In a less globalized world, be careful where you park your plane

There is perhaps no better example of globalization retreating than investors getting burned for owing planes in the wrong place.

This week Moscow claimed that nearly 800 commercial aircraft from Bermuda and Ireland have already been re-registered in its own aviation records – implying it has appropriated them – in response to the European Union’s requirement for lessors to extend contracts with Russian airlines by June 28. cancel in March. Western landlords have only repatriated 78 of their jets in Russia, officials said. Around 480 worth around $10 billion are stuck there, according to research firm Ishka.

Ireland’s AerCap operates the most jets in Russia, 145, analysts IBA said. In relative terms, however, US-based Fortress Transportation and Infrastructure Investors tops the list, with 23% of its portfolio affected by the war. Shares are down 17% and 16%, respectively, this year. Investors also own 67 Russian planes through asset-backed securities managed by companies like Carlyle and Castlelake. Senior notes in some Russian-leaning ABS have traded as low as 70 cents on the dollar, Ishka analysts said.

Airplane owners are often insured against property damage, war and confiscation. Fitch Ratings said on Monday insurers – most of them owned by Lloyd’s of London – could foot almost the entire bill, with 30% to 40% again being covered by reinsurers. She expects the impact to be manageable.

So why aren’t investors buying the downturn in lessor shares and ABS? Perhaps because the aircraft finance ecosystem is unprepared for years of litigation. Although the aircraft leasing model emerged in the 1970s, it did not come into use until the 1990s, eventually expanding to cover half of the world’s fleet. Landlords grew up in an era of globalized aviation and geopolitical calm, where treaties like the 2001 Cape Town Convention on Movable Property gave them a false sense of security.

Common sense suggests Moscow broke the rules by refusing to return planes. However, Russian officials are offering to pay the rents or even buy the jets; it is the Western companies that are not allowed by their governments to accept payments from Russia. So the legal situation is unclear and may depend on factors such as the timing of insurance cancellations or even the operator of the jets: it might be easier to apply for nationalization with a state-owned airline like Aeroflot,

said some landlords.

Part of the solution, banks and insurers hope, is that a significant chunk of lost assets could someday be recovered. You will probably be disappointed.

A jet’s value is tied to the integrity of the technical records that enable operators and financiers to determine its airworthiness. Finding gaps in records often costs around $3 million per aircraft, New York University professor David Yu estimates, and evading Western regulators’ scrutiny puts the entire fleet under suspicion. Also, Russian planes have to be cannibalized for parts, and bankruptcy proceedings show this will take years and tens of millions of dollars to reverse. Operating under such circumstances, even for a while, could bring aircraft close to scrap value.


What will be the impact of Russia’s re-registration of nearly 800 airliners? Join the conversation below.

This mess can ultimately lead to higher insurance premiums and lower aircraft values. The broader lesson is that international law may not be able to cope with rising geopolitical risks. Adding to the complications, Western investors are exposed in Russia through their funding of Chinese lessors who own 75 Russian jets, Cirium data show. Not to mention that foreign leasing companies have 806 jets worth $20 billion in China itself, and would have an even bigger problem if that country got caught up in sanctions against Russia.

Even assets that can fly can’t always stay above the fray of a fragmented world.

Russia keeps more than 400 Western planes within its borders, giving leasing companies little chance of getting them back. The move could mean billions of dollars in losses for Western insurers and problems for Russian airlines. Photo illustration: Laura Kammermann

write to Jon Sindreu at

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