Airlines are looking for a way to pay for Western aircraft without violating sanctions

Russian carriers are discussing a scheme that would allow them to pay for Western aircraft without violating sanctions. Aeroflot CEO Sergei Aleksandrovsky said the group was negotiating an “insurance settlement” for 47 aircraft under operating lease. It implies the payment of compensation to foreign lessors at the expense of the NWF. EU sanctions do not apply to insurance payments, which makes such calculations theoretically possible. But, according to Kommersant, Russian airlines cannot agree with lessors on the residual value of the liners and the status of the payment: in the West they want to consider it as compensation for “loss of property”, which will deprive Russian carriers of deposits and increase the cost of the transaction.

Aeroflot is actively discussing an “insurance settlement” for 47 Western aircraft that are under operating lease. “The process turned out to be a little longer and more complicated than we expected,” Sergei Aleksandrovsky said at SPIEF.

According to him, if the insurance settlement is successfully completed, the aircraft will become the property of a Russian “specially formed leasing company”, to which the carrier will transfer lease payments.

“Through the leasing mechanism, the return of funds from the National Welfare Fund is ensured,” Mr. Aleksandrovsky explained. According to Kommersant, we are talking about the leasing NLK-Finance, established in December 2022. Its owner is SK NSK, and it belongs to FSUE AGAa, subordinated to the Federal Air Transport Agency.

Aeroflot has already reported that it has bought all 18 foreign aircraft under financial lease: ten Boeing 777s and eight Airbus A330s. This type of deal has been allowed under EU sanctions, as a finance lease always transfers ownership of the aircraft to the carrier at the end of the contract. But operating leasing is much more common: in it, the airline pays only part of the cost of the aircraft for the period of operation, after which it is returned to the lessor. Buy aircraft in operating leasing, as Kommersant’s sources reported, Aeroflot was counting on in the winter. At that time, according to them, the company had more than 120 aircraft under operating lease from foreign lessors.

Sources of Kommersant in other Russian airlines note that their negotiations on the insurance settlement are now suspended or difficult due to a number of contentious issues.

Firstly, the majority of Kommersant’s interlocutors interpret the EU’s explanations on allowing insurance compensation to foreign companies for aircraft as an opportunity to settle leasing and insurance contracts after the transfer of funds. But Western lessors want to formalize this as a payment of insurance compensation for the loss of property. Russian airlines do not agree to this, primarily because of financial costs. If the aircraft is declared “lost”, carriers will have to pay the cost of the aircraft, fixed in the insurance contract, which is much higher than its residual market value. In addition, in this case, foreign owners will not take into account the opened deposits of Russian carriers in the amount of compensation they receive. In March 2022, the head of the Ministry of Transport, Vitaly Savelyev, said that the volume of opened bank letters of credit exceeded 200 billion rubles. for all Russian airlines. “Lessor refuses to take into account the rather significant amount of our lost deposits, which he blocked for non-payment of the lease. We would like to take into account this amount, since there was no refusal to pay, just as there was no desire of the lessor to interact with special accounts, ”says one of the Kommersant sources.

Russian insurers, who insure the risks of Russian airlines, also do not agree that the planes were “lost”. “In March-April 2022, we began to receive claims from lessors demanding to pay the sum insured in connection with the “loss” of aircraft. We obviously disagree that the planes are lost. But at the same time, we are certainly ready to make efforts to help resolve the relationship between the parties. Leaving this question open is not in anyone’s interests,” Ilya Kabachnik, deputy general director for aviation insurance at AlfaStrakhovanie, told Kommersant.

Secondly, Western lessors want to receive guarantees that they will not fall under EU sanctions in the event that insurance disputes are settled. “Lessor let us know that he tentatively agrees with the assessment of the deal, but is not ready to move on in the absence of EU clarifications about the wording under which such payments will not be considered a fictitious deal and the supply of Western equipment to the Russian Federation,” says one of Kommersant’s sources. . Another interlocutor of Kommersant in the industry notes that in cases where settlements under leasing contracts went through US banks, temporary permission from the US authorities for interaction will also be required.

Some interlocutors of Kommersant call their negotiations “sluggish” and note that they have not yet received confirmation from the Russian authorities that in case of progress they can count on the funds of the NWF. Vitaly Savelyev said in March that the government had allocated 300 billion rubles. for the purchase of aircraft (less than $ 4 billion). A year earlier, he said that the total amount of the buyback, in terms of the residual value of the aircraft required for return, is $ 20 billion. Some interlocutors of Kommersant fear that all allocated funds will be used exclusively in the interests of Aeroflot. On the other hand, Kommersant’s interlocutor in one of the largest companies considers these fears to be premature, since the most difficult thing must first be implemented – to agree on the amounts of agreements with Western counterparties and close leasing contracts in the West.

Aigul Abdullina