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Aircraft Lessors Face Turbulence from Exposure to Russia

This commentary reviews the impact of Russia’s economic sanctions on aircraft lessors.

Key highlights include:

• In response to the Russian invasion of Ukraine, the U.S. administration, the U.K. government and the European Union (EU) all have imposed broad and severe economic sanctions on Russia.

• Per Article 3c of the regulation, aircraft sales, leases, spare parts and maintenance, as well as insurance, reinsurance and loan activities are barred between EU financial institutions and the Russian aviation sector. As a result of these sanctions, aircraft lessors will have to terminate leases with Russian airlines by March 28th, 2022, to be in compliance.

• We see immediate financial impact to aircraft lessors from the disruption to their revenues and operating cash flows as near-term payments from Russian airline customers due in March are not likely to be received given the inability of Russian banks to access SWIFT.

“We see compliance with these sanctions as creating substantial operational challenges for aircraft lessors as well as creating headwinds to financial performance at a time when most lessors were firmly recovering from the unprecedented impact of the COVID-19 pandemic. Credit profiles of aircraft lessors with exposures to Russian and Ukraine are likely to be weakened.” said David Laterza, Senior Vice President, Head of Non-Bank FIG - Global FIG.