By Jamie Freed

(Reuters.) Russia’s growing size and its close integration with the world aviation industry means that the sanctions on Russia for invading Ukraine has far more severe consequences than the earlier freezes on Iran or North Korea.

Administration sanctions directly impact manufacturers, lessees, insurance companies, maintenance providers, and insurers of Russian carriers such as Aeroflot, S7 Airlines, and AirBridgeCargo.

In the meantime, foreign airlines are suffering from rising oil prices and long routes to get around Russia, which are likely to increase ticket prices as well as air freight costs.

AIRCRAFT LEASING AND INSURANCE IMAGING

Russian airlines have relied heavily on the global aviation leasing industry for modernizing their fleets with latest Airbus or Boeing (NYSE) aircrafts.

Russian aircraft have 980 passenger jets, of these 777 are leased according to Cirium analytics.

These 515 aircraft, with a market value estimated at about $10 billion, are being rented by foreign companies such as AerCap or Air Lease (NYSE:).

European Union granted leasing companies until March 28 to terminate current Russian rental contracts.

The Russian government may nationalize the aircraft to ensure domestic power, and there are possible airspace bans.

Russia’s aviation authorities recommended that foreign-loaned planes be withdrawn from international flights.

Analysts warn that even if planes can be returned promptly, large numbers of them needing to go elsewhere may cause rental prices to drop globally.

Russian Airlines have been also cut off from both the British and European Union insurance and reinsurance market.

A source in insurance said that it wasn’t clear if lessees who are unable to repossess aircrafts will be covered under their policies for loss. Policies typically include clauses cancelling coverage in case of sanctions.

The source said that legal action could be required to resolve the dispute.

SALES, MAINTENANCE, REPAIR & PARTS BANS

According to IBA aviation consultancy firm, Russian airlines currently have orders for 62 aircraft with Airbus or Boeing. These deliveries are prohibited.

The provision of parts and services by manufacturers or maintenance firms is also prohibited.

German Lufthansa Techik stated that it has stopped servicing Russian customers. This included hundreds of aircraft.

Tass reported that the Russian Transport Ministry had drafted a draft bill for airlines to be used until September 2022. This would allow third-party maintenance and suspend any inspections.

Some executives in aviation are worried that sanctions will prevent them from sharing airworthiness directives and service bulletins, which are crucial for safety.

Viktor Berta from ACC Aviation was vice president for aviation finance advisory and stated there was a strong risk that Russian airlines might need to take parts out of their fleet once the spares are gone.

HIGHER OIL PRICES AND LONGER FLIGHT STEPS

The United States declared that it would ban Russian oil imports and has seen oil prices soar to their highest point since 2008.

To offset the effects of the pandemic and low demand, airlines have taken measures such as oil hedging, fuel surcharges or fare increases.

The high price of oil can sometimes be compounded with the necessity to take circuitous flights to avoid Russian airspace.

It is most noticeable on the flights from Europe to north Asian destinations, such as Japan and South Korea. However, other routes are also affected including those between Europe and Southeast Asia.

According to Brendan Sobie (an independent aviation analyst, based in Singapore), longer flight times can also result in higher personnel costs and less cargo carrying capability. Additionally, contracts charged per hour will have higher maintenance costs.

He added that “another concern” is the effect on the international passenger market in certain markets. This could lead to a slowdown in international aviation’s recovery.