Russia circumvents sanctions to maintain operation of $10 billion seized Boeing and Airbus aircraft
Russia circumvents sanctions to maintain operation of $10 billion seized Boeing and Airbus aircraft
Russia’s Aviation Sector Gets Creative to Keep Planes Flying Amidst Sanctions
Western sanctions against Russia have had a significant impact on the country’s aviation sector. Following Russia’s invasion of Ukraine in February 2022, western countries swiftly enacted heavy sanctions to punish Vladimir Putin. These sanctions included closing US, EU, and other allied airspace, preventing planemakers like Boeing and Airbus from sending spare parts to Russia, and stopping countries like Turkey from refueling Russian planes. The intention was to isolate Russia from the rest of the world.
In response, the Kremlin retaliated with its own sanctions. It even went so far as to seize around 500 leased western-built airliners, valued at an estimated $10 billion, according to ANBLE. Despite the attempts of many allied nations to reclaim the seized aircraft, most lessors had no choice but to forfeit their planes to Russia due to airspace restrictions and pushback from the Russian government and airlines.
However, Russia has proven to be more resilient than expected. In 2022, it managed to acquire over $14 million worth of western-made parts through underground shipments, defying the sanctions.
Creating a ‘Frankenstein Fleet’
When countries stopped supplying parts to Russian carriers like Aeroflot and S7 Airlines, these companies were forced to find alternative suppliers. Some resorted to buying second-hand parts from places like Iran and China, while others resorted to “cannibalizing” existing jets. However, this practice of robbing spare parts may render the resulting “Frankenstein fleet” worthless outside of Russia’s borders. Lessors have since written off the aircraft with little hope of recovering them. Furthermore, such un-airworthy parts could pose safety risks. With diminishing airline inventories, there is a possibility that carriers may encourage pilots and mechanics to overlook certain repairs, similar to what Aeroflot reportedly did earlier this year.
Buying off Seized Jets using Rainy-day Money
As a result of Russia’s seizure of hundreds of planes, airplane leasing companies have filed multi-billion dollar insurance claims to recoup their losses. However, many of these claims are being denied by insurers. Nevertheless, some lessors may receive compensation directly from the Kremlin.
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Recently, Russian media outlet TASS reported that the Russian government has allocated 300 billion rubles (approximately $4 billion) from Russia’s National Wealth Fund, essentially its rainy-day money, to buy back 80-90 of the foreign-made aircraft seized from lessors. Leasing companies in the EU can accept this payment due to a sanction amendment that allows for the transfer of aircraft ownership to Russian airlines if a lease agreement was signed prior to Russia’s invasion of Ukraine, and after all lease payments have been made.
Airlines such as Aeroflot, S7, Ural Airlines, RusLine, and iFly have finalized agreements and are now awaiting their National Wealth Fund funds. Russian flag carrier Aeroflot has already received a portion of the money for 10 Boeing 777-300ERs. According to TASS, Russia’s deputy minister of transport, Igor Chalik, expressed uncertainty about the specific timing of when airlines will receive the federal funds. However, he stated that “our task is to complete this program in any case by the end of September.”
As of July 1, Russia’s National Wealth Fund stood at $145.6 billion, down from $153.1 billion on June 1, according to the country’s Ministry of Finance.
Despite the difficulties imposed by sanctions, Russia’s aviation sector has managed to overcome these challenges through innovative measures. From smuggling parts to creating a “Frankenstein fleet,” the sector has shown resilience. Moreover, the government’s decision to allocate funds from the National Wealth Fund to buy back seized aircraft reflects its commitment to supporting the industry. It remains to be seen how Russia’s aviation sector will navigate these sanctions going forward, but for now, it is determined to keep its planes flying.
