EU and U.S. sanctions aim to cripple Russian carriers

Share

Having initially targeted Russia’s leasing sector, Western-backed sanctions have now taken aim at the country’s airline and aerospace sectors as international outrage over the invasion of Ukraine mounts.

In its latest round of punitive measures aimed at crippling Russia’s economy and therefore its ability to wage war, the European Commission announced on February 26 the ban on the export and sale or transfer of all aircraft, aircraft parts and equipment to Russia and on all related repair, maintenance and financial services. The leasing of aircraft to Russian entities is therefore prohibited as well.

The ch-aviation fleets advanced module shows Aeroflot (SU, Moscow Sheremetyevo) to be the only Russian operator with a firm order commitment with Airbus for fourteen A350-900s while lessor Ilyushin Finance has fourteen A220-300s due. Concerning Boeing, UTair (UT, Khanty-Mansiysk) has twenty-eight B737-8s due while Volga-Dnepr Airlines (VI, Ulyanovsk Vostochny) is expecting six B777-Fs.

However, it is recalled that Aeroflot Group’s Pobeda (DP, Moscow Vnukovo) subsidiary was also planning to acquire B737 MAX 8s via lessors for its fleet renewal drive while S7 Group had commitments with lessors for A320/A321neo jets for both its S7 Airlines (S7, Novosibirsk) and imminent Citrus subsidiary, now on hiatus. Ural Airlines (U6, Ekaterinburg) also has A320neo Family commitments and B737 MAX aspirations. smartavia (5N, Arkhangelsk Talagi) has just taken formal delivery of the first of seven A320neo aircraft it planned to take from lessors this year.

In terms of international lessors with the most significant exposure to the Russian market, ch-aviation research shows AerCap to be the most exposed with over 140 aircraft followed by SMBC Aviation Capital, Air Lease Corporation, BOC Aviation, and DAE Capital. The overall number of Russian-operated aircraft managed by foreign entities is believed to exceed 500, the bulk of which are on the Bermuda register. The British Overseas Territory in the North Atlantic Ocean has yet to comment on its actions to comply with UK measures against Russia.

Given an impending late March deadline for compliance to cut ties with their Russian clients, Russian media has speculated that local carriers may execute purchase clauses in their leasing contracts to circumvent the ban. However, the issue of access to maintenance and spare parts remains a key concern. As such, while there is the possibility of Russia resorting to Iranian tactics, i.e. the use of third-party proxy entities and AOCs to acquire parts, the size and sophistication of Russian carriers’ fleets (A350, B737NG, A320neo/ceo, B777, A330 families) would make this particularly difficult to implement successfully.

In terms of aerial access, all European Union member states as well as Albania, Iceland, Norway, and the United Kingdom in barring Russian aircraft, and by extension Russian airlines, from their respective airspaces. Russia has reciprocated in kind with tit-for-tat measures. S7 Airlines has since announced the unilateral suspension of all flights to the European Union from February 26 to March 13.

Although Russia’s ban will have severe repercussions given airlines from the aforementioned countries will have to find longer, more costly alternatives – Finnair (AY, Helsinki Vantaa) and SAS Scandinavian Airlines (SK, Copenhagen Kastrup) in particular – to transiting Siberian airspace en-route to Asia, the corresponding reduction in transit flights will also affect Aeroflot given it directly benefits from the fees charged by Russia’s air navigation services provider.

Kaliningrad, the Russian exclave sandwiched between Lithuania and Poland, is still able to access the Russian mainland, albeit via international airspace over the Baltic Sea.

All Russian carriers also continue to cancel flights to airports in the border region with Ukraine, as well as parts of Southern Russia and Crimea, as all or part of the affected flight information regions remain closed to civil aviation. The airports most affected in terms of traffic volume are Krasnodar, Rostov Platov, and Simferopol. Domestic flights to destinations such as Adler/Sochi or Makhachkala are operating via Kazakh airspace.

European carriers whose governments have not yet embargoed flights have also ceased services to Russia, given sanctions would prohibit their importing any spare parts to Russia should an AOG event occur.

In terms of joint ventures, Delta Air Lines (DL, Atlanta Hartsfield Jackson) and KLM Royal Dutch Airlines (KL, Amsterdam Schiphol) have also chosen to suspend their codeshare agreements with Aeroflot, while British football team Manchester United has also dumped the Russian national carrier as a sponsor.

Share