I got this in my email, and posted it, it is something to think about how the sanctions are affecting Russia and the commercial sector of the aviation market. I am still in airplane school learning about my favorite Boeing.
The air transport industry and its suppliers have been hoping for a much better year in 2022. Needless to say, 2020 was the sector’s worst in history, and 2021 turned out to be better but not as good as hoped, since the recovery took longer and suffered many setbacks. Severely bruised and highly indebted, airlines in many parts of the world have been betting on the upcoming summer season for good cash flow and the beginning of balance-sheet repair.
The coronavirus pandemic is not over yet, rebuilding capacity is expensive, and now the industry is facing its next major crisis: Russia’s invasion of Ukraine. For now, it is not nearly as severe as the global health crisis, and its effects vary greatly by subsector and geography. The depth of the effect on commercial aviation will depend on how long the invasion continues and how much aggression escalates. Although nothing can be said with any certainty at this stage, some consequences are discernible already.
Russian airlines have been hit hardest. They are banned from many international markets, and lessors might repossess large parts of their fleets, a measure announced as a consequence of Western sanctions against Russia. About half of the commercial aircraft fleet in Russia is leased; according to the Aviation Week Fleet Discovery database, Aeroflot Russian Airlines leases essentially its entire fleet. Some aircraft are owned and financed by Russian lessors, but the list of international lessors that have placed aircraft with Aeroflot and its low-cost affiliate, Pobeda, reads like the who’s who of the sector: AerCap, Avolon, BOC Aviation, Dubai Aerospace, Goshawk, SMBC Aviation Capital and many others. Of course, sanctions on the export to Russia of aviation products like spare parts will soon make operating even the owned fleet challenging, if not impossible.
Lessors are taking a hit, but the exposure to the Russian airline market is generally not that high. AerCap, which leases some 100 aircraft to Aeroflot and Pobeda, says Russia comprises about 5% of its portfolio. Nonetheless, the whole process will surely be painful for everyone involved unless there is a quick resolution.
Similarly, Russia is not a major market for Western European airlines even in normal times. The coronavirus pandemic has further reduced traffic, in part because the EU has not certified Russia’s Sputnik vaccine and so severe travel restrictions remain in place for Russians.
Building up long-haul capacity to Asia will become more problematic and expensive for European, Asian and North American airlines with the closure of Siberian airspace that is routinely used for flights from North America to Southeast Asia and China or from Japan to Europe. Some connections may become unviable—Finnair has canceled services to some destinations as a consequence. Some will involve significantly longer flight times to avoid Russian airspace and thus incur higher costs. On the other hand, airlines will no longer have to pay the expensive overflight fees.
Much like for traffic to Russia, the effect on U.S. and European long-haul operators is lighter than it would have been in pre-pandemic times, as their Asia operations are still much smaller in proportion to their remaining networks.
But that does not mean the effects on operating costs can be ignored. Indirect consequences must be taken into account, especially the steep rise in the price of oil.
On the manufacturing side, Airbus and Boeing have relatively little exposure to orders from Russian carriers; their combined backlog is 89 aircraft. However, Aeroflot is due to take delivery of six Airbus A350s each in 2022 and 2023, a significant part of production at currently very low rates. Similarly, AirBridge Cargo has four Boeing 777Fs scheduled for delivery this year and another two in 2023. UTAir’s Boeing 737-8s are to be handed over starting in 2024, according to Fleet Discovery. But there is time to reallocate the aircraft if necessary.
Russia is an important supplier of raw materials, however. Aircraft- and engine-makers say they have taken the precaution of stocking up, but disruption could occur, particularly as Boeing and Airbus ramp up production.
The United Aircraft Corp.’s MC-21 is an entirely different story. Due to sanctions imposed before the invasion of Ukraine, the aircraft has undergone major changes from Western to Russian suppliers, adding several years to the development timetable. The first MC-21 was expected to be delivered by mid-2022—with Pratt & Whitney PW1400G engines. Whether that will still be possible remains to be seen. The indigenous Aviadvigatel PD-14 powerplant is slated to be certified this year, but first deliveries are not expected before 2024.
I wonder how the lessors are going to repossess their aircraft. Might be a bit of trick.
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