This week’s JP Morgan 2022 Industrials Conference gave some interesting insights on how major lessors look at the current situation in Russia. The picture that emerges from this is that many key lessors don’t think that there is an imminent risk of fully writing down their leased aircraft fleets in Russia. Russian leases: no fear for full writedown of assets. Lessors mention security deposits and maintenance reserves as ‘change’ for writing down their aircraft. This is despite a law signed by Vladimir Putin that allows the Russian authorities to nationalize the foreign leased fleet in response to the sanction placed on Russia and the de-registering of Russian aircraft by Bermuda. And even when Russia nationalizes the aircraft and re-registers them in its own register, it isn’t the lessors that are exposed but the insurers. As Steven Udvar-Hazy of Air Lease Corporation (ALC) said, confiscation and nationalization trigger insurance claims for the theft of assets, but this could be a lengthy process. In a wrap-up of the three-day event, JP Morgan analysts say that “while we think it will be very hard for those with exposure to avoid impairments—and we still believe write-downs could be material—we do NOT believe all Russia assets will be written down to zero or the 75 percent impairment Moody’s is effectively assuming.” During the conference, lessors clarified their exposure in Russia. As reported, Air Lease Corporation says it has limited exposure which according to the Airfinance Journal is of some 25 aircraft valued at $757 million. AirInsight identified a higher number of leased aircraft to private Russian airlines like S7 Siberia Airlines, Nordwind, and iFly Airlines: some 31. This Airbus A321neo was leased by SMBC to Aeroflot in May 2021. (SMBC Aviation Capital) Avolon had fourteen aircraft leased in Russia, but one was returned just before the crisis started and three were outside Russia for maintenance, leaving ten inside the country. Their book value is around 1.7 percent of Avolons total portfolio. Customers include Aeroflot, Redwings, Ural Airlines, UTAir, Yamal. Avolon will try to repossess these aircraft, but in a worst-case scenario is covered by insurance. The lessor said that it doesn’t make a difference in dealing with a state-owned or private customer, saying that it is the ultimate treatment that will determine if the Russian state will return the aircraft. Aviation Capital Group (ACG) reportedly has twelve aircraft leased to Russian customers, including Redwings and S7. This represents three percent of its portfolio. It was hopeful to get some of these aircraft back in the coming weeks. Dubai Aerospace Enterprise (DAE) has eighteen aircraft placed with Aeroflot, iFly, and Nordwind and has announced it will determinate contracts for all aircraft, which are registered in Ireland. CEO Firoz Tarapore said that he has been to Russia to meet in person with lessees, which has been easier as Russia is still open for air traffic from the United Arab Emirates. AerCap, which has 133 aircraft in Russia with a 4.9 percent fleet book value, didn’t participate in the JP Morgan conference, but the lessor with the second-largest exposure did: SMBC Aviation Capital. It has leased 35 to Russian airlines like Aeroflot, Ural Airlines, and S7. On its website, it has removed Russia from its list of countries with customers. SMBC said it holds $177 million in securities against the leased aircraft and has contingent insurance for each of them and intends to make a claim if needed. Finally, Aircastle said it has ten ‘middle-aged’ single-aisle aircraft in Russia and a few widebodies, which represent four percent of book values. It has been able to repossess one Boeing 777 and an Airbus A321ceo. Russian customers include Airbridge Cargo and Ural Airlines.
