© Reuters. FILE PHOTO: Satellite imagery shows a general view of a battle group convoy in Yernya, Russia, January 19, 2022. Photo taken on January 19, 2022. 2022 Maxar Technologies/REUTERS Handout
Tim Heffer and Alison Lambert
Paris/Montreal (Reuters) – Airlines and leasing companies that control multibillion-dollar airliners are making contingency plans to freeze business with Russia if the border standoff in Ukraine turns into a military conflict.
U.S. officials have warned that Moscow could launch an attack on Ukraine after amassing more than 100,000 troops near its neighbor’s border, as the West prepares to impose tough sanctions.
Aviation industry bosses worry about the impact on relations with Russian companies. Sanctions could disrupt payments to leasing companies, and any retaliatory moves by Moscow to restrict access to Russian airspace could throw East-West trade into disarray.
“We expect an asymmetrical response from Russia,” said a Western source involved in the scenario building, adding that the West was unlikely to restrict its own airspace in the first place.
Air corridors between Europe or North America and parts of Asia span Russia, making its 26 million square kilometers (10 million square miles) of airspace a key intersection.
Freight is particularly active. U.S. carrier FedEx (NYSE 🙂 on Monday said it was working on an unspecified contingency plan.
Unable to use Aeroflot, airlines must divert flights to the south while avoiding tensions in the Middle East, experts say, adding significant costs as airlines face pressure and the impact of the pandemic.
The crisis has seen a resurgence of the Cold War prospect of European jets heading to North America to refuel in Anchorage and then land in destinations like Tokyo, according to some reports, pushing the economy to rock bottom for those flights.
So far, no airline has contacted Alaska’s largest airport to explore the option, which would require increased ground handling capacity, a spokesman said.
But Elisabeth Braw, a senior fellow at the American Enterprise Institute, said the situation was a reminder that Russia’s size and position on the aviation map gave it leverage that the Soviet Union couldn’t gain when the economy was less integrated.
“Moscow has so far not threatened to revoke overflight rights, but knows it has an extraordinary weapon,” Blau wrote in a Defense One column last month.
Even in the absence of official retaliation, experts say the impact on Russia’s critical overflight is difficult to predict.
“Each of these operations requires prior authorization, which is not always granted systematically. And there is every reason to believe that if things get serious, some of these requests may go unanswered,” analyst Robert Mann said.
In 2021, 8,000 Russian air traffic controllers performed an average of 194,296 transit flights, or 532 overflights per day.
That’s a 16% increase from 2020 coronavirus-suppressed levels, but still 37% below the pre-crisis traffic volume in 2019, according to the Federal Air Transport Agency.
“Under normal circumstances, this would be devastating, but traffic in Asia is lower than normal,” the Western source said.
Analysts say Russia collects huge royalties from flying over the sky.
As tensions have escalated in recent months, U.S. airlines are concerned that Russia may refuse to extend flight hours, disrupting routes to Asia, India and the Middle East.
In the event of an emergency, we have no choice but to avoid Russia and head south,” said Yuji Hirako, chairman and chief executive of ANA. “With demand for international flights so low due to the coronavirus pandemic, We may choose not to fly in an emergency. »
In October, American Airlines asked the State Department to “take urgent action” to gain more rights to fly over Russia, according to a letter from a trade group seen by Reuters. U.S. officials are expected to meet with airlines within days.
For the aircraft leasing industry, Russia has been a relative bright spot so far as airlines have largely maintained payments during the pandemic, a leasing company executive said.
While some airlines began avoiding Ukraine on Monday, lessors are considering a bigger risk in Russia.
Domhnal Slattery, chief executive of lessor Avolon, said his biggest concern was the potential sanctions against SWIFT, which would disrupt international payments transfers.
“So we’re focused on tackling that from a rent payment perspective,” he said.
Russian companies have 980 passenger planes in service, 777 of which are leased, according to analyst firm Cirium.
Of these, two-thirds, or 515 jets, with an estimated market value of about $10 billion, are leased to foreign companies.
“If deals with Russian companies are sanctioned, if waivers are not allowed, it could affect more than 500 aircraft,” said Rob Morris, Cirium’s Ascend chief adviser.