Russian airlines have started preliminary discussions with at least one significant Western leasing company about using public funds to purchase some of the more than 400 aircraft left in Russia after it invaded Ukraine, according to Euractive sources.
Western companies were compelled to end leasing agreements with Russian airlines for more than 500 aircraft due to sanctions by Western nations in reaction to Russia’s war operation against Ukraine.
According to Russia, 78 aircraft were impounded outside the country, leaving far over 400 in the Russian Federation.
On May 5, the European Parliament adopted a resolution requesting that Russia return more than 400 aircraft that it had “stolen” and leased from international corporations.
The Russian proposal, which would require EU approval and test the potential for compromise in a conflict between Moscow and the West over economic matters, could lower the multi-billion bill (in dollars) that lessors and insurers are currently facing and allow Russian airlines to acquire ownership of aircraft at a potentially significant discount.
The plan was still under discussion, according to a Russian aviation source. Still, some Russian officials were doubtful that the European Union would approve it.
Before Russia’s war with Ukraine, Russian airlines wished to avoid the upfront expense and rigidity of buying their planes, so aircraft lessors bought jets from Boeing and Airbus and leased them to Russian airlines.
However, as Western sanctions drove lessors to break these agreements, Moscow resisted letting the aircraft fly, leaving about $10 billion worth of aircraft in Russia and leading lessors to file insurance claims with their insurers.
Many of the jets are still in use by Russian airlines, but some have needed help finding new components.
In an Irish court action where major lessors are fighting insurers, including Lloyd’s of London, to ensure payment of their claims, discussions between Russian airlines and one lessor were made public, Reuters reported.
Most leased aircraft are registered in Ireland, which is also subject to EU restrictions that forbid the sale of aviation technology to Russian organizations and set a deadline for contract termination of March 28.
A letter from the Transport Ministry of Russia to 23 airlines dated August 30 showed that the Russian government supported the negotiations.
Furthermore, “information on the presence of agreement with lessors and insurance firms on a proposal for the repurchase of the aircraft” was requested.
The letter, a copy provided to Reuters and other media by the court, stated that “AlfaStrakhovanie reported that it had been approached by Aeroflot to examine the potential of making ex-gratia payments… to SMBC AC in settlement of the insurance claims.”
According to the letter from SMBC, AlfaStrakhovanie offered it $644.2 million on September 2 for 17 aircraft it was leasing to Aeroflot, less $82 million that had previously been paid in deposits and reserves. SMBC reported an impairment of $1.6 billion for 34 jets.
Additionally, SMBC stated in the letter that it had been contacted to discuss “possible claim solutions” by airline S7 and Elbrus Insurance Brokers LLC on behalf of Russian airline NordStar.
In its letter, SMBC said it was actively pursuing a settlement with the EU, specifically a deviation from Article 3C of Regulation 833/2014.
According to the document, such a waiver “would enable EU operational lessors to seek approval to transfer ownership of aircraft previously leased to Russian lessees or their Russian insurers.”
Such a deviation from the rules would be blatantly against the legal system. Why would the EU nations support Russia’s efforts to evade sanctions?
However, this case demonstrates how dangerous it is to do business with Russia since such assets as planes can be seized.