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Current Affairs

Aircraft leasing

Date: 15 March 2022 Tags: Miscellaneous

Issue

Aircrafts leased by western leasing companies to airlines in Russia may never come back due to current sanctions.

 

Background

The western bloc has imposed stringent sanctions on Russia, which has resulted in closure of all international business in the country.

 

Details

  • President Putin has signed a law to nationalise all Western businesses that ceased operations in Russia after the sanctions were announced.

  • Under this law, many aircrafts could be lost. Leasing companies could end up taking a combined estimated hit of $12 billion to $15 billion.

 

Leasing aircrafts

  • Majority of planes are not owned by airline companies but rather leased from aircraft leasing companies.

  • This prevents airline companies from spending huge amounts on buying. Leasing allows them to increase flights on short notice.

 

Issues in recovering the aircrafts

  • Sanctions have resulted in closure of Russian sky for western aircrafts. Russian airlines have stopped journey outside their country, making repossession difficult.

  • European leasing companies have been given time till March 28 to cut all business with Russia and get back their airplanes.

  • The current situation indicates that war is escalating, with Russia hitting civilian targets. It looks unlikely that aircrafts could come back.

  • The leased aircrafts include 101 aircrafts with S7 airlines, and 89 with the national flag carrier Aeroflot. Remaining is with smaller airlines.

 

Impacted companies

  • AerCap, based in Dublin, is the largest leaser with more than 1,000 aircraft leased to customers in around 80 countries. 

  • About 142 of AerCap’s aircraft are currently on lease in Russia. This accounts for about 5% of its entire fleet.

  • Companies like SMBC have several aircraft in Russia. BOC Aviation’s 18 planes were being used by Russian airlines.

 

Challenges for Russia

  • Russia may enjoy some temporary benefits by getting hold of the aircrafts but the bigger challenge will be to keep them flying.

  • Majority of these aircrafts are built by Airbus and Boeing. They will not be supplying spare parts to keep the fleet in operation.