Among the collateral effects of the war in Ukraine are 670 aircraft owned by Western European or American companies whose owners will never see them again, and for which they may not receive a penny.
The lessors between a rock and a hard place
As we explained in a previous article, most airlines do not own their aircraft: they lease them. This trend is growing steadily, and today the largest aircraft owners are not airlines, but leasing companies or “lessors”.
The latter now finance over 50% of the world’s fleet.
Their business is simple: they buy aircraft and lease them to airlines in exchange for rent.
Simple, but complicated, when the sanctions that apply to Russia require them to put an end to their commercial relations with businesses in Mr. Putin’s country.
They now have only two options: continue their business at their own risk, or unilaterally terminate their leasing contracts with Russian airlines.
The first is not an option: it would mean risking sanctions and then, when Russian planes can no longer fly anywhere, meaning that Russian airlines would have to ground them and incur heavy losses, it would mean running the risk of ending up with insolvent debtors.
The second is the path of reason, but it’s not a smooth ride either: terminating a contract is one thing, getting the plane back is another.
The biggest aircraft ” robbery ” ever!
More than 170 aircraft are involved, operated by 17 airlines, led by Aeroflot (160 aircraft), S7 Airlines (107) and Rossiya Airlines (93).
So yes, the lessors have terminated the contracts and want their planes back. Do you think for a second that Russian airlines are going to give them back? Of course not. They’re going to keep them and operate on them as much as they can, hoping one day to be able to reopen all the routes that are now forbidden to them.
In any case, it doesn’t cost them a thing, and it’s a fine thumbing of the nose at Western countries, with the tacit support of the government.
The law protects lessors…as long as everyone is honest
As we also explained in our previous article, lessors protect themselves from dubious creditors by asking them to register their aircraft in countries whose laws make it easier for them to recover them. This is why most Russian aircraft are registered in Bermuda, Anguilla or Ireland.
That’s all well and good, but the planes still have to be seized, and it’s hard to see their owners coming to Moscow with their hands in their pockets and taking their case to the local courts.
The most protective laws for lessors have a limit: the aircraft must be located in a “cooperative” country in order to be seized, regardless of its country of registration. And it’s hard to imagine Russia being cooperative in this case.
Pyrrhic victory for the Russians?
The Russians’ reaction is a thumbing of the nose at leasing companies, but it’s aimed more at harming them than benefiting from it. Yes, the lessors will lose money, but the Russian airlines won’t benefit.
As long as it’s virtually impossible for them to fly abroad, these planes are of little use. And the day this becomes possible again, they’ll be seized as soon as they set foot on the tarmac of a European, American or other airport.
But what will these planes be worth? They will fly without official tracking, and their flight history will have to be “reconstructed” by their owners if they want to put them back on the market in compliance with safety regulations. All this at a cost that we imagine to be astronomical, and the fruit of long and tedious work.
Meanwhile, Mr Putin has authorized Russian airlines to pay lessors in rubles. Of course, it’s a real jokei for all concerned, since the latter are no longer allowed to supply aircraft to Russian airlines, nor to do business with them.
A long battle with insurance companies
As a result, lessors are going to have to find ways of recouping their costs, in particular by turning to their insurers.
But there’s a great risk that the latter will clear themselves by pleading exceptional circumstances (such as a war) where the owners will surely only see a banal swindle.
Lessors will probably never again see the nearly 700 aircraft in the hands of Russian airlines. While the latter won’t benefit, the lessors will have a hard time recouping their costs, even if they do get the planes back one day.