The following piece is on the possibility of getting aircraft out of Russia but I want you all today to think about the future of our sector if metal and oil prices stay at the current high levels for the remainder of 2022 and into 2023. The cost of aircraft and engine production will increase greatly, and the cost of flying aircraft has already increased greatly. Manufacturers will have no choice but to ramp up escalation for orders. This all comes at a time when landing fees are increasing and it is difficult to increase ticket prices on a hard hit consumer market dealing with high inflation. It all points to a need for further rapid airline consolidation during 2022, or else we will see those airlines that just managed to survive COVID-19 now starting to collapse.
Russia stated back in 2014 that it would nationalise all leased aircraft in the event of sanctions on aircraft, issued shortly before a go-around was implemented over the Crimea sanctions. At that time, all lessors and banks and investors were reminded that aircraft within Russia were at risk of Russian state action. This was countered by airlines being consumed by Aeroflot and therefore the assets are all in effect safe under the wing of the Russian state, which could not fail, that does indeed protect against airline failure but if the state turns against the lessor, any protection evaporates. Forward wind eight years and here we are, the sanctions are now in effect and the first thing the Russians think about is (again) the nationalisation of Airbus and Boeing aircraft to prevent aircraft from leaving the country and leaving the in-service fleet without parts.
Moscow warned this week that retaliation against sanctions would hit the aviation industry first. So we still await knowledge on the question: Will all Russian-based aircraft be nationalised or will the assets be purchased at a “bargain price”? The general feeling is that the aircraft will all be nationalised and an export ban will be placed on the aircraft – meaning the huge Russian leased fleet will be a total loss.
Russia’s invasion of Ukraine is shocking but it was always known to be a real possibility after the invasion of Georgia and the destabilisation of Belarus, and attempted destabilisation of Ukraine over recent years. The past 15 years has carried with it a litany of warnings backed by action from the Putin regime. The only shock to the system in all this is that the West has finally got its act together with meaningful action and awoken from its slumber – that is the differentiator. Unless Putin is removed there is seemingly no alternative to either a war involving NATO or a Cold War – either way in both scenarios, and unless Putin is removed and Russia comes back from the brink, the Russian market will be lost to aviation for a long period. Losing this giant market might actually require the loss of the aircraft that are stuck there, as those same assets, as mentioned here on Monday, will in the end depreciate the value of the entire existing global fleet for many years to come.
Time will tell. Any lessor getting aircraft out of Russia will be doing very well indeed, maybe that will be worthy of a book or film, such is the difficulty. The aircraft will have to stay in Russia forever of course, as the moment they turn-up anywhere else in the world they will be seized. It remains to be seen if that is the only recourse left for lessors.
Russian airlines operate 491 aircraft manufactured by Airbus, Boeing and Embraer as at the start of the Ukraine invasion. At the end of 2021, they carried 72% of the total passenger traffic of Russian airlines.