Putin Signs Bill: Leased Aircraft Belong to Russian Airlines

Putin Signs Bill: Leased Aircraft Belong to Russian Airlines

DALLAS – Russian President Vladimir Putin has signed a law allowing foreign planes leased by Russian airlines to be registered as the airlines’ property.

Of the estimated 980 commercial airliners in Russia, about 777 of them are on long-term leases, 515 from foreign aircraft leasing companies.

The news was first reported on Monday by the Russian news outlet Tass. Sanctions imposed after Russia’s invasion of Ukraine gave leasing companies until March 28 to exit Russian airline contracts, setting off a cat-and-mouse game as lenders scramble to reclaim planes with limited success.

Russian airlines will settle leases in roubles throughout 2022, according to the proposed law, now in effect, designed by the transport ministry. If a foreign lessor discontinues the pact, a special government committee will determine whether the aircraft are to be returned or to remain in Russia.

Rossiya VQ-BAQ Airbus A319-111. Photo: John Leivaditis/Airways

A Lousy Offer from the Start

“It’s a lousy offer coupled to an even worse offer,” said last week Eddy Pieniazek, head of analytics and advisory at aviation consultancy, Ishka in the United Kingdom.

Since Russia invaded Ukraine on February 24, the rouble has dropped by roughly 30%. Leasing contracts are valued in US dollars, which is the currency that the leasing business acquires and purchases planes. With Russia expelled from the SWIFT system, hindering its ability to conduct financial transactions, it becomes increasingly difficult for Russian airlines to make payments at all.

If contracts are canceled, the Cape Town Convention requires airlines to return aircraft with little intervention, which Western sources claimed as of last week was not happening, despite Russia’s insistence that the sanctions are unjustified.

“Cape Town should be involved, implying a smooth aircraft recovery operation. What they’re proposing is that all of the aircraft’s contracts be broken “Pieniazek remarked.

VP-BXI, S7 Airlines Boeing 737-8 MAX. Photo: Michael Rodeback/Airways

Global Leasing Mass Default

Sanctions have blocked off Russia’s procurement of most aircraft and parts, which forced international flights to be canceled for fear of their aircraft being confiscated by foreign lessors or banks. The sanctions have also frozen a large portion of Russia’s foreign reserves, forcing authorities to explore measures to halt withdrawals of foreign cash.

If the dispute threatened the world’s biggest mass default for the global leasing business, which possesses over 50% of the world’s airliner fleet, the leased aircraft law signed by Putin complicates the situation further.

Experts fear the subsequent wave of claims might spark a decade-long court struggle between lessors and insurers over whether or not war-risk insurance will payout.

Featured image: Rossiya VQ-BAS Airbus A319 (Zenith Livery). Photo: Alberto Cucini/Airways

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