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Russian sanctions and lessors

Victoria Tozer-Pennington
By Victoria Tozer-Pennington Aug 04, 2014 3 mins read
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Russian sanctions and lessors

The new Russian sanctions are biting as the large scale ban on EU and US companies providing services to Russian companies is causing the expected fallout with insurers, lessors and banks clambering to cancel agreements with Russian firms. As sanctions against Russia are consolidated by the EU and USA, the first high profile victims are confirmed as AWAS and BBAM and their client - Aeroflot’s low cost venture Dobrolet. Dobrolet has had to cancel the lease agreements that came into effect this year for 737-800s. BBAM has had to cancel the agreement for its CFMi56-7B powered 737-800 MSN41991 (reg VQ-BTS) and AWAS has had to cancel its only-just delivered CFM 56-7B powered 737-800, thus there are two very good aircraft on the market right now to be placed.

This does bring-up some possible problems for others: GECAS has a very large fleet with Aeroflot (the main airline itself) AWAS, SMBC, ICBC, BOC Aviation and AerCap also have exposure. Avia Capital Leasing, which is based in Dublin, may also see some ill-effects of sanctions if matters continue to escalate since it is a major financing partner of Aeroflot. Exposure to S7 takes in Air lease, AWAS, Aviation Capital Group, CIT, AerCap via ILFC and SMBC.

In October 2013 Aeroflot stated it would invest around US$100 million over the first two years with fleet growth pegged at eight aircraft per year starting with eight initial aircraft in 2014. Vladimir Gorbunov, Director General of Dobrolet, intended to completely mirror the Ryanair offering. So how will the airline do that now? The answer will be to turn to the APAC-based lessors and especially the Chinese. Could ICBC be a real winner in all this? But the fate of Dobrolet is the real interest for Russians. It is difficult to understand why the Kremlin did not force action that ensured new leases were in place for the airline to maintain planed services prior to this announcement.

The answer to this may well be that the Kremlin wants sections of the Russian public to experience the sting of sanctions before being seen to rectify the situation with relative ease. It is true to argue that at this time, and indeed for many years now, that the aviation sector in Russia has been a concern of the Kremlin, it is unlikely that their interest in making Aeroflot a global powerhouse would fall away now.

Many who have seen the official Aeroflot press notice will no doubt have taken-in the very political tone of the same, a them-and-us stance not really seen from Russian corporates very often these days. Let us hope that BBAM, AWAS and the like will not see relations damaged through no fault of their own, but these lessors will replace the aircraft if they have to with relative ease and this will not in any way prove to be a serious set-back as things stand.

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By Victoria Tozer-Pennington
12th November 2012
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