The Russian aviation sector is facing hard times, as the consequences of Western sanctions are starting to unfold. If the embargo persists, reliance on foreign systems and support services is such, that it is a matter of months before most airlines go out of business. And Russian authorities have very few workaround solutions.
As of mid-March, Russian airlines were flying to fewer than 10 countries, all of which being former Soviet republics apart from Dubai and Turkey. Carriers from other countries like Serbia, Israel, or China however resume to operate flights to Russia (carriers from 22 countries in total, as reported by Transport Minister Vitaly Savelyev on March 22). Although Moscow’s considerable domestic market will sustain part of the activity of national carriers (64% of Russia’s flag carrier Aeroflot’s 2020 turnover came from domestic flights), the mutual closure of Russian and Western airspaces comes with a significant cost for the country’s airlines.
Aeroflot is the recipient of a large part of the overflight fees paid by airlines to Russia, which amount to $420mn a year for European companies alone according to the European Commission. Beyond the drying of this source of funding, the volume of bookings is already collapsing, and computer ticket sales and distribution services companies like Sabre or Amadeus IT Group have dropped Russian airlines from their global travel booking service. These services providers also enable airlines to check people in for flights, among others: air travel expert Gary Leff says they are “the entire IT backbone of the airline.”
Beyond the harsh restriction on international flights, the main concern for Russia’s commercial aviation is the end of maintenance, support and supply of spares from Western OEMs and suppliers. Out of the 980 passenger jets in service in Russia, over 340 are Airbus aircraft according to the manufacturer, while around 330 are Boeing jets according to planespotters.net’s country index.
Russia’s flag carrier Aeroflot is highly exposed, with 112 Airbus and 59 Boeing jets out of a total fleet of 180 aircraft (95%). Other carriers facing this level of exposure include S7 Airlines (which entire fleet is composed of Airbus, Boeing and Embraer jets), or UTAir (with a fleet fully composed of ATR and Boeing jets), and a few others. But make no mistake: indigenous jets are at risk as well. For example, the Sukhoi Superjet-100’s SaM-146 engine is partly manufactured by Safran Aircraft Engines, its cockpit is made by Thales, and it depends on Lufthansa Technik for support and maintenance. The Irkut MC-21, originally powered by Pratt & Whitney PW1400G engines, is now set to benefit from the indigenous Aviadvigatel PD-14 engines, but deliveries are scheduled for 2024 only….
Estimates vary, but even at reduced utilization rate and with bare minimum MRO requirements, Russian airlines can hardly continue flying their modern Western airliners beyond one or two years…
In reaction, Russian executives said the government decided to “accelerate the development” of domestic projects, or revive existing ones. Visiting a UAC production complex in Kazan a few weeks ago, Deputy Prime Minister Yuri Borisov suggested Russia could produce more Tupolev-214, an already 26-year-old plane, powered by a domestic engine – the Aviadvigtel PS-90A – and currently only produced at very low rate for special mission purposes. “The urgent matter is to restore production of domestic models to the quantity required, so that we do not experience difficulties with the transportation of Russian citizens within the country and overseas,” he said.
United Aircraft Boss Yuri Slyusar and Tupolev general director Vadim Korolev say they currently have the “necessary production facilities and competencies” to build passenger variants, but they acknowledge that they will struggle to find the qualified human resources necessary for the production ramp-up. The challenge is even more serious since the war in Ukraine has accelerated Russia’s brain drain, while foreign consultants have all vanished since Boeing and Airbus have shut their training, R&T and design facilities in the country.
The development of domestic solutions, which could take place under the authority of the Russian Interstate Aviation Committee, would represent a significant technical challenge. It would also require a serious financial input that a sanction-hit and isolated Russia – shut out from the SWIFT clearing system - would struggle to provide. Therefore, ramping up programs such as the MS-21, or even accelerating the- eventually Aviadvigatel PD-14 powered - CR929 with Chinese counterpart COMAC will prove difficult, and won’t do much in the short-term.
Another problem for Russian aircraft could come from the embargo on chips, cutting the supply from Intel, Nvidia, and the Taiwan Semiconductor Manufacturing Company. South Korea and Taiwan, the two main providers of high-end chips, are reported to comply with the American ban on chips, so is Japan, which is central to the production of chip-making materials and tools. More generally, all suppliers of semiconductors made with American technology will have to comply with the US export ban to protect themselves from secondary sanctions. On March 23, US Commerce Secretary Gina Raimondo even threatened to “shut down” any Chinese company using American technology to produce chips, then disregarding the embargo and exporting them to Russia.
