The Bermuda Civil Aviation Authority (BCAA) has suspended the airworthiness certificates of all airplanes operating under an agreement between Bermuda and the Russian Federation. The so-called provisional suspension took effect from March 12, effectively requiring what the BCAA characterized as “a significant number” of the more than 900 mostly commercial airplanes flying under the UK overseas territory’s oversight to re-register in Russia to operate. More than 500 airplanes operate under foreign registry in Russia.
In a statement, the BCAA said that international sanctions imposed on Russia have compromised its ability to properly oversee the airworthiness of Russian aircraft operating under its registry.
The move further compromises the Russian airline industry’s ability to maintain viability and credibility amid the escalating conflict in Ukraine.
The European Union last month ordered EU companies to end their lease contracts to Russian airlines by March 28 as part of a wave of sanctions imposed by the West. Meanwhile, Russian airlines essentially ceased their lease payments to international aircraft lessors in response to new pending legislation announced on March 10 that overseas payments can only be made in the grossly devalued ruble currency.
To avoid lessors seizing their assets outside Russia, the country’s civil aviation authority “recommended” that Russian airlines cease international operations apart from flights to Belarus, and flag carrier Aeroflot did so on March 8. Although Aeroflot said it would continue all domestic services, many of its leased airplanes carry Bermudian registration. The Kremlin is now considering nationalizing foreign assets in Russia, including aircraft owned by overseas banks and leasing companies, and will likely expedite any re-registration processes for its airlines.
With the EU deadline now just a week away, lessors face very significant legal and practical challenges with Russian clients. The task of trying to repossess Russia-based aircraft outside the country is made more complicated by the fact that on top of the Russian government directive not to fly on international routes, European and North American airspace has closed to Russian aircraft that might be outside the country. Western companies will also find it hard to get help from Russian law firms due to the suspension of bank transaction communications via the Swift system.
Aoife O’Sullivan, an experienced aviation attorney with The Air Law Firm, told AIN that lessors might have to leave aircraft in Russia, at least for now, to avoid liability issues. “A lease can be terminated quite quickly, but the question is how you will get the asset back,” she explained. “What’s the point of ending the lease if you don’t have the aircraft because all the risk and liability is immediately transferred back to the lessor.”
According to O’Sullivan, lawyers, at least, have anticipated such difficulties with Russia for some time. “Russia has already told airlines not to give the aircraft back, and in some ways not being able to fly over the surrounding countries is an automatic lease default,” she commented, pointing out that a precedent for the current situation could have been identified at the time of Russia’s highly contentious military involvement in Syria that started in September 2015.