Russia bans some foreign flights to prevent seizure of planes

(Bloomberg) – Russia will halt some international flights to prevent billions of dollars worth of planes from being repossessed by their foreign owners, deepening a rift that has torn global aviation apart in the wake of Ukraine’s invasion.

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The government’s decision will allow Aeroflot and other Russian carriers to keep hundreds of Airbus SE and Boeing Co. jetliners that their owners are asking to be returned. The leasing companies, many of which are based in Ireland, are calling for the plane to be returned by March 28 under European Union sanctions and a wider set of banking bans that make it impossible to pursue legal basis for leasing and insuring aircraft for commercial purposes.

Choking more flights is set to further isolate Russian citizens after the EU, US, Canada and UK, among others, closed their airspace to its jets in response to the invasion of Ukraine. The hiatus tore apart what was, until late last month, a highly integrated and cooperative network of international air travel.

Ticket prices have increased in Moscow in recent days, with fewer flights available to a decreasing number of locations. Turkish Airlines and Emirates are among the main carriers still present, ferrying passengers to their respective hubs in Istanbul and Dubai, where travelers can connect with other destinations.

Emirates was offering a one-way economy class ticket from Moscow Domodedovo Airport to Dubai on Sunday for the equivalent of $2,274, according to its website.

A number of smaller carriers from Serbia and Azerbaijan, for example, also offered flights.

Seizure risk

The order takes effect from March 6 and applies to airlines that have leased planes from foreign owners, Russia’s aviation regulator said in a statement on Saturday. He cited “the high risk of Russian airline planes being detained or seized abroad.”

Aeroflot, Russia’s airline and its most important link to foreign destinations, said on Saturday it would halt all international flights by the March 8 deadline for return travel.

For aircraft owners doing business in Russia, the rapid and unprecedented collapse of industry standards has given way to uncertainty. Foreign lessors are wondering how to recover the planes, with reports of a handful of seizures from Aeroflot’s Pobeda unit in Turkey.

Investors, meanwhile, are trying to understand the exposure of companies such as AerCap Holdings NV, Carlyle Aviation Capital and SMBC Aviation Capital, each with more than 5% of its fleet leased from Russia, according to the consultancy. in IBA aviation.

Dublin-based AerCap, the world’s largest leasing company, has the most aircraft leased to Russia at 152, with a market value approaching $2.5 billion, according to IBA. AerCap said Feb. 28 it would stop trading with Russian airlines and try to get its planes back.

Out of reach

According to Cowen & Co. analyst Helane Becker, the world’s largest international lessors have about 300 planes in the country. Overall, foreign leasing companies have just under 600 aircraft in Russia, according to IBA.

Although the planes may eventually be salvaged, Saturday’s Russian decision will put them even further out of the reach of owners.

Analysts said writedowns are likely, particularly after Russia’s Transport Ministry said it was considering options including nationalization after EU sanctions banned the supply of new planes.

Insurance cover

One question is whether the insurance coverage will help offset losses if the planes are not returned. The issue will likely lead to litigation, and the circumstances of the planes will be a factor, JPMorgan analysts said.

“Lenders are not covered for economic losses. They are covered in the event of an aircraft being destroyed,” the analysts, including Jamie Baker, wrote in a note. “They are also technically covered in the event of confiscation or seizure.”

Maintenance reserves and letters of credit associated with leases could also reduce potential losses, Fitch Ratings said in a research note Friday.

“The sanctions present significant logistical and operational challenges given the unique and rapidly changing situation, which means repossessing aircraft in Russia may prove more difficult,” the ratings firm said.

(Updates with price, analyst commentary, insurance from fifth paragraph)

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