Bermuda’s Civil Aviation Authority removed all aircraft tied to Russia from its airworthiness registry, exposing hundreds of jetliners owned by foreign leasing firms to devaluation.
“International sanctions on the aviation sector have had a significant impact on the ability to sustain safety oversight on Russian-operated aircraft,” the authority said on its website. The agency said it’s “unable to confidently approve these aircraft as being airworthy.”
The move is likely to accelerate decisions by leasing firms that have rented out Boeing Co. and Airbus SE jetliners to Aeroflot PJSC and other Russian airlines to cancel the contracts. Irish lessors have until March 28 to do so under European Union sanctions tied to Russia’s invasion of Ukraine. Russia has already started moving planes to its local registry from Bermuda.
About 740 Russian aircraft are registered on the island, according to Bernews, which reported the action earlier. Bermuda’s aviation authority performs an essential role in assuring planes in Russia are insured and maintained to confirm their airworthiness. Without it, the jets can’t be marketed later to airlines elsewhere in the world, and lose their value.
Foreign owners have leased out jetliners to Russian operators worth an estimated $10.3 billion, according to aviation consultant Ishka.
Staying in Russia
Russian officials are keeping at least some of the planes in the country rather than allow them to be returned to owners. An official last week said more than 100 aircraft had already been re-registered there.
Foreign lessors had 523 aircraft rented to Russian operators as of March 10, according to consultant IBA. Dublin-based AerCap Holdings NV, the world’s biggest leasing firm, had 142 of the total, followed by SMBC Aviation Capital with 35. Also based in Dublin, SMBC is part of the Japanese consortium of Sumitomo Corp. and Sumitomo Mitsui Financial Group.
AerCap said in late February it will comply with EU sanctions. Its contracts in Russia have an estimated value of $2.5 billion, according to IBA. SMBC Aviation said it has has already terminated all its leases with Russian airlines.
SMBC “continues to carefully monitor developments in Ukraine and is engaged with all relevant authorities,” the company said in an email to Bloomberg. “The business will fully adhere to all relevant sanctions.”
S7 Airlines is the biggest customer of foreign leasing firms with 101 aircraft, followed by state-owned Aeroflot with 89, according to IBA. While many of the planes are older, with an average age of 12.8 years, S7 — Russia’s biggest domestic carrier—has 31 of Airbus’s newer A320neos on lease, while Aeroflot has six, the consulting firm said.
Investor exposure
Asset-backed securities tied to jets in Russia leased by Carlyle Aviation Management, Castlelake Aviation Holdings and others have been put on watch for downgrade by Kroll Bond Ratings. Leasing firms are expected to file insurance claims, leading to litigation over payouts.
The provisional suspension of Russian airworthiness certificates took effect on Sunday, according to the authority. It affects all aircraft operating under an agreement between Bermuda and the Russian Federation.
Premier David Burt previously said the island, which sits about 650 miles (1,050 km) off the coast of North Carolina and is a self-governed overseas territory of Britain, will largely follow U.K. sanctions on Russia, Bernews said.
[The headline for this article was updated to remove a reference to regulation in Bermuda.]
