The current political crisis in Eastern Europe, with Russia starting its attack on Kyiv on 24 February, will significantly impact the World’s economy. Airlines will also have to deploy crisis teams working on redeploying capacity and aircraft. But what about those planes which are not owned by airlines but have been leased? What are the conditions imposed by the lessors and insurers in these complex cases? Let’s have a look at the topic.
The effect of the military conflict on the Ukrainian aviation market
The unstable security situation in Ukraine has started to impact the aviation market in the country severely. Airlines based in Ukraine, such as the home carrier Ukraine International Airlines (UIA), Skyup, and Bees Airlines, have been asked to park their leased aircraft outside of the country. The main reason for this request is linked to the insurance companies of the lessors, which had expressed their concerns over the risk, now confirmed, of a military conflict.
In the meantime, Western airlines like the Air France-KLM and Lufthansa groups, and SAS have suspended their services to the country. On the other hand, Russia has imposed a ban on flights operated by aircraft which are owned, leased, or operated by a legal subject associated with or registered in the UK. The response from the UK prime minister, Boris Johnson, was to prohibit Aeroflot, the Russian national airline, from flying to the island.
The Ukrainian market’s response to the crisis
UIA has announced it will continue to operate flights to and from European cities, even if its fleet is currently reduced in size because of the need to ground leased aircraft outside of the country.
Another airline with a strong focus in the Ukrainian market is the Low-Cost Carrier (LCC) Wizz Air. The Hungarian airline is said to be willing to reduce capacity in the country while it will most likely redeploy some of its aircraft in other bases. However, Oleksander Laneckij, director of consultancy at Friendly Avia Support, stated that Ukraine would remain a relevant market for the LCC.
Why aircraft should not be parked in Ukraine at the moment
The need for airlines to park their leased aircraft outside of the country comes indirectly from the leasing companies’ insurers, who have threatened to withdraw their cover on the planes.
Bruce Carman from HIVE Aero underlined that the request by the insurers is a savvy one, considering that in earlier conflict zones, like in Tripoli, during the civil war caused by the fall from power of Colonel Gaddafi, commercial aircraft generally get damaged or destroyed. Military conflicts tend to cost insurers billions of dollars, which are not recouped with premiums. Hence, the decision from lessors and insurers has been described as a good example of risk management by Carman.
For the time being, insurers are still covering international airlines operating in Ukraine.
Was a big war suddenly to start – a scenario which has been described as highly unlikely, but still possible – insurers will immediately prohibit flights over Ukraine, even including other countries in the region. In this case, insurance policies’ costs would rise exponentially. In the past, the additional cost ranged between $10,000 and $40,000 in extra payments for each flight.
For instance, Wizz Air is said to have increased its hull and war insurance for its operations in and over Ukraine. On the other hand, Pegasus’ coverage for flights in Ukraine and Crimea was cancelled as of 21 February.
What do you think of this additional threat for airlines based or operating in war zones? Let us know in the comment below!