Russian airlines to fly $10bn worth of leased jets to avoid sanctions

The Russian government has passed a new law that enables its airlines to obtain airworthiness certificates and keep flying $10 billion worth of leased planes domestically, CNBC reported. 

Following the Russian aggression in Ukraine, Europe, and the U.S. closed their airspace to Russian airlines, a move that saw a reciprocal sanction by Russia. Additional sanctions that have been imposed now require aircraft lessors to repossess assets leased out to Russian airlines by March 28. Put together, Russian airlines have leased out 515 aircraft that are valued at over $10 billion and also include a brand new Airbus A350 leased out on the day of the invasion, Reuters reported. 

New Russian law

To prevent the lessors from repossessing the aircraft, Russian airlines were flying the aircraft on domestic routes. Most of the aircraft leased to Russian airlines are registered in Bermuda and Ireland, where they also get their airworthiness certificates, a necessity under international aviation laws.

Since the aircraft were no longer flying outside Russian domains, Bermuda and Ireland recently suspended these certificates. In the works for the past week, a new law signed by President Vladimir Putin now allows Russian airlines to register their leased aircraft in Russia and obtain airworthiness certificates locally.

The move not only allows the aircraft to remain operational but also keeps them out of the reach of the lessors who can ground them, bringing Russian commercial aviation to a grinding halt.

Tough to implement

On paper, the law appears to have solved problems of airline operations in the short term. However, it is tough to implement in the long run. Aircraft lease is the lifeline of the airline industry and operators would be wary of straining relations with their lessors due to geopolitical issues. 

Dual registry of an aircraft is not allowed under international civil aviation rules. To register an aircraft in a new territory, one also requires proof that the aircraft has been deregistered from the other registry, something that the owner of the aircraft must agree to, an aviation adviser told Reuters. 

Even if Russian airlines take the aggressive way out and register their planes in Russia to keep them flying, aircraft manufacturers Boeing and Airbus have refused to provide spares and support to Russia. This would mean that over a period of time, Russian airlines would have to cannibalize their aircraft for spares to keep some of them flying, thereby reducing the size of their fleet. 

Using locally sourced spares would raise safety concerns and be a sore point for insuring flights, BBC reported. If the aircraft is not maintained, apart from being grounded, its valuations will plummet and the lessor would demand compensation from the airline when it finally decides to return the aircraft, once the geopolitical situation settles down. 

Russia may have passed a law but now airlines must decide whether they want to risk business in the long run.