The war between Russia and Ukraine is having serious consequences on the airline industry. After several international companies stopped their activity in Russian territory, hundreds of planes have been stranded waiting to be recovered. The problem stems from the fact that Russia has no intention of returning them after the sanctions imposed by the West. The Russian President has openly mentioned the possibility of nationalizing the assets of foreign companies.
According to the consulting firm IBA, Russia owns 523 aircraft that other Western companies had leased to Russian airlines, of which 101 are in the possession of S7 Airlines and 89 to Aeroflot. Both companies have stopped flying internationally, thus eliminating any possibility of these aircraft stepping on ground outside Russian borders.
Experts agree that it will be impossible to retrieve these aircraft, as Embry-Riddle Aeronautical University finance professor Vitaly Guzhva told The New York Times. The professor also analyzed the economic consequences of this situation, with airlines facing billions of dollars in losses.
As a starting point, it is worth noting that a single aircraft can cost up to $12 billion, so the companies that have leased the most aircraft to Russian airlines could suffer a real catastrophe if they do not recover these assets.
This is the case of AerCap, the world’s largest commercial aircraft leasing company. This firm has 142 aircraft leased in Russia, surpassing any other company. This multinational is facing the loss of 5% of its fleet. SMBC Aviation Capital has lost 35 aircraft on Russian soil, making it the second most exposed company. The problem becomes more serious given that these companies only have 15 days to recover their aircraft.
Companies such as AerCap and SMBC Aviation Capital face severe European sanctions if they do not terminate their contracts with the Russian airlines by March 28, so if they do not recover the aircraft by this date there will be no chance of bringing the assets back.
David Walton, COO of BOC Aviation, pointed out how “unrealistic” that date is for a situation that requires the movement of hundreds of aircraft, in addition to the tough negotiations that will have to take place with a country that is unwilling to budge. BOC Aviation has only 18 aircraft on Russian territory, although this represents 4.8% of its fleet.
Nick Popovich, whose Indiana firm, Sage-Popovich, performs aircraft repossessions, said he was contacted by some of the major global lessors interested in repossessing their planes from Russia. He declined to name the companies, but said they mostly recognized it was a lost cause. Popovich said he was still investigating what could be done, but did not immediately see a viable way to recover the planes. “We won’t accept a task we’re not sure we can do,” he said. “I’m still investigating what we can and cannot legally do.”
While some planes may have been recovered overseas before international flights were halted, they are of little use to their owners without the meticulous maintenance records that accompany each plane and are often stored by the airlines themselves, experts said. And the longer a plane is stuck in Russia, the greater the concern that work on the aircraft’s body, engines and flight systems will go unrecorded, causing its value to plummet.
“Unless you have those records, the aircraft is virtually worthless,” said Quentin Brasie, founder and CEO of ACI Aviation Consulting. “They are literally more important than the asset itself.”
Every day that an airplane remains in Russian territory, the asset loses value. In fact, if the companies do not have these records, the aircraft is practically useless.