Aeroflot looks into the abyss and threatens a domino effect

Russia’s invasion of Ukraine adds another point of uncertainty to the air sector. The airlines of the Western world are prohibited from flying over Vladimir Putin’s country and have been forced to cancel flights and modify routes to avoid passing through this airspace. But the worst part is not being borne by Western companies, it is being borne by Russian airlines which, in addition to having numerous limitations on the use of airspace, are suffering sanctions from companies around the world that provide key services to your daily operations. This has placed the Russian airlines, with the public Aeroflot in the lead, on the brink of the abyss. But not only them.

One of the most important sanctions that the European Union has imposed on Russia is that its aircraft rental companies – normally airlines do not operate with their own aircraft, they rent them to lessors – must recover the aircraft that have been leased to Russian companies before the next March 28. According to sector calculations, this measure would mean the return of almost immediate 520 aircraft to leasing companies that, in a kind of domino effect, they will stop receiving the payments from the leasing companies that, in addition, have lost their connection with the SWIFT system, which makes pending payment transactions even more difficult.

In this sense, the landlords calculate that this prohibition could cause them losses of “billions of dollars” and drag them into a difficult situation. The second domino.

Without planes, the operations of Russian companies are seriously compromised. Non-European investors can continue to maintain their contracts, but the main manufacturers, Boeing and Airbus, have announced that they will stop supplying Putin’s country with spare parts. Russia still has an ace up its sleeve and has already put on the table the possibility of keeping the aircraft instead of using leasing systems to move forward. IBA’s Peter Walter told Reuters a few days ago that “because parts are limited, we expect to see planes that are grounded in Russia being used to keep the rest of the fleet operational.” Russian websites, such as FrequentFlyers.ru, assure that not only will they not return the planes to the losors, but also that the transfer of assets could occur through a forced purchase of them in favor of the State, a kind of “nationalization” due to the blockade of Russia’s gold and foreign currency resources abroad. To justify this decision, they point out that the closure of the airspace would prevent them from returning the aircraft and that, even in the case of returning them, no one would want to keep them at this time when traffic has not yet recovered from Covid. .

Insurance and training

But even overcoming these obstacles, Aeroflot and its sister companies would still have to face more problems and the domino effect would continue to hit other segments of the aeronautical sector. Airlines are required to take out certain insurance to be able to carry out the usual operations outside the Russian borders. On the other hand, European companies and those from any country indexed in SWIFT, either cannot or do not have the facilities to establish business with companies of origin in the country of Vladimir Putin.

One more piece is the difficulties that can arise with the simulator training for pilots dependent on Airbus and Boeing. The same goes for navigation: Navblue, one of the main providers, has terminated contracts.

Aerflot doesn’t have it easy on the commercial side either. The company has stayed in the last hours without technological support of sales after Amadeus and Saber decided to cancel their contracts with the Russian public company.