Growing sanctions on Russia could cripple Russian airlines : NPR

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Businesses in Russia are struggling, including Russian airlines. For instance, they’re now primarily only flying domestically and could soon be forced to cut back on even that. NPR’s David Schaper reports on the implications.

DAVID SCHAPER, BYLINE: In the Cold War era, Russian airlines flew Russian-made planes, and Western airlines flew aircraft made in the West. But over the last 30 years, the aviation industry has become global and completely interconnected.

GEORGE DIMITROFF: The West relies on China and Russia just as much as they rely on the West.

SCHAPER: George Dimitroff is head of valuations for the aviation analytics company Cirium.

DIMITROFF: And I think these sanctions will probably demonstrate how dependent we are on each other.

SCHAPER: Exhibit A are the airplanes now used by Russian airlines, according to Yi Gao, who teaches aviation at Purdue University.

YI GAO: There are operating mostly Western-made airplanes – Airbus or Boeing. So the current ban or sanction on Russia actually will have huge impact on their operators.

SCHAPER: Close to three-fourths of the aircraft used by Russian airlines were manufactured by Boeing and Airbus, and under the sanctions, both companies are no longer providing them with spare airplane parts or maintenance and technical support services. Eddy Pieniazek of the London-based aviation advisory firm Ishka says that could make it difficult for Russian airlines to keep those planes flying.

EDDY PIENIAZEK: There’s been talk again of what they call cannibalizing other aircraft to support the flying, active ones. They might start robbing parts of some aircraft, maybe the leased aircraft, to keep their own aircraft flying.

SCHAPER: Purdue professor Gao says as they pull planes out of service, Russian airlines will likely significantly reduce the number of their flights.

GAO: Without proper maintenance and parts and equipment, I think a lot of the remote regions may lose connection to the rest of the economy, I think. That’s a threat to their domestic economy as well.

SCHAPER: Russian airlines are also losing access to funds and Western banks, the use of reservation systems and other software provided by Western vendors, and their customers cannot use their Visa, MasterCard or other Western credit cards. The largest Russian airline, Aeroflot, is majority state owned, and the Putin regime may decide to nationalize the other airlines. But there’s another problem – Russian airlines don’t own most of their planes. About 80% of them are leased, mostly from Western leasing companies. Again, George Dimitroff.

DIMITROFF: It’s over 500 aircraft currently operated by Russian airlines which are leased from Western lessors. And so now that puts these lessors in a very tricky situation.

SCHAPER: Sanctions require the lessors to terminate their leases by March 28 and repossess their aircraft. And in recent weeks, owners have been frantically trying to seize the few planes that were still flying to international destinations. But Dimitroff says all but a handful of those planes are untouchable inside of Russia.

DIMITROFF: It means that these lessors cannot get back 500 aircraft. They cannot get payment for them. And it seems like there’s no way out.

SCHAPER: Eddy Pieniazek says his firm values those leased aircraft at $10.3 billion, but he says the logistics of getting them back right now are next to impossible.

PIENIAZEK: Repossessing an aircraft takes a lot of time, takes a lot of effort. And they’ve never had to do so many so quickly and in such a short space of time. So I think, basically, it’s not going to happen.

SCHAPER: So as Russian airlines default on their payments, they’re still able to fly their planes – for now. But they may soon have to ground much of their fleet because they lack the support needed to keep the planes flying.

David Schaper, NPR News.

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