Those that owe: airlines will be granted a five-year grace period on lease payments
The authorities will extend the grace period for airlines to make lease payments for airplanes. Carriers have until 2030 to transfer funds to special accounts of type C, but not all of them actually do it, as the money is lying there dead weight, foreign lessors do not take them away. According to experts, the debt for one A320 airplane now may reach $3.6-5.4 million, and in five years this figure will approach $9.6-14.4 million. The total debt of the industry for almost 250 unpurchased airliners may amount to about $2.4-3.6 billion, experts say. What risks it brings for the industry - in the material of "Izvestia".
Can debts for leasing be written off?
Ministry of Transport has prepared a draft government decree allowing airlines to accumulate debts for leasing foreign aircraft until 2030. These are amendments to the government decree No. 412 of March 19, 2022, which defines a special settlement regime for aircraft leasing. Previously, businesses had the opportunity to use the special payment procedure until the beginning of 2025. The Ministry of Transport did not provide a note explaining why this norm is necessary. "Izvestia" got acquainted with the draft decree.
The document extends for a five-year period the existing system of operation and insurance of airplanes and engines re-registered in Russia due to sanctions. It also prohibits the export of equipment abroad without the authorization of a special government commission. Until 2030, airlines are allowed to fly on aircraft left in Russia, despite debts and bans of foreign owners. The permission is valid for contracts concluded with leasing companies until February 24, 2022. Presidential Decree No. 95 establishes C-type accounts in rubles and in Russian banks for such payments.
Boeing 777 passenger airplane
- Presidential decrees prohibit airlines from paying foreign lessors in any other way than in rubles using a special C-type account or through subsidiaries in the Russian Federation and friendly countries," Boris Romanov, head of projects at the law firm S&K Vertical, told Izvestia.
Carriers were offered to transfer money to C-type accounts and accumulate financial reserves for further settlement of disputes. However, not all carriers took advantage of them.
According to the Russian Association of Air Transport Operators (AEVT), although Presidential Decree No. 95 established a new settlement procedure, it does not oblige airlines to follow it. Some carriers prefer to accumulate debts rather than reserves. The funds envisaged for leasing payments are spent on current expenses on maintaining airworthiness of aircrafts, the association noted.
In November, Leonid Mokhov, General Director of NordStar Airlines, initiated a discussion of the leasing debts problem in AEVT. In his letter to the head of the association, he noted that despite the re-registration of airplanes in the Russian Federation, contracts with foreign lessors continue to be in force until the aircraft are not returned to the owners or their insurance value is paid. Only Aeroflot, Ural Airlines and S7 Airlines were able to buy back foreign airplanes using the 300 billion rubles provided by the National Welfare Fund. This is about 165 out of more than 400 airplanes that were under foreign leasing.
Aeroflot and Ural Airlines airplanes
At that time, Russian airlines feared deterioration of their financial position and revocation of operating certificates due to accumulated debts. As expected, in 2025, the business was to get the right to write off such debts for foreign airplanes. But on these amounts they would have been assessed an increasing income tax of 25% from next year. This could entail bankruptcy risks for about 30 small and medium-sized airlines, Izvestia wrote.
- Leasing payments are about $100-150 thousand per month for not new models of A320 family, - said the founder of RunAvia flight safety service Andrei Patrakov.
Thus, it turns out that the debt for one A320 airplane now may reach $3.6-5.4 million, and by 2030 this figure will approach $9.6-14.4 million, the expert calculated. The total debt of the industry for almost 250 unpurchased airliners in five years will be about $2.4-3.6 billion, he said.
Airbus A320 airplane of Aeroflot Airlines
Domestic carriers are already worried about the accumulated debt, as it may considerably complicate their position. Leonid Mokhov noted earlier that debt under Russian aviation rules is a basis for revocation of an operator's license. Therefore, the extension of Government Resolution No. 412 until 2030 legally leaves carriers in the legal field.
AEVT is working on proposals to amend the Tax Code to protect the interests of airlines, but the proposals have not yet been sent to either the Ministry of Transport or the Ministry of Finance.
The government and the Ministry of Finance recommended Izvestia to contact the Ministry of Transport, which had not responded by the time of publication. The editorial board also sent inquiries to major air carriers.
Will airlines be able to take foreign airplanes?
Airlines form reserves in their accounts, which can be used to settle claims once the sanctions are over. But not all of them do this. Sometimes leasing payments are "eaten up". In this case, carriers are in the risk zone, as the non-operating profit thus obtained may be taxed, says the aviation expert.
Some carriers hope for debt forgiveness for leasing.
- The Russian authorities unilaterally decided not to return airplanes to foreign owners. A similar decision is expected with regard to writing off debts on leasing, especially if there is no money either at airlines or in the budget of the Russian Federation for their payment, - said Andrei Patrakov.
Article 250 of the Tax Code of the Russian Federation provides for the possibility of writing off accounts payable for the collection of which the limitation period has expired.
Since the debt on lease payments has been accumulating since 2022, the period for foreign creditors to apply to the court will begin to expire in 2025, continued Boris Romanov from the law firm "S&K Vertical". But when the debt is written off, it is recognized as profit and taxed at the rate of 25%. Not all carriers will be able to pay even this amount in one lump sum.
This decree, which is necessary for the market, creates the necessary legal field in the country for the operation of foreign aircraft. At the same time, the risks of claims from lessors in foreign courts still remain, said Fyodor Borisov, chief expert of the Institute of Transport Economics and Transport Policy of the National Research University Higher School of Economics.
The government decree prepared by the Russian Ministry of Transport preserves the existing legal structure after 2022 and pushes the solution of the problem of settling conflicts with foreign lessors beyond 2030 - beyond the planning horizon of many carriers, Oleg Panteleyev, executive director of AviaPort agency, told Izvestia. According to him, now the accumulation of debts does not prevent airlines from operating, but what will happen next is a question.
If airlines form reserves on their accounts to settle claims, it will allow them to pay for airplanes in the future, when the question of lifting sanctions and restoring international traffic arises. But not all of them do it, the expert noted. In this case, carriers are in the risk zone, as the non-operating profit obtained in this way can be taxed, but its payment will not solve the problem of possible disputes with lessors and their insurers. And unresolved claims on airplanes are a guaranteed ban on flights to many countries, risks of arrest of airliners and impossibility to work with many contractors even after the sanctions are lifted, summarized Oleg Panteleyev.
