Sanctions headaches could free up aircraft
“The only thing you can safely give someone on a sanctions list is a cold.”
No one hires a trade compliance lawyer for laughs. Although nearly all of them do tell that joke. With international sanctions being issued daily, they are also laughing their way to the (unlocked) bank.
The Russian invasion of Ukraine has led to a flurry of sanctions being issued by the US, EU UK, and other countries. These will be negative for some, but perhaps positive for business jet buyers.
The US has targeted Russia’s 10 largest banks. It is also blocking payments to major banks, which could make paying Russian companies – like fuel providers or airports – impossible.
But the biggest risk to Russian business aviation is business jet owners – corporates and individuals – getting sanctioned. This threat alone is stopping banks from offering finance to Russian customers and manufacturers from selling aircraft.
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Banks that have financed aircraft for oligarchs are watching updates closely. Although it can be possible to keep receiving interest payments on existing deals, many sanctioned individuals simply stop paying. We could soon see repossessions of these aircraft.
Supporting aircraft owned by someone on a sanction list is also a big risk. This also encourages owners who are sanctioned – and often banned from travelling – to sell.
“We may be about to see a lot of complicated aircraft coming up for sale,” says Alireza Ittihadieh, President & CEO at Freestream Aircraft. “Russia could become the next source of aircraft after China.”
It is important to remember that many Russian UHWNIs do not base their aircraft in the country. A large part of the fleet is in countries like Austria and Malta. The US Office of Foreign Asset Control had already been investigating at least one European operators.
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Governments also sanction individual aircraft. The US has more than 250 sanctioned aircraft – these include range between aircraft operated by Iranian airlines and business jets owned by a Russian individual accused of state-sponsored social media trolling. The UK recently targeted a Belarusian aircraft whose owner had used it to fly in Russian journalists when the state-owned broadcaster’s staff resigned in protest. Again, a lot of these aircraft are not on the Russian registry and operated outside the country. Provided maintenance to these could cause a massive headache.
Aircraft manufacturers take sanctions very seriously. They reacted quickly to sanctions that were introduced following the invasion of Crimea in 2014. But Russian clients still account for between 5% and 10% of all large jet backlogs.
Unlike in 2014, when this was a blow to sellers, these sanctions could be a good thing for the very hot aircraft market. Manufacturers can easily move customers around and buyers are desperate for large pre-owned aircraft.
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“We need to see how this develops. This could be the straw that breaks that camel’s back or because the market is so strong it could power its way through it,” says Steve Varsano, founder, The Jet Business. “But aircraft are a unique market. It does not take many aircraft to be dumped to cause a correction.”
Anyone looking to buy a sanctioned aircraft needs a good sanctions lawyer. Which unfortunately means hearing the same joke again.
For more on aviation sanctions see: www.semaphoreintel.com