Russia bans some foreign flights to prevent aircraft seizure by Irish firms

Dublin based AerCap, the world’s biggest leasing firm, has 152 planes in Russia

AerCap said on February 28 that it would stop trading with Russian airlines and try to retrieve its planes; the Dublin-based lessor’s Russian customers include Aeroflot, S7 Airlines, Rossiya and Ural Airlines.

Irish-based aircraft leasing firms could see negative rating implications over the ban on conducting business with Russia following the invasion of Ukraine.

In an update, rating agency Fitch said aircraft lessors' requirement to terminate existing lease agreements with Russian airlines should not materially pressure their net margins, liquidity coverage levels, or cash flows over the next 12 to 24 months.

"However, potential disruptions from indirect effects of the conflict on the broader aviation and airline sector outlook remain in flux and uncertain," Fitch said.

It comes as Russia said it will halt some international flights to keep billions of dollars worth of aircraft from being taken back by their foreign owners, deepening the rupture in the global aviation industry triggered by the invasion of Ukraine.

The government’s move will give Aeroflot and other Russian carriers cover to hold on to hundreds of Airbus and Boeing jetliners that their owners are demanding be returned. 

Leasing firms, many based in Dublin, are seeking possession of the aircraft by March 28 under European Union sanctions and a broader set of banking prohibitions that make it impossible to legally continue renting and insuring the planes.

The Russian order took effect today and applies to airlines that have leased planes from foreign owners, Russia’s aviation regulator said in a statement.

High risks to Russian airlines

It cited “the high risk of Russian airlines’ planes being held or seized abroad”. 

Investors are attempting to understand the exposure for companies such as the Dublin based AerCap, Carlyle Aviation, and SMBC Aviation each with more than 5% of their fleets leased to Russia, according to aviation consultancy IBA.

AerCap, the world’s biggest leasing firm, has the most planes in Russia at 152, with a market value approaching €2.29bn, according to IBA. 

AerCap said on February 28 that it would stop trading with Russian airlines and try to retrieve its planes. 

The Dublin-based lessor’s Russian customers include Aeroflot, S7 Airlines, Rossiya, and Ural Airlines, according to its website.

Overall, foreign leasing firms have almost 600 aircraft in Russia, according to IBA. 

While the planes eventually may be retrieved, the Russian move on Saturday will put them further out of reach of their owners for the time being.

Analysts have said that writedowns are likely, especially after Russia’s transportation ministry said it was weighing options including nationalisation after the EU sanctions banned the supply of new planes, parts, maintenance, and related services.

• Additional reporting Bloomberg