Air dialogue: Russia is ready to discuss "wet" aircraft leasing

Russia is open to consultations with foreign air carriers on possible formats of cooperation related to the use of a "wet" leasing scheme, in which the aircraft is transferred along with the crew, said Dmitry Yadrov, head of the Federal Air Transport Agency. So far, no substantive initiatives have been received from foreign companies. What conditions on the part of Russia could make such a format of cooperation attractive to foreign carriers, how the use of "wet" leasing can affect the workload of Russian airlines and the development of the industry — in the Izvestia material.

Closure of needs

The use of the "wet" leasing scheme in the current conditions is forced and temporary, due to sanctions restrictions and a temporary shortage of new domestic aircraft, Sergei Grishunin, managing director of the NRA rating service, told Izvestia. Theoretically, this format is able to partially cover the needs for aircraft and flight crews in certain areas in demand.

However, the practical interest from foreign airlines remains minimal, he notes. Moreover, relying on this tool can slow down the development of the national aviation industry, as it reduces the motivation to invest in the development and production of their own aircraft.

— The key obstacle now is the sanctions risks for lessors. Carriers from friendly countries will be afraid of reputational and legal risks, including the risks of loss of margin destinations, fines and asset seizures," he said.

On routes that are not subject to sanctions restrictions, including flights to China and Southeast Asian countries, it is more profitable for foreign airlines to operate flights on their own than to lease aircraft to Russian operators, Sergei Grishunin noted.

In practice, the wet leasing scheme can be applied only in a limited format, mainly when interacting with small air carriers from Central Asian countries, Iran or, possibly, Turkey. At the same time, such agreements will be spot-based and will not be able to significantly affect the overall shortage of the fleet.

— Financially, Russia should offer premium conditions — rental rates 20-30% higher than market rates, foreign currency payments through friendly banks, advances for six months in advance, and government guarantees. Legally, insurance against asset seizure, compensation for potential sanctions through a special fund, and neutral arbitration jurisdiction — for example, the UAE or Turkey — will be required, the expert believes.

From an operational point of view, in his opinion, strict guarantees of full employment of aircraft, access to the most convenient time windows at airports, as well as benefits for airport and related payments are required. At the same time, there is a significant risk, because granting such privileges can dramatically increase airline costs when using wet leasing.

This, in turn, affects the fares for passengers, which leads to an increase in the cost of flights, a drop in demand and a weakening of interest in the rental scheme itself. In general, this tool remains highly specialized and may make practical sense only on selected routes with a pronounced seasonal or peak load.

There is indeed a shortage of transportation capacity in Russia, and there is already practical experience in using wet leasing, Andrei Zhukovsky, a leading researcher at the Institute of Regional Economics and Inter-Budgetary Relations at the Financial University under the Government of the Russian Federation, told Izvestia. In particular, Aeroflot currently operates flights to the Far East on board iFly, which helps partially close the shortage of capacity and keep prices down, including subsidized fares.

— According to minimal estimates, the market lacks about 50-80 aircraft. Ideally, these capacities could be obtained through domestic production in the next 2-3 years," the expert said. — The most realistic option at the moment looks like the Tu-214 with an additional fuel tank, by analogy with the practice of the early 2000s in the Far East. The prospects for the IL-96 still look less certain.

On the scale of the entire civil aviation market, wet leasing has short-term advantages, but also serious long-term risks, he believes. This is a common practice in global aviation, especially during peak seasons, when it is necessary to quickly transport a large number of passengers on both regular and charter flights.

In addition, the active use of wet leasing can lead to structural changes in the market, in which foreign carriers will gain significant competitive advantages. A more modern fleet, advanced on-board service and entertainment systems are capable of displacing local airlines, which threatens their gradual withdrawal from the market. In the long term, this may negatively affect the development of the domestic aircraft industry, including its commercial and export prospects.

Limited resource

Currently, the conditions for wet leasing transactions with Russia are unfavorable, Oleg Panteleev, executive director of the Aviport agency, told Izvestia. The global aviation market is actively growing, and due to high demand from foreign manufacturers and airlines, there are practically no available aircraft, because they need the existing fleet to operate in their own markets.

— In addition, airlines that could theoretically transfer aircraft to Russia under wet leasing face high risks of secondary sanctions, primarily from the EU and the United States. Such risks are unacceptable for most carriers," the expert noted.

There are also countries that are already under Western sanctions, for which the threat of secondary sanctions is not so significant. However, they usually do not have an excess fleet, and even the possible transfer of a limited number of aircraft would not have a noticeable impact on the Russian market, Oleg Panteleev explained.

"As a result, individual examples of such cooperation are possible, but it is not necessary to count on the fact that wet leasing will significantly change the situation in Russian aviation," he believes.

Foreign carriers would be interested in clear and fast regulatory procedures, guaranteed slots in popular destinations, Ivan Abramov, first deputy chairman of the Federation Council Committee on Economic Policy, Senator from the Amur Region, told Izvestia. For Russia, wet leasing can temporarily close the fleet deficit and preserve the route network. It can also encourage airlines to improve their service. But without clear restrictions, there is a risk that profitable destinations will be transferred to foreign operators and weaken the positions of Russian carriers.

Izvestia sent a request to the Federal Air Transport Agency and the Ministry of Transport, but no responses had been received at the time of publication.