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UK, EU and US aviation industry sanctions

Authored by our Global Sanctions Team with Global Asset Finance Team

Following the events in Ukraine, various measures have been put in place by the EU, the UK and the US that are expected to have a considerable impact on the aviation and aircraft financing industry. Below we give a round-up of recent developments.

These are expected to pose significant logistical and financial challenges (with immediate ramifications) to airlines operating to and from Russia as well as to lessors and financiers with Russian airlines in their portfolio.

By the end of March 2022, European lessors will be expected to terminate the leasing of, and recover hundreds of aircraft worth $5 billion according to one estimate (this is likely to be difficult in light of restrictions on Russian airlines using European airspace and the practicalities involved with the deregistration, export and storage of the aircraft). It was reported on Sunday 27 February 2022 that an Irish lessor prevented one of its Boeing aircraft on lease to an Aeroflot subsidiary from flying back to Russia from Turkey. There were reports on Monday 28 February 2022 that a Russian airline operating a Boeing aircraft from Russia to Mexico did not fly back to Russia due to the cancellation of its insurance policy.

Over the weekend, it appears that the new restrictions also led the Dutch airline KLM to ask two planes en route to Russia to turn round mid-flight (as a result of the ban set out below, the airline would have been unable to service the aircraft on the ground in Russia to safely ensure the flight back).

 

Suspension of carrier permits and airspace restrictions

Various foreign carrier permit suspensions have occurred as a result of the Ukraine-related events as of late. For example, on 24 February 2022, the Civil Aviation Authority in the United Kingdom ("UK") suspended the foreign carrier permit held by Aeroflot.

As a countermeasure for the UK sanctions, the Russian Federation restricted entry into its airspace (including transit flights) and landing on its territory by all aircraft owned, leased or operated by a person associated with the UK or registered in the UK.

In addition, the EU banned with immediate effect on Monday 28 February 2022 Russian-owned, Russian-registered or Russian-controlled (owned, chartered or otherwise controlled by Russian legal or natural persons) aircraft from landing in, taking-off from or flying over the EU.1

In response to the airspace restrictions implemented by western countries, the Russian Federation has closed off its airspace and restricted landing on its territory for air carriers from 36 countries and air carriers registered in these countries.2 Flights from these countries might be performed with a special permit issued by the Russian Federal Air Transport Agency (Rosaviation) or the Russian Ministry of Foreign Affairs.

 

New bans on aircraft exports and related financing

On 25 February 2022, the EU imposed broad and far-reaching sanctions targeting the Russian aviation sector.
In particular, the EU's aircraft-related sanctions targeting Russia prohibit:

  1. direct or indirect export (regardless of whether the goods originate in the EU) of aircraft and aircraft parts/technology to any person in Russia or for use in Russia, as well as related technical assistance, brokering services, other services, financing or financial assistance;
  2. direct or indirect provision of insurance or reinsurance in relation to aircraft and aircraft parts/technology to any person in Russia or for use in Russia; and
  3. the provision of various aircraft-related activities to any person in Russia or for use in Russia, namely overhaul, repair, inspection, replacement, modification or defect rectifications (with the exception of pre-flight inspection) in relation to aircraft and aircraft parts/technology.

The restrictions set out under paragraph 1 above do not apply to contracts (or related ancillary contracts) established before 26 February 2022, provided they are executed prior to 28 March 2022.

Finally, the US has introduced a number of export restrictions which may also have an impact on the aviation industry more broadly. On 24 February 2022, the Bureau of Industry and Security ("BIS") of the US Department of Commerce announced new rules under the Export Administration Regulations ("EAR") that impose new license requirements for Russia to essential parts and components used in civil aircraft controlled under the Export Control Classification Number ("ECCN") 9A991.d. As such, the new US export restrictions are expected to limit Russia's ability to obtain necessary aircraft components considerably.

 

Update on aviation ban as of 2 March

The US Federal Aviation Administration ("FAA") issued a Notice to Air Mission ("NOTAM") prohibiting Russian flight operations in the territorial airspace of the United States. The prohibition includes (regardless of the state of registry of the aircraft) all Russian air carriers and commercial operators, all aircraft registered to Russia, and all Russian state aircraft. All aircraft owned, chartered, leased, operated or controlled by, for or for the benefit of, a person who is a Russian citizen are prohibited from operating to, from, within, or through US territorial airspace, except for (1) authorized humanitarian or search-and-rescue operations, (2) state aircraft granted diplomatic clearance and (3) aircraft experiencing in-flight emergencies.3

In conjunction with the FAA measure above, BIS also amended the availability of License Exception AVS for Russia and Belarus. License Exception AVS authorizes the departure from the US of foreign registry civil aircraft. In its 2 March 2022 rule, BIS limited the application of License Exception AVS to exclude any aircraft registered in, owned, or controlled by, or chartered or leased by Russia or a Russian national. As a result, any aircraft registered in, owned, or controlled by, or under charter or lease by Russia or a Russian national would require a license for export, reexport or in-country transfer from the United States.

 

1 See https://ec.europa.eu/commission/presscorner/detail/en/statement_22_1441. Limited exception for emergency landing/overflight or if authorized for humanitarian reasons.
2 The list includes 27 EU states, as well as Albania, Iceland, Norway, Canada, the UK and its territories (Anguilla, British Virgin Islands, Gibraltar, Jersey).
3 Federal Aviation Administration, Notam/Special Security Instructions (March 2, 2022), available here.

 

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