(Yicai) Aug. 13 -- With Western sanctions on Russia having left Chinese-owned aircraft stranded in that country, firms such as BOC Leasing and China Export-Import Bank Leasing have faced asset losses and writedowns. But as Russia forms only a small part of their business, earnings remain strong thanks to a booming global market.

After the Russia-Ukraine conflict broke out in 2022, Western countries sanctioned the Russian aviation industry by requiring global lessors to terminate contracts with Russian airlines and take back their jets. In response, Russia ordered all foreign-leased aircraft to be re-registered as Russian assets and prohibited their return, with the government allocating USD1.23 billion to buy them.

More than half of Russia’s cargo and passenger planes are leased, and over half of them come from overseas lessors, many of which are Chinese, market insiders told Yicai.

The issue returned to the spotlight in June when London’s High Court sided with six aircraft lessors, including AerCap, the world’s largest, Dubai Aerospace Enterprise, and Merx Aviation, in their USD4.7 billion battle with insurers over planes trapped in Russia.

Avmax Group, the world’s second-largest lessor of regional jets and a unit of construction machinery giant Sunward Intelligent Equipment Group, has received about USD23 million from insurers as compensation for three planes it lent to Russian airlines and has not yet gotten back, its Changsha-based parent company announced on Aug. 11.

Also in June, Rifa Precision Machinery announced that its aircraft leasing arm Airwork had recovered only one of the six jets it had rented out to Russian client Aviastar, with the other five being counted as CNY741 million (USD103.2 million) of impaired assets in October 2022.

Bank of China’s BOC Aviation, Bohai Leasing’s Avolon, and China Aircraft Leasing under China Everbright Bank also logged their planes stuck in Russia as impaired assets in 2022.

Other Chinese companies that have leased airplanes to Russia are China Development Bank Leasing, Industrial and Commercial Bank of China Leasing, and AviaAM, a joint venture of Henan Civil Aviation Development and Investment Group and a Lithuanian leasing firm, according to information from the air transport research institute under the China Academy of Civil Aviation Science and Technology.

But losses from the planes stranded in Russia have barely weighed on Chinese lessors. For example, Avolon reported a net profit of USD145 million in the first quarter of this year, up 36 percent from a year earlier. It also set a quarterly revenue record of USD683 million from the aircraft leasing business.

Chinese aircraft leasing firms have stayed resilient mainly because leases to Russian airlines make up only a small part of their business, and because the post-pandemic rebound in global air travel, combined with delays in new aircraft deliveries, has fueled a surge in demand for leased jets.

As a result, rental rates have jumped sharply, with narrow-body passenger planes now leasing for 20 percent to 30 percent more than before the Covid-19 pandemic in 2019.

Editor: Futura Costaglione