EXPLAINER-How sanctions against Russia are hitting the global aviation industry
By Jamie Freed
March 8 (Reuters) – Russia’s size and its tight integration into the global aviation industry since the end of the Cold War mean that sanctions linked to its invasion of Ukraine have outsized consequences compared to earlier freezes of Iran and North Korea.
Manufacturers, lessors, insurers and maintenance providers of Russian carriers like Aeroflot, S7 Airlines and AirBridgeCargo are among those outside Russia who are directly affected by the sanctions.
Foreign airlines, meanwhile, are reeling from rising oil prices and longer routes needed to bypass airspace over Russia, which are expected to drive up ticket prices and rates. air freight.
AIRPLANE RENTAL, IMPACT OF INSURANCE
Russian airlines rely heavily on the global aircraft leasing industry to upgrade their fleets with the latest Airbus and Boeing aircraft.
Russian carriers have 980 passenger planes in service, of which 777 are leased, according to analytics firm Cirium.
Of these, 515 jets with an estimated market value of around $10 billion are leased to foreign companies such as AerCap and Air Lease.
The European Union has given leasing companies until March 28 to terminate current rental contracts in Russia.
But recovering the planes could be difficult due to airspace bans, potential SWIFT payment transfer issues and industry concerns that the Russian government may nationalize the fleet to maintain national capacity.
Russia’s aviation authority has recommended that airlines with foreign-leased planes stop flying them abroad.
Even if planes are returned quickly, the large number that need to be placed elsewhere could drive down rental prices globally, analysts say.
Russian airlines have also been cut off from insurance and reinsurance markets in the European Union and Britain.
An insurance industry source said it was unclear whether lessors unable to repossess the planes would be covered for losses under their own policies, which usually contain clauses voiding cover in the event of penalties.
Legal action may be needed to fix the issue, said the source, who was not authorized to speak publicly.
PROHIBITIONS ON SALE, SERVICE, REPAIR AND PARTS
Russian airlines have ordered 62 planes from Airbus and Boeing, according to aviation consultancy IBA, and these deliveries will be banned.
Manufacturers and maintenance companies are also prohibited from supplying parts and services for the existing fleet.
Germany’s Lufthansa Techik said it had stopped serving Russian customers, involving hundreds of planes.
The Tass news agency reported that Russia’s transport ministry has drawn up a bill to help airlines until September 2022, which would allow maintenance by third-party companies and suspend all carrier inspections.
Some aviation executives fear the sanctions will prevent aircraft manufacturers from sharing service bulletins and airworthiness directives that are essential for safety.
Viktor Berta, vice president of aviation finance consulting at ACC Aviation, said there was also a high risk that Russian airlines would need to remove parts from their existing fleet once spares are available. exhausted.
HIGHER OIL PRICE, LONGER FLIGHT TIMES
Oil prices hit their highest level since 2008 as the United States said it was ready to ban imports of Russian oil.
Oil coverage, fuel surcharges and fare increases are among the measures airlines are taking to offset some of the pain at a time when demand remains weak due to the pandemic.
High oil prices are in some cases compounded by detour flight paths needed to avoid Russian airspace after reciprocal bans totaling up to 3.5 hours of flight time.
The biggest impact is on flights between Europe and North Asian destinations like Japan, South Korea and China, but other affected routes include those between South East Asia and China. ‘Europe and the United States and India.
Longer flight times also lead to higher personnel costs, less cargo carrying capacity and higher maintenance costs on bill-by-the-flight-hour contracts, said Brendan Sobie, an independent analyst at the aviation based in Singapore.
“Another concern is the impact on international passenger demand in some markets, leading to a setback in the overall recovery of international air travel,” he added.
(Reporting by Jamie Freed in Sydney; Additional reporting by Allison Lampert in Montreal and Alexander Cornwell in Dubai; Editing by Michael Perry)