Russian lessors to write off over $1 billion debts after Transaero bankruptcy

Due to the aircraft balance sheet cost being much higher than their fair market value, about $900 million will be lost on Transaero’s fleet alone (Photo by Transport-Photo.com)

As a result of the overestimation of the lessor’s aircraft, over one billion dollars will be written off the balance sheets of Russia’s largest leasing companies, the portfolios of which include some 150 aircraft. This was announced by CEO of Irish lessor Horizon Bizjet Sergei Koltovich during the international conference Aircraft Finance and Lease Russia & CIS that took place in Moscow on April 14.

This concerns, first and foremost, Russian government-owned leasing companies: VEB-Leasing, VTB-leasing, Sberbank Leasing, State Transport Leasing Company (STLC) and Ilyushin Finance Company (IFC), Sergei Koltovich told Russian Aviation Insider. VEB-Leasing, VTB-leasing, Sberbank Leasing, specifically, will incur substantial losses as a result. Koltovich also said that the total amount of write-offs may reach almost 2 billion dollars.

Over 40 aircraft that were finance-leased to now-defunct Transaero are currently described as in a “deplorable state”, according to Koltovich. The CEO described a common situation—when the aircraft balance value is considerably higher than its fair market value—in the case of the Boeing 777-200, the balance value may amount to 50 million dollars, whereas the market value is at 15 million dollars. The difference between the two figures will be written off from lessors’ balance accounts as losses, and the average loss per aircraft being estimated at approximately 20 million dollars. Therefore, the lessor’s losses associated with Transaero aircraft alone will amount to about 900 million dollars.

Currently, foreign leasing companies are apprehensive about leasing out large numbers of aircraft to Russian carriers as a result of the situation with Transaero.

The general state of the global aircraft leasing market is such that the share of leasing companies in the world market of new aircraft exceeds 45%. The aggregate portfolio of all leasing companies amounts to over 9000 aircraft with total market value of over 250 billion dollars. By way of comparison, the leasing companies’ share in the world market was around 25% just 10 years ago.

According to expert estimates, about 127 billion dollars will be required for financing new aircraft procurements in 2016. This figure will increase to 170 billion dollars by 2020. “We will need to raise about 830 billion dollars within the next five years. Up to 50% of the funds will be provided through lease companies,” stressed Sergei Koltovich.