Russian Sanctions Could Dent Business Aviation Market

 - March 10, 2022, 12:39 PM

Almost 500 business aircraft with significant connections to Russia are now potentially caught up in operating restrictions and sanctions imposed by Western nations in response to the country’s invasion of Ukraine, according to aviation data group WingX. The company’s managing director, Richard Koe, said that airspace closures and threats of assets being impounded have significantly dented an otherwise positive outlook for the business aviation sector in recent weeks.

During a special briefing held at the British Business & General Aviation Association (BBGA) conference on Thursday, aircraft operators heard they face higher costs from having to reroute around Russian airspace. A day after UK officials grounded a Luxembourg-registered Global 6500 jet at Farnborough Airport, experts also warned that companies will have to be sure that they are not breaching sanctions and other restrictions, perhaps inadvertently.

“There is now a massive increase in the due diligence that needs to be done,” cautioned aviation attorney Aoife O’Sullivan, a partner with The Air Law Firm and the BBGA’s chair. She warned that companies have to determine for themselves whether an aircraft is owned by a Russian entity and acknowledged that arrangements such as fractional ownership can complicate this assessment.

According to George Galanopoulos, CEO of Luxaviation UK, the due diligence task could be extremely onerous given the widespread use of shell companies that disguise the identity of aircraft owners. He also noted that operators’ responsibilities to correctly maintain managed aircraft could now be at odds with new requirements not to facilitate the operation of Russian-owned assets.

This point was endorsed by Gama Aviation CEO Marwan Khalek, who said that management companies have a duty of care for aircraft, and failure to maintain these assets could easily be in breach of agreements with banks or leasing companies. “OEMs are now taking unilateral action in terms of whether they will supply parts and manuals, etc,” he remarked.

New rules introduced by the UK government on March 8, made it a criminal offense to breach a ban on any aircraft that has any connection to Russia through registration or ownership, even if it is chartered by Russian travelers. Galanopoulos told AIN that operators now have to be more attentive to understanding who is actually paying for the flight.

According to Koe, around 20 to 25 percent of the 469 “Russian” aircraft WingX is tracking are on Russia’s register, with many other registered offshore in jurisdictions such as Austria, Malta, and San Marino. Until Russia invaded Ukraine in the last week of February, “Russian” traffic accounted for around 4,000 flight sectors, representing a 25 percent increase in activity levels in the same period of 2019. Koe said he expects charter operators in central and Eastern Europe to be particularly impacted by a dip in demand for flights with Russian customers.

“It was a very strong part of the market,” Koe asserted. “But it plunged after the invasion and there is particular big exposure [for the industry] with larger, long-range jets. The positive sentiment we saw in January has taken a beating from this and we will see severe repercussions and a market reset this year.”