- Aviation consultancy Ishka estimates $12 billion worth of leased aircraft is stuck in Russia over Western sanctions.
- The sanctions have forced aircraft lessors, like Ireland-based AerCap, to end contracts with Russian carriers.
- Airspace closures and pushback from Russian authorities and airlines could make repossessing the planes a challenge.
European aircraft leasing companies are terminating their contracts with Russian airlines following Western sanctions targeting the country's aviation industry, creating a potential logistical nightmare for lessors.
On Sunday, the European Union gave aircraft lessors until March 28 to end any rental contracts in Russia. The move is part of the EU's sweeping sanctions to punish Russian President Vladimir Putin, which banned "any plane owned, chartered or otherwise controlled by a Russian legal or natural person" from entering EU airspace.
According to Cirium data, Russia has 980 commercial aircraft in service, with 777 leased. Of those, 515 are rented from foreign firms, with a majority coming from Ireland-based companies.
Dublin-based AerCap — the world's biggest aircraft leasing firm — has the largest fleet in Russia with 152 planes, according to consultancy IBA. The company said it would be pulling all of its contracts with Russian airlines following the sanctions, with the jets estimated to be worth $2.5 billion, consultancy firm ACC Aviation said.
AerCap's Russian clients include Aeroflot, S7 Airlines, Rossiya, Azur Air, and Ural Airlines, according to its website. The lessor is just one of nine Irish aircraft leasing companies with planes in Russia.
There is $12 billion worth of leased jets that are to be returned to their owners, according to consultancy firm Ishka. But, ACC Aviation vice president Viktor Berta told Insider the lessors could face logistical complications getting the planes out of Russia if airlines and government authorities do not cooperate.
"The logistics are immense," IBA aviation specialist Phil Seymour told The New York Times. "We are talking hundreds of planes that need to be flown out. Where in the world can they go? Will they play ball? Will there be any edict from above, telling not to cooperate?"
Russia is part of the Cape Town Convention that makes it easier for lessors to repossess leased aircraft if an entity could not pay the cost. In return, airlines get cheaper financing. However, court cooperation is needed to enforce the deal, and it is still uncertain how Russia will respond, according to Reuters.
Airspace bans in Russia and Europe could also make it difficult for lessors to get to Russia to repossess the planes, CNBC reported.
AerCap acknowledged the risk of doing business with Russia, and in a statement said it could face problems getting the aircraft back.
"We may encounter obstacles and are likely to incur significant costs and expenses conducting repossessions," the company said in a security filing.
Ishka consultant Paul O'Driscoll told The New York Times that companies are at risk of financial losses due to the canceled contracts. O'Driscoll explained that when a lease ends, companies must return the planes to the lessor in good condition, meaning a spotless interior and no maintenance issues.
However, when a contract is terminated, there is no obligation from Russian airlines to maintain the plane.
"You're really stuck," O'Driscoll said. "You have to leave the metal there."
Analysts say companies like AerCap, which had $75 billion worth of assets at the end of 2021, could burden the loss of the aircraft. However, the sanctions could cripple companies with smaller fleets, according to The New York Times.
In addition to AerCap, companies like Singapore-based AOC Aviation and Ireland-based Avalon also have planes in Russia that are impacted by the sanctions.
Specifically, BOC has 18 planes in the country, while Avalon CEO Dómhnal Slattery told Reuters in December that it had fewer than 20 in Russia.
"Our policy is to fully comply with all laws applicable to our business," BOC said in a statement. "The practical consequences of the new EU sanctions are complex and at the present time we are unable to provide further information."