New Russian law raises doubts over recovery of Irish-owned aircraft

Further doubts were raised on whether Irish aviation leasing firms will be able to recover aircraft from Russia after the Kremlin published a draft law that could block their return.

EU sanctions imposed to punish Russia for its invasion of Ukraine gives leasing companies until March 28th to terminate lease agreements with the country's airlines, triggering a rush to recover aircraft from state-owned Aeroflot and other airlines in Russia.

Almost 780 jets are leased to Russian airlines, including just over 500 from foreign leasing companies, about two-thirds of which are owned by Dublin-based aircraft lessors.

Under a draft law published by the Russian transport ministry, the country’s airlines will make lease payments for the remainder of this year in roubles, the value of which has collapsed.

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If the foreign leasing company terminates the agreement, a special government commission will decide whether the aircraft can be returned or rule that the aircraft must stay in Russia.

The law has the potential to trigger the largest mass default in the aircraft leasing industry.

Irish companies are among those worst affected across the sector, with Dublin-based firms owning aircraft worth €3.5 billion-€4.5 billion leased to Russian firms.

Lessors have been attempting to take possession of aircraft leased to Russian airlines left at international airports before airspace was closed to them, but only a handful were repossessed.

Dublin-based AerCap, the world’s largest aircraft leasing company, is the most exposed to Russia’s law, with 152 aircraft valued at almost $2.4 billion (€2.1 billion) rented to Russian airlines. A spokeswoman for the company said it had no comment about Russia’s draft law.

SMBC Aviation Capital with 34 aircraft valued at $1.3 billion is the second most exposed company in the Irish sector.

Claims

Dublin-based Avolon, the world’s second-largest aircraft leasing company, had 14 aircraft leased to Russian airlines, valued at €320 million. It managed to take possession of one aircraft operated by a Russian airline while it was at an airport in the Turkish capital Istanbul.

Industry insiders fear that leased aircraft held in Russia could spark multi-billion euro claims against insurance policies and protracted legal battles with insurers in disputes over war-risk policies and challenges to pay-outs amid uncertainty over asset write-downs and compensation.

BOC Aviation, the largest aircraft leasing business in Asia, said the international aviation insurance market was "progressively cancelling certain elements of insurance policies in relation to aircraft located in Russia or leased to Russian airlines".

“This is a complex and rapidly developing situation that we are monitoring closely,” it said.