Russia explores buying stranded jets from Western leasing firms

CTF Services

23/12/2022 07:00

(Repeats from DEC 22, no changes to text)

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      Some 400 jets worth $10 billion stranded by war
    

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      $644 mln offered for 17 Aeroflot aircraft -letter
    

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      Russian plan would use its National Wealth Fund 
    

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      Required EU approval not yet forthcoming -sources
    

  
    By Gleb Stolyarov, Carolyn Cohn and Conor Humphries
       DUBLIN/LONDON, Dec 22 (Reuters) - Russian airlines have
held exploratory talks with at least one major Western leasing
firm about using state funds to buy some of the more than 400
aircraft stranded in Russia after its invasion of Ukraine,
according to documents and sources.
    The proposal, which would need EU approval and test the
scope for compromise in an economic war between Moscow and the
West, could lower a multibillion-dollar bill facing lessors and
insurers and allow Russian airlines to secure formal ownership
of planes at a potentially steep discount.
    A Russian aviation source said the proposal was still being
discussed, but that some Russian officials were pessimistic
about it getting European Union approval. 
    An EU official familiar with discussions on the issue
declined to comment. 
    Before what Moscow calls its "special military operation" in
Ukraine, Russia was a major market for aircraft lessors, who
bought jets from Boeing  BA.N  and Airbus  AIR.PA  and leased
them to Russian airlines who wanted to avoid the up-front cost
and inflexibility of buying planes themselves. 
    But after Western sanctions forced lessors to cancel these
contracts, Moscow refused to allow the planes to leave,
stranding almost $10 billion worth of aircraft in Russia and
triggering claims by lessors against their own insurers.
    Russian airlines continue to operate many of the jets, but
some have struggled to secure replacement parts.
    Details of talks between Russian airlines and one lessor
emerged in an Irish court case where major lessors are suing
insurers, including Lloyd's of London  SOLYD.UL , to ensure
payment of their claims.
    AerCap  AER.N , SMBC Aviation Capital and Avolon, the
world's largest lessors, declined to comment on whether they
were involved in talks on payment for jets from Russian airlines
or their insurers.
    EU sanctions, which cover Ireland where the majority of
leased aircraft are registered, banned the supply of aviation
technology to Russian entities and set a deadline of March 28 to
terminate contracts.
    There has been no suggestion that any of the lessors, who
operate in a highly regulated sector, have infringed sanctions
in any way, with industry figures saying they were exploring all
options in an unprecedented situation. 
    RUSSIAN STATE FUNDS
    Russian state backing for the talks was demonstrated in an
Aug. 30 letter from its Transport Ministry to 23 airlines. 
    "On the purchase of aircraft of foreign lessors, please
submit information ... on each aircraft that it is proposed be
bought out using the resources of the National Wealth Fund," the
letter said. 
    It also asked for "information on the ... existence of
agreement with lessors and insurance companies on a plan for the
repurchase of the aircraft".
    The ministry did not respond to a request for comment. 
    World No. 2 lessor SMBC said in a Sept. 15 letter released
to the Irish High Court that it had spoken to Aeroflot  AFLT.MM 
and Aeroflot's insurer AlfaStrakhovanie.
    "AlfaStrakhovanie advised that it had been approached by
Aeroflot to explore the possibility of making ex-gratia payments
.... to SMBC AC in settlement of the insurance claims," said the
letter, a copy of which was made available to Reuters and other
media by the court.
    The payment would be "in return for the transfer of
ownership of the aircraft to the Russian insurer or its
nominee," the letter, which was first reported by Irish
publication The Currency, added. 
    SMBC, which took an impairment of $1.6 billion for 34 jets,
said in the letter that on Sept. 2 AlfaStrakhovanie offered it
$644.2 million for 17 aircraft leased to Aeroflot, minus $82
million already paid in deposits and reserves. 
    That was "considerably less than the aggregate Agreed
Values" for the aircraft, SMBC said in the letter.
    SMBC also said in the letter that it had been approached by
Elbrus Insurance Brokers LLC on behalf of Russian airline
NordStar and, separately, by airline S7 to discuss "potential
claim solutions." 
    Aeroflot, AlfaStrakhovanie, Elbrus, NordStar and S7 did not
respond to requests for comment. 
    EU LOBBYING 
    SMBC in its letter said it was involved in lobbying the EU
to facilitate a deal, specifically a derogation from Article 3C
of Regulation 833/2014. 
    Such a derogation "would enable EU operating lessors to seek
authorisation to transfer ownership of aircraft formerly leased
to Russian lessees or their Russian insurers," it said.
    Lessors could argue agreement would boost safety by allowing
access to spare parts, said Ross Denton, head of international
trade at law firm Ashurst.
    But one Western finance official said any deal would face
major legal and diplomatic hurdles and talks may be premature.
    "Right now, it would be such a flagrant contravention of
sanctions - why would governments all of a sudden agree to
this?" the senior official said on condition of anonymity.  
 (Reporting by Conor Humphries, Gleb Stolyarov, Carolyn Cohn and
Tim Hepher; Additional reporting by Jan Strupczewski; Writing by
Conor Humphries; Editing by Alexander Smith)
 ((conor.humphries@thomsonreuters.com; +353 1 236 1915;))