Aircraft-backed bonds hit as lessors try to recover planes from Russia

The value of bonds backed by aircraft that are trapped in Russia has tumbled this month, as leasing companies struggle to repossess planes rented to Russian airlines. US and European sanctions imposed following Russia’s invasion of Ukraine prohibit the leasing of aircraft to Russian airlines and existing contracts must be terminated by the end of March. The sanctions have presented a logistical challenge to recover the aircraft that are still in Russia, with Moscow so far signalling its unwillingness to allow the planes to leave the country. Before the sanctions were imposed, non-Russian lessors had 515 planes in Russia with a combined market value of close to $10bn, according to data from Cirium, the aviation consultancy. That figure has since dropped to about 450 to 460 after counting about 50 aircraft that were already being returned and some others that appear to have been returned recently. Rating agencies have warned that the lost income from the leases, alongside the uncertainty over whether the planes can be recovered, have increased risks to bondholders in deals backed by the aircraft. A number of aircraft lessors have used asset-backed securitisation — selling bonds backed by bundles of plane leases to different airlines — to raise funds for their businesses. As the airlines repay their lease, the money flows through to pay interest and principal on the bonds, with higher-rated tranches of debt paid first. One deal from private equity group Carlyle’s aircraft leasing business issued in 2019 includes five planes leased to Russian and Ukrainian airlines, making up more than 30 per cent of the collateral backing the bonds, according to data from Fitch Ratings. The highest-rated tranche traded last week at 62 cents on the dollar, down from more than 90 cents at the end of last year.<br/>