Russian “counter-sanctions” and contractual obligation to return aircraft to its lessor
Sanctions against the Russian civil aviation, imposed by the US, the UK and the EU in late February, caused cancellation of contracts of lease between international leasing companies and the Russian airlines. The Russian lessees were requested to return the leased jets to their owners. According to media reports and the statements of the Russian minister of transport Vitaly Savelyev, the airlines refused to return most of the aircraft and engines.
The refusal was followed by insurance claims. The leasing company AerCap, reportedly having the largest exposure to the sanctions against Russia, has claimed $3.5 billion, Dubai Aerospace – $1 billion. The aggregate insured losses may be as high as $10 or even $11 billion. After lodging insurance claims, the next potential step is filing lawsuits against the Russian lessees.
It could be important, in this regard, whether the Russian counter-sanctions actually preclude the jet operators from returning jets to their lessors and pledgees. The answer to this question could influence the scope of liability of the Russian airlines for breach of their contractual obligations.
Temporary ban of export of aircraft and aircraft components from the Russian territory was imposed by the Decree of the Government of the Russian Federation no. 311 of 9 March 2022. This decree, however, provides for several exceptions. Two of them are potentially applicable to the aircraft – they could be exported for use as a means of international transport and under an individual export license. The Ministry of Transport explicitly refers to these options in its statement of 31 March 2022.
An aircraft can be exported as a means of international transport – i.e., in the course of shipment or carriage services – provided there is a flight permission of aviation authorities. However, starting from 12 May 2022 the use of this option for return of leased aircraft to lessors coming from “unfriendly countries” is explicitly prohibited1. Anyway, it remains unclear how the Russian authorities are going to control compliance with this prohibition after the aircraft leaves the Russian territory for a routine commercial flight.
Export licenses for aircraft can be obtained under point 2.1 of the Decree no. 311. They are issued by the Russian Government based on the proposals of federal executive governmental bodies approved by the Ministry of Industry and Trade and the Ministry of Economic Development. There is no published procedure for issuance of export licenses under the Decree no. 311. It could be assumed that their issuance could be initiated by the Ministry of Transport or the Federal Air Transport Agency. Therefore, it is logical for an interested operator to apply for a license directly to either of these authorities.
Meanwhile, on the 24th of March 2022 the Ministry of Transport issued the Order no. 99 on the procedure of obtaining export licenses in relation to transport vehicles based on another Decree of the Russian Government – no. 312. This governmental decree contains temporary rules of export of certain goods to the member states of the Eurasian Economic Union (the EAEU). However, one could assume, based on the above-mentioned commentary of the Ministry of Transport and the content of the Order no. 99, that export licenses could be obtained pursuant to this order for export to any country, not only the EAEU.
Therefore, notwithstanding this confusion in the structure of the Russian counter-sanctions, there is anyway a possibility to apply for an export license in relation to an aircraft or an aircraft engine.
The competent Russian authorities may issue an export license or dismiss the application at their discretion. However, the refusal to issue the license can be challenged in court, in particular, on the grounds that such refusal violates the Convention on International Interests in Mobile Equipment (Cape Town Convention) and the Protocol to the Cape Town Convention (Aviation Protocol). If an aircraft operator files a lawsuit with these arguments, it is reasonable for the plaintiff to request the lessor to join the proceedings as a third party.
Instead of filing the lawsuit against an individual refusal or together with it, an aircraft operator demanding an export license could lodge an administrative claim to repeal the entire ban of export of leased aircraft under the Decree no. 311. This claim can be based on the same argument of the inconsistency of the export ban with Cape Town Convention and the Aviation Protocol.
Therefore, even within the framework of the existing counter-sanctions, the Russian airlines still have legal remedies allowing them to fulfil their obligation to return the leased jets to the lessors. They can apply for an export license and – if this application does not succeed – they can challenge the refusal to issue the license in court.
I would assume that only those lessees, who fully exploit the abovementioned legal options available to them, will be able to invoke force majeure clause and convince a competent court or arbitration that their non-performance of contractual obligations to return aircraft was caused by compulsory measures of the Russian government.
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1 Decree of the Government of the Russian Federation of 11 May 2022 no. 850.