Aircraft lessors holding letters of credit (L/Cs) and non-refundable cash deposits may have to write off billions of euro of airplanes leased to Russian airlines, persons and entities, and possibly leases to others where the aircraft is operated in Russia as a result of new EU sanctions and retaliatory measures introduced by Moscow.

An new EU regulation introduced in response to Russia's invasion of Ukraine requires lessors based in the union to terminate aircraft leases entered into with Russian lessees by 28 March 2022.

But in what appears to be a retaliatory countermove, Moscow has passed a law re-registering foreign-owned aircraft in Russia, thus allowing domestic operators to continue flying foreign-owned aircraft domestically even if the lessors cancel their contracts.

Out of options

Moscow has prohibited Russian operators from allowing lessors to repossess aircraft or requisition or nationalise them, specifically where the aircraft are leased by Aeroflot or other state-controlled operators.

This leaves lessors with few options if they want to recover some of their losses.

Impact on Irish lessors

While all EU-based lessors are affected by the regulations, Irish lessors with L/Cs and non-refundable cash deposits are amongst those facing the highest value of write-offs.

Irish-owned aircraft leased to Russian airlines are estimated to be worth between EUR 3.5 billion (US$3.9 billion) and EUR 4.5 billion.

The lessors are seeking to recover some of their potential losses through contingency insurance cover which may protect assets impaired as a result of conflict.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.