Air Lease Maintaining ‘Good Relationships’ With Russian Customers
Air Lease Corp. is maintaining “good communication” with its Russian customers and is confident that its leased aircraft will be returned, where necessary, and relationships with the carriers will leave room for future deals if the geopolitical environment permits such opportunities.
“There’s been a great deal of cooperation in recovery of aircraft, return of aircraft, and we’re making good headway in missing our exposure on a weekly basis,” Air Lease Corp. (ALC) executive board chairman Steven Udvar-Hazy said at a J.P. Morgan investor event March 16. “You can ensure that records are being properly kept and aircraft are being maintained.”
“We are complying with both the letter and the spirit of these sanctions, both on the [European Union (EU)] side and the U.S. side,” he added. “For ALC-owned aircraft, they are all U.S. sourced. And so we’re not necessarily governed on those aircraft by the EU side. But nevertheless, our dialogue is good.”
Udvar-Hazy emphasized that ALC’s exposure in Russia—29 aircraft when Russian forces invaded Ukraine on Feb. 24, Aviation Week Fleet Discovery data show—is all with private airlines, not state-run carriers such as Aeroflot.
“We have very good relationships,” he said. “The advantage also dealing with the privately owned airlines is that they very much see the endgame beyond this current crisis or believe that there is life after this crisis, and they are doing everything possible knowing that they need our aircraft and other Western supplied aircraft on the leasing side. They’re doing an excellent job of trying to manage this balance to try and work with us as corporately as possible.”
ALC’s Russian customers include Azur Air, I-Fly, Nordwind Airlines, and S7 Airlines, Fleet Discovery shows. Most of the leased aircraft are narrowbodies, including seven Airbus A321neos, six A321ceos, one Boeing 737–8, and four 737–800s.
Sanctions by the EU and others banning business deals, including aircraft leases and aftermarket support, have prompted the Putin administration to pass laws and modify regulations so that aircraft registered outside Russia can be added to the country’s registry. New airworthiness certificates are in the works as well. Aeroflot, NordStar, and Utair are among the carriers that have pulled aircraft from registries in foreign countries, such as Bermuda and Ireland, and added them to Russia’s registry.
The registration changes violate Cape Town treaty protocol, Udvar-Hazy said.
“You can’t have, under international law, a dual registration,” Udvar-Hazy said. “So, they can put whatever details they want, but it won’t be recognized by the international community.”
Airlines leveraging Putin’s laws and regulatory changes are further bolstering lessors’ war risk-related insurance claims, he added.
“I think it helps the insurance question because it demonstrates the intent to confiscate which is, I think, a critical aspect of our war risk insurance,” he said.
ALC executives did not provide specifics on the company’s recovery efforts or prospects of writing off aircraft that do not come back. They downplayed an immediate crisis, citing both financial safety nets, such as insurance and in-hand security deposits, as well as the ongoing dialogue.
“We’re not facing an impairment. We have a young fleet there,” CFO Greg Willis said. “There’s a lot of time in the impairment on those airplanes, and I think we have a pretty good position with the insurance. So, I think it’s going to be a long battle, if you will, but we think that there’s a good path to recovery.”
Despite the uncertainty created by Russia’s invasion and future business prospects between the country and the scores of nations that have put sanctions in place, ALC executives remain confident that privately owned Russian airlines will keep the big picture in mind as they navigate current headwinds.
“The private airlines, it’s their business, right?” Willis said. “They want to protect those assets as much as we want them to be protected because they want to preserve their business in the future. I think that’s another example why it’s better [to do business with private airlines in Russia than state owned].”