Frankfurt A single lawsuit shows the dilemma facing aircraft leasing companies caused by the Ukraine war and sanctions against Russia. Under case no. 22 Civ.2070, BOC Aviation of Singapore tried to get back a cargo plane from Russian customer Air Bridge Cargo by court order. It worked, and the Boeing 747-8F in question is now in San Bernardino, California. But the customer does not want to hand out two more freighters of this type.
What reads in the files like an economic crime could have violated international regulations. And there is evidence that this did not happen in just one case.
The case began when the EU imposed drastic sanctions on Russian aviation in late February. Among other things, leasing companies had to terminate their contracts with customers in Russia by March 31. That means they had to reclaim their planes if they wanted to avoid losing their assets.
This is not so easy, as the case of BOC Aviation shows. The three Boeing 747-8Fs that the leasing company leased to Air Bridge Cargo were based in Hong Kong, Shanghai and Zhengzhou. That’s according to filings filed by the leasing company’s attorneys, Smith, Gambell & Russel LPP, in the Southern District Court of New York on March 14. Outside of Russian territory, the chances were actually good that the aircraft would be confiscated.
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Air Bridge Cargo management apparently had plans of their own. The two freighters in China were flown to Moscow at short notice on March 6, although BOC had instructed the customer to ground the planes, the lawyers’ brief reads: “In one case, after the leasing had already ended and as a result, the airworthiness certificate for the aircraft was revoked.” This means that, according to BOC, a cargo aircraft was even brought to Russia without the required registration. That would be a breach of international aviation rules.
The lawyers clearly describe what BOC did to gain access to the three planes. After the sanctions were passed by the EU and other countries, BOC received a letter from the aircraft insurer on March 1 stating that the so-called Hull War Reinsurance for Air Bridge Cargo’s three Boeing freighters was terminated. It insures severe damage, for example as a result of a war.
Planes fly back to Russia without a permit
The result: essential requirements for the leasing contracts were no longer met. On March 3, BOC informed its Russian customer that the insurance cover had been canceled and instructed that operations with the three aircraft be discontinued as soon as possible, but by March 7 at the latest. The planes should be parked outside of Russia.
On March 5, BOC again urged Air Bridge Cargo officials to park the jets where they were at the time: Hong Kong, Shanghai and Zhengzhou. A day later, the experts at BOC then had to use the Flightradar tracking service to observe how the two aircraft parked in mainland China were moving in the direction of Moscow.
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On March 6, BOC learned from Hong Kong Airport’s website that the third freighter was also scheduled to leave the airport at 11:05 p.m. local time on the same day, probably also bound for Moscow. They canceled the lease for the jet with immediate effect. At the same time, the plane was reclaimed along with all the necessary documents. At the same time, the aviation authority in Bermuda, where the jet was registered, withdrew the license.
Those responsible at Air Bridge Cargo reacted in their own way in a telephone call to BOC. The leasing company’s lawyers write that they had asked BOC for approval to let the third plane take off from Hong Kong bound for Russia. Only when this requirement had been met would they have been willing to return the other two aircraft. BOC refused.
In the end, BOC arrested the third freighter in Hong Kong after the US court issued a court order to that effect. This also applies in Hong Kong, based on an international agreement to secure leased aircraft, which most countries in the world have joined – including Russia. It is called the Cape Town Treaty and dates from 2001.
But this one case, in which the backup was successful, could remain the exception. Meanwhile, there are repeated reports that this agreement was broken by Russian airlines. For example, in early March, an Aeroflot Airbus A321 Neo owned by Irish lessor SMBC Aviation Capital should have been arrested in Egypt. The jet took off again shortly after landing, the destination: Moscow. He no longer had a valid license at the time.
Damage in the tens of billions
For BOC, as for all leasing companies, there is a lot of money at stake. The value of the third and now confiscated freighter alone is given in the court documents as $148 million. Whether BOC will eventually be able to regain access to the other two 747s remains to be seen. Air Bridge Cargo is silent, only referring to ongoing discussions with the leasing companies.
The Russian Transport Minister Vitaly Savelyev reported a few days ago that leasing providers had reclaimed 500 aircraft with a total value of around 20 billion US dollars. According to the consulting firm IBA, which specializes in aviation, there were still 523 machines from foreign aircraft financiers in Russia in mid-March. The government in the Kremlin has instructed the airlines to only operate their leased aircraft domestically. In addition, the jets can be given a new registration in Russia at short notice if this is revoked abroad.
The prospects for the lessor are correspondingly poor. Aercap, the world’s largest airline leasing company, has now reported a $3.5 billion loss to its insurer.
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