firm seized a Pobeda 737 at Istanbul’s Havalimani airport, citing an unidentified Russian airline source.

Lithuania-based AviaAM holds a minority of stake in its Chinese venture and doesn’t finance it directly, so that any losses from the recall of Russian planes are unlikely to have a material effect, a spokeswoman said.

After AerCap, SMBC Aviation Capital, the Dublin-based leasing arm of Japan’s Sumitomo Mitsui Financial Group, ranks next by value among foreign lessors, with Singapore-based BOC Aviation Ltd. and Air Lease Corp. of Los Angeles holding smaller positions.

The sanctions will affect most BOC Aviation jets in Russia, Asia’s biggest lessor said. It has 18 aircraft leased to four Russian carriers -- Aeroflot, Ural, S7 and AirBridgeCargo.

Bermuda Register

Efforts to take back aircraft could be made easier by the fact that a large number of Russian jets are registered elsewhere, something that lessors can insist on when there are concerns about their ability to recover them.

Data from IBA shows that 713 leased Russian aircraft are registered in Bermuda and 34 in Ireland. Of the 158 registered in Russia itself, a further 11 are owned by foreign banks or lessors, with the rest locally owned.

Airlines could make recovery tougher by asking lessors to collect planes from Moscow rather than delivering them to Dubai, for instance, though IBA President Phil Seymour said Russian carriers would likely cooperate to safeguard access to planes in future years.

AviaAM said it’s hopeful airlines will honor their obligations under lease agreements and that it’s therefore “premature discuss any other options.”

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