Russian aviation in a sanctions stranglehold

The boxer Mike Tyson famously said: “Everyone has a plan until they are punched in the mouth.” He meant it as a riposte to a reporter’s question about the supposed ability of upcoming rival Evander Holyfield to out-think the former world champion, but it certainly applies to any hopes the aviation sector might have had about a swift post-Covid recovery in 2022.

The conflict in Ukraine has sent aviation fuel prices soaring, and forced airlines to cancel or re-route services that overfly Russia and its neighbour. A block on Moscow’s titanium exports will disrupt Airbus and Boeing production, and lessors exposed to Russia wonder if they will ever be paid for or able to reclaim their aircraft. Consumer nervousness is already beginning to impact flight bookings.

However, if the industry in the West is paying a price, it is nothing compared to what faces Russia’s airlines and aerospace sector. The long-term effect of sanctions is likely to make the Covid-19-related travel restrictions of 2020 and 2021 appear like a minor business blip. They are an existential threat to the very survival of Russian aviation.

In the past couple of decades, many ordinary Russians have grown accustomed to flying abroad on vacation, not on noisy and uncomfortable Soviet-era airliners, but modern Airbuses and Boeings. For the rest of 2022 – and possibly well beyond – that will be impossible.

Aeroflot this week followed S7 in cancelling all international flights with the exception of Minsk in Belarus, after European and North American countries shut their airspace to Russian airlines. The flag-carrier will continue to operate internal flights, although with Western companies suspending the supply of parts, training services, and insurance, maintaining those services will be a struggle.

It is debatable whether Boeing or Russia’s industry will be worse hit by a decision by the US manufacturer to stop buying the country’s titanium. Both the big two aircraft makers rely on supplies from Russian firm VSMPO-Avisma – with whom Boeing even has a joint venture. However, the US firm insists its inventory and ability to source the metal elsewhere will mitigate any impact.

In another blow to the country’s economy, China has said it will halt supplies of aircraft parts to Russian aerospace companies. Sourcing from Chinese vendors had been seen as one way for Russian firms to bypass sanctions, but the plunging value of the ruble means they would be selling at a loss.

The rapidly depreciating currency is also making it very difficult for Russian customers to meet the dollar-denominated payments on more than 500 leased aircraft in service in the country. However, for lessors, repossessing assets will be tricky after Moscow drafted a new law stating that a government committee will have to approve any repatriations of aircraft to foreign owners.

Anyone passing London’s Farnborough business airport this week might have spotted evidence of how the government there is trying to penalize Putin’s inner circle. A Bombardier Global Express jet belonging to a sanctioned Russian oligarch has been impounded by the authorities and sits beside the hangars awaiting its fate.

Russian billionaires – many of whom have property in London – are frequent users of Farnborough and other private aviation gateways. However, operators are nervous about new laws that ban not just aircraft owned by singled-out individuals but any jets chartered by them. Simply agreeing to fly a banned Russian into the UK could lead to a company being punished.