Russian measures on “nationalization” of civil aviation

On 14 March 2022 Federal law no. 56-FZ (the “Law”) authorized the Russian government to adopt special provisions on the registration of aircraft in the Russian aircraft register.

On 19 March 2022 the Russian government adopted Decree no. 411 “On the peculiarities of state registration of civil aircraft in the State Register of Civil Aircraft of the Russian Federation and the peculiarities of state registration of rights to aircraft and transactions with them” (the “Decree no. 411”; officially published on and applicable from 23 March 2022) which allows a Russian lessee of an aircraft leased from a lessor established in a country which is qualified by the Russian government as an unfriendly country to apply to the Russian aircraft registrar for registration of that aircraft in the Russian aircraft registry. Before the entry into force of Decree no. 411 only an authorized representative of the aircraft owner could apply for registration. Pursuant to Decree no. 411 the lessee is not required to provide evidence of de-registration of the aircraft by the foreign registry. It is sufficient to provide evidence that the foreign registry cancelled or suspended the certificate of airworthiness of the aircraft.

Consequently, a Russian lessee of an aircraft may now without the consent of the lessor apply to the Russian aircraft registrar for entry of the aircraft into the Russian aircraft registry and obtain a Russian tail number and certificate of airworthiness.

It appears that the foreign lessor will remain the owner of the aircraft. The Decree no. 411 expressly states that the lessee shall make payments to the lessor in accordance with the lease agreement subject to special economic measures applied by Russia (described below).

The Law and the Decree no. 411 do not expressly exclude the foreign lessor from filing a deregistration application or a mortgagee from making use of an irrevocable deregistration authority. However, one should probably not expect that the Russian aircraft registrar will satisfy such applications.

The special economic measures referred to in the Decree no. 411 were introduced on 1 April 2022 by the Decree no. 179 of the President of the Russian Federation “On the temporary rules of settlement of financial obligations in the sphere of transportation to certain foreign creditors” (the “Decree no. 179”). Pursuant to Decree no. 179, the Russian lessee of an aircraft, engine, or APU shall apply to a Russian bank of its choice which shall open an account type “S” in the name of the foreign lessor and make payments to that account in rubles at the exchange rate fixed by the Central Bank of Russia (the “CBR”) for the date of the payment. The CBR rate is fixed based on the average market rate on the previous day. Unlike commercial banks which quote buy and sell rates, the CBR fixes only one exchange rate. It is lower than the rates quoted by the Russian commercial banks for the purchase of foreign currencies. Consequently, the lessor will suffer a loss and bear the currency risk until it is able to convert the rubles into the foreign currency of payment which was agreed in the leasing contract. This procedure applies for settlements exceeding the equivalent of 10 million roubles in a calendar month based on the CBR rate fixed for the 1^st day of the relevant month. Currently, the credit of roubles to a type “S” account appears to be a dead end. Decree no. 179 refers to Decree no. 95 of the President of the Russian Federation (the “Decree no. 95”) which refers to rules established by the Ministry of Finance. The Ministry of Finance does not appear to have published those rules.

The Decree no. 179 allows Russian lessees to make leasing payments in the currency agreed in the leasing contract to the group parent company of the lessor if the group parent company is not established in an unfriendly country.

Based on the Law, the Russian government on 19 March 2022 adopted Decree no. 412 (the “Decree no. 412”; officially published on and applicable from 23 March 2022) which appears to prevent the export by the lessor of the aircraft. The lessee shall operate and maintain the aircraft in compliance with Russian regulations and insure risks with a Russian insurance company.

Based on the Decree no. 100 of the President of the Russian Federation of 8 March 2022 “On the adoption with the purpose of protection of the security of the Russian Federation of special measures in the sphere of foreign trade activity” (the “Decree no. 100”) the government of the Russian Federation adopted Decree no. 311 of 9 March 2022 “On the measures adopted for the implementation of the Decree no. 100 of the President of the Russian Federation of 8 March 2022” which prohibits the export of aircrafts with the exception of means of international transport. However, on 22 March 2022, the minister of transport Vitaly Savelyev said at a hearing of the Federation Council (upper chamber of the Russian parliament) that leased aircrafts will not be allowed to fly abroad, because “we have seized someone else’s property”.

The Constitution of the Russian Federation stipulates that international treaties, to which Russia is a party, have precedence of over national laws. The Decrees no. 411 and 412 violate the Convention on International Civil Aviation (Chicago Convention), the Convention on International Interests in Mobile Equipment (Cape Town Convention), and the Protocol to the Cape Town Convention (Aviation Protocol). However, we doubt that Russian courts will give precedence to the Chicago Convention, Cape Town Convention, and the Aviation Protocol over the Decrees described above as they are based on the protection of the national interest of the Russian Federation.