Column by Aigul Abdullina on the growth of leasing rates against the backdrop of a shortage of aircraft

The Russian aviation market, which was left without access to foreign aircraft as a result of the sanctions, has become heavily dependent on domestic lessors. Back in the spring, Kommersant’s interlocutors in airlines spoke of their fears about the emergence of a new, potentially monopoly player – the state-owned NLK-Finance (see “Kommersant” dated June 16). It is assumed that it will become the new and sole owner of foreign aircraft of Russian carriers, when and if they can be bought from Western owners.

Kommersant’s sources were worried that the new owner would be able to terminate contracts and transfer aircraft to other airlines at his discretion. It can also sharply increase leasing rates in an environment where there are simply no alternative Russian aircraft. Then I did not write about these fears, which seemed exaggerated, especially since there was no real progress in the purchase of aircraft yet.

But, as it turned out, at least part of the carriers’ fears about their vulnerability to lessors against the backdrop of a fleet shortage is by no means groundless. On July 5, the State Transport Leasing Company (GTLK) announced that they were forced to revise contracts and increase rates for 37 aircraft previously owned by its foreign structures and operated, including by the Aeroflot group and S7.

Industry sources call the increase significant and are concerned that other Russian lessors may follow the example of STLC. Of course, the lessor had its own reasons: first of all, the need to service the debt to Russian holders of Eurobonds for $1.6 billion, with the proceeds from which STLC bought the aircraft. The STLC emphasized that the revision of contracts would not entail a “sensible increase” in air ticket prices, and the airlines – what an irony – “reserve the right to refuse to renegotiate contracts.”

Now it is not difficult to imagine how the new monopoly owner of Western aircraft will be able to afford the equally elegant wording: “If you don’t want it, don’t take it.” This approach will force airlines to accept high lease rates and then pass them on to ticket prices.

One can argue how much prices will rise and how airlines will balance between maintaining passenger traffic and profitability. Nevertheless, if the process of buying out Western aircraft ever gets off the ground, it would be wiser not to concentrate a large part of the fleet in the hands of one lessor. Thin competition is better than a good monopoly, even if these are all companies financed from the same budgetary source.