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Hundreds of Planes Are Stranded in Russia. They May Never Be Recovered.
Western companies that own the planes face little prospect of getting them back, meaning billions of dollars in losses.
Aeroflot planes at Sheremetyevo Airport in Moscow last month.
Aeroflot planes at Sheremetyevo Airport in Moscow last month. Credit...The New York Times
Written by Niraj Chokshi ... Niraj Chokshi covers the business of transportation, with a focus on autonomous vehicles, airlines and logistics. @nirajc
March 12, 2022, 5:00 a.m. ET
Hope has faded quickly for a handful of Western companies eager to recover planes leased to airlines in Russia, with the authorities there intent on keeping foreign-registered aircraft within the country and President Vladimir V. Putin openly discussing nationalizing the assets of foreign businesses.
As of Thursday, there were 523 aircraft leased to Russian carriers by companies outside the country, according to IBA, a consulting firm. Of those, 101 are on lease to S7 Airlines and 89 to Aeroflot. Both airlines have stopped flying internationally, eliminating any chance of repossessing the planes on foreign soil.
“The general consensus is: That’s it, we will not be able to recover them,” said Vitaly Guzhva, a finance professor at Embry-Riddle Aeronautical University.
Dr. Guzhva and others who attended a recent industry conference in San Diego said the predicament for the leasing companies was the talk of the event, held by the International Society of Transport Aircraft Trading. Experts there generally aligned around the view that the companies were facing the possibility of huge losses, they said. All told, the planes are worth as much as $12 billion, according to Ishka, an aviation consulting firm.
AerCap, the world’s largest leasing company for commercial aircraft, has 142 leased planes in Russia, more than any other company, according to IBA. AerCap declined to comment, but said in a recent financial disclosure that its aircraft in Russia account for about 5 percent of its fleet. SMBC Aviation Capital, which did not respond to a request for comment, is the second-most exposed business, with 35 leased planes in Russia.
Under European sanctions, lessors such as AerCap and SMBC, which are based in Ireland, have until March 28 to terminate contracts with the Russian airlines and get their planes back.
On Thursday, David Walton, the chief operating officer of BOC Aviation, a leasing company based in Singapore, said the March 28 deadline was “frankly an unrealistic timetable” to get hundreds of planes out of the country. As of late February, Russian airlines were using 18 BOC-owned aircraft, or about 4.8 percent of the company’s fleet.
Nick Popovich, whose Indiana firm, Sage-Popovich, performs aircraft repossessions, said he had been contacted by some major global lessors interested in recovering their planes from Russia. He declined to name the companies, but said they mostly acknowledged that it was a lost cause. Mr. Popovich said he was still investigating what could be done, but didn’t immediately see a viable way to recover the planes.
“We won’t accept an assignment that we’re not sure we can do,” he said. “I’m still doing research on what we can and can’t do legally.”
While a few planes may have been recovered abroad before international flights were halted, they are of little use to their owners without the meticulous maintenance records that accompany every aircraft and are often stored by airlines themselves, experts said. And the longer a plane is stuck in Russia, the greater the concern that work on the jet’s body, engines and flight systems may not be logged, causing its value to plummet.
“Unless you have those records, the aircraft is virtually worthless,” said Quentin Brasie, the founder and chief executive of ACI Aviation Consulting. “They’re literally more important than the asset itself.”
The financial consequences of the planes’ being held in Russia could be far-reaching, too. Such aircraft are financed in a variety of ways, including funding from banks, leasing companies themselves, and investors in securitized debt.
Insurers and reinsurers may be on the hook, too, experts said. Aviation war insurers, in particular, are concerned and facing their biggest potential losses since the Sept. 11 terrorist attacks, according to Russell Group, a data and analytics company. Aircraft insurance premiums have been on the rise for years as the industry struggled to counter recent annual losses.
The Russia-Ukraine War and the Global Economy
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Rising concerns. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes and spooking investors. The conflict has already caused dizzying spikes in energy prices, and could severely affect various countries and industries.
The cost of energy. Oil prices already were the highest since 2014, and they have continued to rise since the invasion. Russia is the third-largest producer of oil, so more price increases are inevitable.
Gas supplies. Europe gets nearly 40 percent of its natural gas from Russia, and it is likely to be walloped with higher heating bills. Natural gas reserves are running low, and European leaders worry that Moscow could cut flows in response to the region’s support of Ukraine.
Food prices. Russia is the world’s largest supplier of wheat; together, it and Ukraine account for nearly a quarter of total global exports. Countries like Egypt, which relies heavily on Russian wheat imports, are already looking for alternative suppliers.
Shortages of essential metals. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.
Financial turmoil. Global banks are bracing for the effects of sanctions intended to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies crucial for trade. Banks are also on alert for retaliatory cyberattacks by Russia.
As prices went up during the pandemic, insurers cut coverage, according to Suki Basi, the founder of Russell Group. At the least, the situation in Russia will probably have a similar effect.
“You pay more and you get less coverage,” he said. “If it does nothing to premiums, it will do that.”
There will be lasting consequences for Russia, too. The crisis is likely to drive up the cost of doing business there generally and may cause some leasing companies and insurers to swear off the Russian market.
And while nationalizing the planes may provide a short-term benefit to Russia in keeping domestic flights moving, it won’t be long before carriers there grow desperate for spare parts. With Boeing and Airbus refusing to offer parts and support to Russian airlines, those carriers are likely to start cannibalizing the planes they have on hand, devaluing those aircraft.
Ken Hill, who also performs aircraft repossessions, knows that first hand. Two years ago, a U.S. leasing company hired Mr. Hill to recover three Boeing 737s at a small airport just outside Moscow, he said. The owner of the company that had leased the planes resisted his efforts to recover them, he said, but, after a few days Mr. Hill gained access to the hangar — only to find that the aircraft had been gutted.
“The airplanes were there, but guess what wasn’t there? The engines,” he said. “They had robbed all three airplanes. They were basically just junk carcasses.”
What happens next is anyone’s guess, even among experts. “We all have a lot of questions,” said David Tokoph, the chief executive of mba Aviation, an advisory firm, summing up the conversations at the San Diego conference. “We all have a lot of opinions. And we don’t have a lot of answers.”
Niraj Chokshi covers the business of transportation, with a focus on autonomous vehicles, airlines and logistics. @nirajc
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