Russian airlines are also losing some of their insurances, which were banned by sanctions from maintaining their contracts with customers in the Russian aerospace sector. This is all the more concerning to the carriers that some of them have important pending orders (a cumulated 62 planes are yet to be delivered to Russia by Airbus and Boeing, including 4 ready for delivery), or aircraft stationed abroad. The Russian Transport Ministry recently said that 78 Russian-owned airplanes have been seized in foreign countries. This figure most likely refers to private jets belonging to the “oligarchs”: 10 of these jets are grounded in France alone. But business jets are not the only planes concerned:
Aeroflot aircraft are still currently stuck in Geneva, Munich and Amsterdam. But the risk of seizure and absence of insurance is also a danger for lessors themselves, aviation law Laurent Chassot warned to the Swiss newspaper Le Temps: customers could turn their back to the international leasing market to dodge the cost of such political decisions in the future.
Leasing planes as hostages
While the sanctioning states ordered the mandatory termination of aircraft leasing contracts with Russian airlines, Moscow sees these hundreds of jets as key to maintaining their airline industry afloat on the short to mid-term. Depending on estimates, non-Russian lessors have around 500 passenger planes in Russia (out of the total 980 jets in the country), with a combined value of almost $10bn, half of which corresponds to European lessors. If all the leased airplanes were to leave Russia, the country would be left with roughly 100 to 200 Airbus and Boeing fully-owned aircraft, and a comparable number of Russian jets. Under the European sanctions, leasing companies were meant to recover their aircraft by the end of March. But Vladimir Putin has recently passed a bill authorizing Russian airlines to place aircraft leased from foreign companies onto… Russia’s aircraft register!
As of March 22, 800 out of a total of 1,300 planes had already been registered in Russia. But the carrier themselves are reluctant to follow this path, which could disqualify them from doing business with lessors in the future. In a move aimed to ease the relations with Western lessors, Russia has proposed to buy out their aircraft. But the proposal was obviously received with skepticism by lessors, who would place themselves in obvious breach of sanctions, were they to accept the offer.
The way forward
Should the sanctions be maintained over months or years, three solutions could help sustain the Russian fleets as the need for support and spares becomes more acute: “cannibalization”, the call to third-party suppliers, and the development of domestic support solutions. Cannibalization could especially be used for recent aircraft, such as the A320neo or the A350 for which stocks are even tighter than with other jets, and would first target engine modules.
Supplying spares from third-parties is an alternative explored by Russia. But this is a sinuous path as well: for instance, China reportedly refused to supply aircraft parts after being solicited by Russia. In addition to the hard time Russia is having to find third-suppliers (India and Turkey are often mentioned as other potential suppliers), OEMs may sometimes be able to track and identify such transactions. Moreover, the possible use of counterfeit could have a serious safety hazard on Russian passengers.
Cannibalization, third-parties and domestic support alike bring significant shortcomings. Security-wise, risks of accidents increase as carriers move away from regular sources of supply and maintenance, as it clearly happened in Iran. Over the two last decades, almost a dozen of accidents involved malfunctioning components in Iranian-operated aircraft, causing almost 1,000 casualties. The risk is for Russian aviation authorities to loosen the safety check schedules, and for airlines to change critical parts of their aircraft at the very last moment. Some airlines could wait months before seeking to replace parts of their aircraft.
Some others, however, have already started to cannibalize their jets, like Aeroflot’s low-cost subsidiary Pobeda, which cut its fleet from 41 down to 25, hoping to sustain it until the end of the year. Due to these safety concerns, the International Air Transport Association has recently voiced its opposition to sanctions placed on aircraft parts shipment and provision of support for Russian carriers. Besides, over the longer-term, the concerned aircraft could be banned from the surrounding countries’ airspace, as they would not be complying with the EASA and FAA regulation.
The overall cost of the invasion of Ukraine and subsequent sanctions for Russian aviation will be significant, as explained above. Financial indicators already give a sense of the high level of uncertainty about Russian airlines’ future: between the day before the invasion and March 24 (which marked the end of the first month of war), the value of Aeroflot's stock had already lost 37%, and this figure reached 47% as of March 28. The war is a major blow for the Russian flag carrier, which dominant position in the country had already been weakened by the pandemic, as illustrated on the chart below.
According to Eurocontrol, Aeroflot went from an average of 118 daily flights before the war to only 13, mostly domestic. While no further numbers were officially communicated about the current levels of air traffic in Russia, the furlough of 7,000 staff at the country’s largest airport (Moscow Sheremetyevo) gives an idea about the extent of the drawback. While no information leaked so far about the financial situation of most Russian airlines following the start of the war, many will surely risk temporary or definitive insolvency. As for European commercial aviation players, aviation specialist Jon Ostrower – From The Air Current - estimates that “Russia’s removal” means “the disappearance of 5% of the leasing business customer base”, “a 5% contraction in services business and 5% fewer aircraft in the business case for a new aircraft program.”
According to the European Commission's Director General for Mobility and Transport, Henrik Hololei, International sanctions are now close to achieve their goal of "destroying" Russian civil aviation.
But, as seen at the heights and the COCOM age during the cold war, Russian aerospace engineering is extremely resilient. So just don’t count it totally out yet.