Russia is looking to buy stranded planes from Western leasing companies

DUBLIN/LONDON (Reuters) – Russian airlines have held exploratory talks with at least one major Western leasing company about using state money to buy some of the more than 400 planes stranded in Russia after its invasion of Ukraine, according to documents and sources.

The proposal, which would need EU approval and test the playing field in an economic war between Moscow and the West, could cut a multibillion-dollar bill facing lessors and insurers and allow Russian airlines to secure official ownership of planes at a potentially big discount. .

A Russian air source said the proposal is still under discussion, but some Russian officials are pessimistic about it winning EU approval.

An EU official familiar with discussions on the issue declined to comment.

Before what Moscow calls its “special military operation” in Ukraine, Russia was a major market for aircraft lessors, who bought planes from Boeing. (prevention) and Airbus (AIR.PA) They leased them to Russian airlines that wanted to avoid the upfront cost and inflexibility of buying the planes themselves.

But after Western sanctions forced the lessors to cancel those contracts, Moscow refused to allow the planes to leave, stranding $10 billion worth of aircraft in Russia and sparking claims by the lessors against their insurance companies.

Russian airlines continue to operate many aircraft, but some have struggled to secure spare parts.

Details of talks between Russian airlines and a lessor have emerged in an Irish court case where major lessors are suing insurance companies, including Lloyd’s of London (SOLYD.UL), to ensure their claims are paid.

AerCap (AER.N)SMBC Aviation Capital and Avolon, the world’s largest lessors, declined to comment on whether they were involved in talks about paying for planes from Russian airlines or their insurance companies.

EU sanctions, which cover Ireland where the majority of charter aircraft are registered, have banned the supply of aviation technology to Russian entities and set a March 28 deadline for contracts to end.

There was no indication that any of the lessors, who operate in a highly regulated sector, had breached the sanctions in any way, with industry figures saying they were exploring all options in an unprecedented situation.

Russian state funds

The Russian state’s support for the talks was demonstrated in an August 30 letter from the Transport Ministry to 23 airlines.

“Regarding the purchase of aircraft from foreign lessees, please provide information … on each aircraft that is proposed to be purchased using the resources of the National Wealth Fund,” the letter said.

It also requested “information on … the existence of an agreement with lessors and insurance companies on a plan to buy back aircraft”.

The ministry did not respond to a request for comment.

SMBC, which ranks second in the world, said in a September 15 letter released to the Irish High Court that it had spoken to Aeroflot. (AFLT.MM) And AlfaStrakhovanie insurance company for Aeroflot.

“AlfaStrakhovanie reports that Aeroflot has contacted it to explore the possibility of making ex gratia payments… to SMBC AC to settle insurance claims,” said the letter, a copy of which was made available to Reuters and others. media by the court.

The letter, reported by Irish publication The Currency, added that payment would be “for the transfer of ownership of the aircraft to the Russian insurance company or its nominee”.

SMBC, which received a $1.6 billion impairment for 34 aircraft, said in the letter that on September 2 AlfaStrakhovanie offered $644.2 million for 17 leased aircraft to Aeroflot, minus the $82 million already paid in deposits and reserves.

SMBC said in the letter that was “significantly less than the total agreed values” for the aircraft.

SMBC also said in the letter that it was approached by Elbrus Insurance Brokers LLC on behalf of Russian airline NordStar and, separately, by airline S7 to discuss “potential claims solutions.”

Aeroflot, Alphatrakhovani, Elbrus, Nordstar and S7 did not respond to requests for comment.

EU LOBBYING

SMBC said in its letter that it had engaged in pressure on the EU to facilitate a deal, specifically non-compliance with Article 3C of Regulation 833/2014.

She added that such an exception “would enable EU operating lessors to obtain permission to transfer ownership of previously leased aircraft to Russian lessees or Russian insurers”.

The lessors could argue that the agreement would enhance safety by allowing access to spare parts, said Ross Denton, head of international trading at law firm Ashurst.

But one Western financial official said any deal would face significant legal and diplomatic hurdles and that talks could be premature.

“Right now, that would be a flagrant violation of sanctions — why would governments suddenly agree to this?” The senior official said on condition of anonymity.

Additional reporting by Connor Humphreys, Gleb Stolyarov, Caroline Cohn and Tim Hever; Additional reporting by Jan Strobczewski. Written by Connor Humphreys. Edited by Alexander Smith

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