Having the right platform
Financing and leasing structures used in Russia for foreign-manufactured aircraft have now matured. Registering Russian-operated aircraft on the Bermudian or Irish aircraft register is now a customary and accepted structure used by the international aircraft leasing community to mitigate concerns relating to tax and deregistration risks. The ratification by Russia of the Cape Town Convention and Aircraft Protocol in the early 2010s has also made a major contribution to the upward growth of aviation and financing activities in the region. Notwithstanding that enforcement and repossession actions have taken place in Russia and CIS (recent examples being Transaero and VIM Airlines), those actions have been relatively “smooth” and serve as precedents for international lessors and financiers helping to understand and manage risks when conducting cross border leasing and financing in the region.
Needless to say, the international sanctions imposed on Russia owing to the “Ukrainian crisis” have jeopardised financing and leasing developments, evidenced by a financing shortfall from European and US Banks after such sanctions took effect. Nonetheless, Russian airlines have sought to obtain alternative sources from other markets or have otherwise relied on sale and leaseback arrangements involving an increasing number of global aircraft lessors, particularly from China.
Contribution by new players
Chinese and other Asian banks and aircraft leasing companies have now became major participants in Russia, in some circumstances replacing traditional Western peers. Looking for extra margin on a global plain and driven by the Chinese “belt and road” initiative aimed to re-establish old relationships, these Asian counterparts often team up with established Russian or the CIS-focused leasing companies that already possess broad local knowledge and experience (such as State Transport Leasing Company ("STLC") or AviaAM Leasing). In some circumstances, risks are shared and, in others, parties work together towards achieving common goals. There is also a growing interest of Russian leasing companies in developing and building diversified investment portfolios backed by a combination of local and Asian lessees and intentions to establish platforms physically located in Hong Kong or Singapore to achieve these purposes.
Made in Russia
While the Sukhoi Superjet 100 has yet to become a popular choice for global airlines, it should be recognised that approximately 80 aircraft of this type are currently being operated in Russia. There is also the expectation that Russian airlines will provide renewed focus on regional routes, placing the Sukhoi Superjet 100, with its up to 108 passenger seats, as a primary candidate to meet this demand. IrAero and Yamal Airlines are among those using the Sukhoi Superjet 100 and Azimut, a new domestic privately-owned airline, has a fleet consisting of this aircraft entirely. The demand should be even stronger when Sukhoi introduces a 75-seat modification driven by, according to Russian mass media, the pre-order for 100 aircraft from Russian privately-owned giant S7 Airlines. It is worth mentioning that domestic use and attraction of the Sukhoi Superjet 100 could also be attributable to the increase in government-supported financing (particularly in the context of the lack of European and US-supported financing). Taking on the experience of developing, manufacturing and marketing the Sukhoi Superjet 100, Russian aircraft manufacturers are committed to tap into the global aviation market with the introduction of the new Russian aircraft Irkut MC-21, intending to compete directly with the Airbus A320neo and Boeing 737 MAX.
These upward trends in Russia and the CIS are expected to continue in 2018 and the continued activity and developments of aviation financing and leasing in these regions will no doubt have its influence in the global aviation market. The “Russian Bear is waking up” so watch this space.