On 27th Feb 2022, the European Union imposed sanctions on Russia and asked Aircraft leasing companies to terminate their contracts with Russia.
According to industry sources, Russia has 980 commercial aircraft in operation, of which 777 are leased aircraft. Of those, 515 are rented from foreign firms, with a majority coming from Ireland-based companies. These aircraft are at present valued at US$ 12 billion.
Since Russia and Europe have divorced from one another and have broken most ties, it is an impossible task to get Russia which is part of the Cape Town Convention that makes it easier for lessors to repossess leased aircraft, to cooperate.
To make matters worse, EU has closed its airspace to Russian airlines and Russia has responded by banning European airlines from entering its airspace.
So even if by a stroke of great luck, the European aircraft lessors are able to obtain the support of the Russian State to repossess the aircraft, they would not be able to fly them out because of airspace problems.
The sanctions have now cost Western lessors US$ 12 billion worth of aircraft to be written off. The companies that have leased the aircraft to Russian airlines are likely to go out of business and the Western Banks and financiers will eventually take a big hit.
In the meantime the Russian airlines are relieved from paying lease rentals, which is one of the major expense of operations. They will save and hence make much greater profits and laugh all the way to the bank.
How is it likely to end?
Russian government will nationalise these aircraft and simply lease them to the airlines. The Russian government makes money, the airlines get a good deal and the European lessors get destroyed.
Talk about self injury. This is a classic case of self destructive European leadership.
Interesting Links:
Leased planes stuck in Russia - easy to sanction, hard to enforce ~ Prof. R Vaidyanathan on PGurus
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