Russia has been waging war on Ukraine since late February of last year. The United States, along with the European Union and many other Allied nations, responded by introducing or significantly expanding a wide range of sanctions against the Russian regime in support for Ukraine. Since it began, the US and various other countries have banned Russian aircraft from their airspace. Russia retaliated by banning thirty-six countries from flying through its skies. Foreign airlines cut their commercial ties and plane makers such as Boeing and Airbus stopped delivering crucial spare parts to Russia. According to most international experts, it shouldn't have taken more than two weeks before commercial aviation in Russia collapsed.
Nearly one year later, however, predictions about the imminent death of Russian aviation appear to have been premature. Flight services for Russian passengers operate seemingly uninterrupted, at least on domestic routes. How can that be? "It's a combination of things," explained Richard Aboulafia, an aviation expert from the US aerospace consulting firm AeroDynamic Advisory. "Leaky sanctions are definitely a part of it…existing parts inventories, creative workarounds and cannibalism," he reported. Before the Ukraine war, Russian airlines operated more than eight hundred aircraft, almost all of them made by Western manufacturers.The latest available data provided by Aeroflot, the country's state-owned airline, shows that more than one hundred twenty million passengers used the country's airlines in 2019. More than half of them took international flights, most of which have since been cancelled amid the imposed sanctions.
Aboulafia said the thinning out of flight schedules has turned out to be a blessing for Russian airlines, allowing them to disassemble the grounded planes and maintain domestic services. "I'm sure their priority is preserving domestic air travel. When you no longer have to worry about international routes, that allows you to save a lot of miles on your fleet, and put the maintenance resources and components into that domestic capacity.” Russian airline expert Anastasia Dagaeva agrees. She claims that disassembling idled airplanes was "a possibility to secure critical components" as long as there were no other procurement options available and fewer planes needed. Russian commercial airlines currently operate almost entirely modern Western aircraft made by Boeing and Airbus.
Most of the Russian fleet are operated on leases from international companies. It’s a business model facilitated by what's called the Cape Town Convention. This international treaty was signed in the South African city in 2001, reducing the risks for creditors, and consequently, the borrowing costs to debtors, through improved legal certainty. Leasing an aircraft has several clear benefits and chief among them is affordability. Not only do airlines forgo the upfront cost associated with purchasing a jet outright, but the cost of ongoing ownership is also much lower. This means more cash on hand in the immediate, as well as over the long-term. The Cape Town Convention allowed international financiers to assume that everybody was a pretty good credit risk. "Therefore, they were eager to finance jets in emerging markets and Russia was no exception," Aboulafia explained.
As Russia began rejuvenating its commercial airliner fleet in the years after the 2001 convention, replacing its old Soviet-made aircraft, it also adopted Western maintenance schedules and airline safety standards. As those binding schedules could no longer be guaranteed by the Russian airlines in the wake of the sanctions, many investors demanded their leased aircraft back. However last March, Russian President Vladimir Putin signed into law regulations allowing the country's airlines to register their aircraft in Russia, which was a move that "effectively meant we have stolen the planes," said independent Russian aviation expert Vadim Lukashevich. "Now we are forced to steal spare parts, which has become a matter of survival for civil aviation in Russia," he explained. This plane-piracy move on the part of the Russian Government has launched an international court battle between lessors and insurers, which is bound to continue for years to come. Estimates are that lessors have lost around 600 planes to a value of $10 billion. As reported by Reuters in mid-December, aircraft lessors are now suing insurers for at least $8 billion. Leasing companies say that the aircraft are subject to theft, whereas insurers state that they are essentially undamaged although, with airlines cannibalizing their own planes for spare parts, this could be debated.
Lukashevich also said that Iran used to be a big hope for Moscow as the regime was showing how to circumvent Western sanctions in the field of aviation. A hope which, however, isn't materializing for Moscow, he added. AeroDynamic Advisory’s Richard Aboulafia thinks that Russia and Iran cannot be compared as Teheran is using mostly older models in its fleet that date back to the 1970s and 80s. Russia's modern airplanes are much more dependent on regular software updates and state-of-the-art semiconductors. "You can fake it a lot more easily with older-generation jets," he said, adding that Russia has "no internal, commercial aircraft manufacturing capability of any note" that would allow it to make up for a Western boycott on parts deliveries. Moreover, Western manufacturers are really good at keeping track of components, meaning Russia is currently cut off from parts suppliers elsewhere in the world. "I suspect you'll see a bit of a cliff falling off at some point. Because getting parts here and there, cannibalizing existing jets — that's a six-to-12-month story. Beyond that, I just don't see how that keeps going," Aboulafia said. He also thinks what could become even more dangerous to Russia's commercial aviation industry is Moscow's blatant violation of the Cape Town Convention. "I don't think there's anybody who's going to ever finance capital equipment to Russia again,” he concluded.
In late June, Russia announced plans to invest over $14 billion in its aviation industry by the end of the decade to boost domestic aircraft production. The goal is that 81 per cent of aircraft operated by the country’s airlines would be domestically produced by 2030, according to Deputy Prime Minister Yury Borisov’s comment in a televised meeting of government officials. Many analysts believe this goal will be nearly impossible to meet. The announcement was only the latest in a series of moves aimed at propping up the country’s ailing aviation sector. These include the Kremlin’s confirmation that it would invest up to $1.74 billion in the nation’s flag carrier, which comes on top of the $1.3 billion COVID-19 loans previously given to Aeroflot.
Despite the sanctions and what many would consider to be an uncertain future, Aeroflot announced on December 30 that it had bought “from an Irish lessor" ten Boeing 777-300ER aircraft that had been on long-term leases since 2013 and 2014. It's unclear how the purchase agreement came about and whether it is in violation of European Union sanctions. The latest agreement covers certain aircraft leased from VEB Leasing’s Ireland branch. It turns out that VEB Leasing is one of the largest leasing companies in Russia, which likely set up the Irish office to benefit from that country’s regulations regarding leasing. The purchase is likely to be part of a Russian effort to purchase foreign-owned aircraft with financial support from the government. Aeroflot said in the statement shared with the Russian news agency TASS that it intended to keep looking to buy more foreign-leased planes in an effort to maintain its fleet and clear its name. The statement read, "Aeroflot will continue to work on further implementation of transactions for the purchase of aircraft in order to maintain the current fleet of foreign-made aircraft in operation and expand the possibility of their operation. This approach also confirms the reliability of Aeroflot as a counterparty that responsibly fulfills its contractual obligations."
Although some nations still maintain trade relations and direct air links with Russia, the country's airlines have lost their highly lucrative European and transatlantic markets and face an uncertain future. Furthermore, Russia has lost its Council seat, and therefore its voice, on the International Civil Aviation Organization, the permanent body responsible to the United Nations General Assembly.
Until next time...safe travels.
Until the impact of restrictions are seen by the population, in restricting internal flights, the pressure will not build on Putin and he will, sadly, continue to sail through his political career in charge of Russia ...