Dublin-based AerCap, the world's biggest aircraft leasing company, plans to sever leases with Russian airlines to comply with all sanctions against Russia arising from its invasion of Ukraine.
The multibillion euro Irish aircraft leasing industry faces severe challenges ending leases and recovering Irish-owned aircraft from Russia as directed under the sanctions against the Kremlin.
Aircraft leasing companies have written to Russian airlines that are currently leasing billions of dollars worth of Irish-owned aircraft, seeking to terminate leases and start the recovery of the aircraft.
The Russian airlines have been directed to ground the aircraft as, if they continue flying, they will be in breach of Western sanctions imposed over Russia’s attacks on Ukraine.
EU and US economic sanctions last week include a prohibition on the supply of aircraft and aircraft components to Russian entities or for use in Russia, forcing leases to be terminated by March 28th.
Efforts by Irish aircraft leasing companies to recover airplanes from Russia could be complicated further by retaliatory actions taken by Moscow against the Western sanctions.
Kremlin spokesman Dimtry Peskov said on Monday that Russia would retaliate against Western sanctions targeting the country's aviation industry, telling reporters: "The guiding principle will be reciprocity and our own interests will be at the forefront of that."
AerCap is the most exposed to the impact of the sanctions, with 152 aircraft across Russia and Ukraine valued at almost $2.4 billion (€2.1 billion), according to industry figures.
This is followed by SMBC Aviation Capital with 34 aircraft valued at $1.3 billion. Dublin-based Avolon, the world’s second largest aircraft leasing company, has 14 aircraft leased to Russian airlines, valued at €320 million, representing less than 2 per cent of its assets.
In a statement on Monday, AerCap said that it intends “to fully comply with all applicable sanctions, which will require us to cease our leasing activity with Russian airlines”.
The company said that, as of the end of last year, about 5 per cent of AerCap’s fleet by net book values on lease to Russian airlines.
AerCap pointed to past warnings to investors about risks related to “the geopolitical, regulatory and legal exposure” of its business and that it “may encounter obstacles” trying to recover aircraft after leases are terminated and is likely to incur significant costs on repossessions.
It is understood that Irish companies have already repossessed aircraft leased to Russian airlines at two international airports outside Russia in response to the sanctions.
Russian media outlet RBC reported that an Irish leasing company seized a Boeing 727, leased by Aeroflot’s low-cost carrier Pobeda, at Istanbul’s Havalimani airport.
Veteran airline industry Ulick McEvaddy told The Irish Times that companies may face legal challenges recovering leased aircraft from Russia under the Cape Town Convention, the international agreement covering the rights of businesses on moveable assets such as aircraft.
“It would be hard to call the aircraft back. I don’t think it will be easy,” he said.
Irish Aviation Authority executives may need to become involved in the recovery of Irish-registered aircraft in Russia, he said. Some 34 leased Russian aircraft are registered in Ireland.
He described the task facing Irish aircraft leasing firms as “mission impossible”. It would be “almost impossible” to recover the assets and fly them back outside the sanctions, he said.
“Not a chance – it will take months,” he said.
Irish aviation industry sources fear the Russian airlines will ignore the calls from Dublin-based companies to ground the airlines and will continue to fly them on domestic routes within Russia.
There is concern that the Kremlin could unilaterally act, passing a new law that would seize ownership of all aircraft in Russia by requisitioning the title of the assets.
“It is complicated. It is not clear what will happen but in the first instance, the lease would have to be terminated,” said one industry insider. “The second and frankly multibillion dollar question is: what insurance kicks in and that is the unknown. You can be sure that the insurers will be running for the hills.
“This is unquestionably a catastrophic event.”