Aircraft leasing market could oust Russia beyond Ukraine conflict, lessor says
Russian airlines could be ousted from the aircraft leasing market well after the end of the Ukraine conflict, said today the world’s second-largest leasing company Avolon.
According to the Dublin-based company’s chief executive Domhnal Slattery, the predominantly Irish leasing sector could oust Moscow following the Kremlin’s decision to re-register aircraft as part of its anti-sanctions campaign.
“In terms of future appetite in a post-war scenario for further business in Russia, I think all players in our sector will think long and hard about the risks of that jurisdiction and the appetite for going back in,” he told Reuters during an interview.
President Putin signed a law in early March which allowed Russian carriers to take ownership of the foreign-leased aircraft currently in the country.
And that could cause a $10bn nightmare scenario for lessors and insurers.
“From an Avolon perspective it is not material; from a sector perspective it is a problem,” Slattery said, as his company’s net exposure is below $200m with 10 jets still blocked in Russia.
“Given our scale that puts it in the realm of a headache rather than a migraine,” he added.
Commenting on Slattery’s words aviation analyst Alex Macheras said Moscow’s reputational stain will be extremely difficult to erase.
“While aviation is inherently exposed to geopolitical events and conflict, Russia took deliberate, quick, unlawful steps to hold on to jets they do not own shocking lessors worldwide,” he told City PM
“It’s going to be very, very difficult to imagine an aviation firm willing to engage in future aircraft leasing contracts with Russia going forward.”
Russia’s lack of cooperation could lead companies such as AerCap who have more exposure to increase lease rates compared with those like Avolon who are exposed less.
“AerCap based in Ireland has quite a large exposure with 152 aircraft implicated by the sanctions, where as a company like Avolon, also based in Ireland has rather less exposure with only 10 aircraft implicated,” said David Warnock-Smith, professor of aviation management at Buckinghamshire New University.
“Those companies with greater exposure may be the most likely to try to increase lease rates to try and compensate for losses in the short-term.”