Kremlin Proposes Russian Airlines Buy Seized Western Jets

 - September 22, 2022, 9:12 AM
Russia’s UTAir operates 63 Western airplanes, including nine Boeing 737-800s. (Photo: Flickr: Creative Commons (BY) by Papas.Dos)

The Russian government has asked local airlines to weigh in on an idea to purchase Airbus and Boeing jets operating in the country from their Western lessors using money from the National Welfare Fund (NWF). Russian carriers continue to operate nearly 740 regional and commercial airliners owned by foreign lessors but forcefully kept in the country under the Kremlin’s order.

The Ministry of Transportation has distributed a letter on the subject to 20 key carriers. The responses from the airlines would help determine the feasibility of the plan.

In March, transportation minister Vitaly Saveliev approached the Russian government, asking for a decision on whether to buy approximately 500 foreign-made aircraft worth $20 billion from foreign lessors and banks. At the same time, he acknowledged difficulties with would-be transactions due to restrictions on financial operations with Russia imposed by the U.S. and EU.

The NWF would lend the money at a rate of 1.5 percent under a 15-year term. The airlines would have to repay the loans as a special measure to resolve the ongoing disputes with the foreign lessors. The ministry acknowledges potential difficulties associated with embedded risks and money transfers should all parties involved agree to the proposed plan. 

The ministerial letter also asks the airlines to give their estimates of residual values of the leased jetliners in their fleets and offer opinions on whether it makes sense to purchase jets more than 20 years old.

Should the plan materialize, its practical implementation will likely not go farther than 500 jets because of the restrictions on financial transactions with the Russian governmental and commercial structures imposed by the U.S., the EU, and their allies worldwide. The EU has cleared European lessors to deal with the Russians only on financial lease contracts signed before the Russian invasion of Ukraine on February 24. Yet, Russian airlines have taken most of the Airbus and Boeing jets on operational lease terms. They acquired only 50 airliners under finance leases. However, Russian interests hope Washington and Brussels will consider waivers to resolve the matter.

In a separate move, the Ministry for Transportation has made “corrections” to its earlier decision on subsidies meant to cover Russian carriers’ operational losses resulting from the hostilities in Ukraine.

President Vladimir Putin voiced the need to subsidize local carriers in March. About three months later, the ministry selected 32 suitable airlines. Having analyzed their responses, the authorities decided to cut the initial budget of 100 billion roubles ($1.63 billion) for the whole of 2022 by some 3 billion roubles for each of the summer months because airline losses totaled less than expected. Aeroflot, which had been promised subsidies worth nearly 50 billion roubles, continues to receive them without correction.