CDB signs $500 million leasing agreement for provision of eight Airbus A320 Aircraft to Aeroflot

In 2017, the Henan Branch of China Development Bank (CDB) signed a $500 million agreement with AviaAM Financial Leasing China (AviaAM) — a joint venture between AviaAM Leasing (a Warsaw Stock Exchange-listed and Lithuania-headquartered aircraft leasing company) and Henan Civil Aviation Development and Investment Company (HNCA) — to lease eight Airbus A320 aircraft to Russian airliner Aeroflot for a 12-year period. The legal adviser for the transaction was DLA Piper. The first three aircraft were all delivered on the same day with two delivered in Toulouse and one in Hamburg. All eight aircraft were delivered by September 21, 2017. As a consequence of the February 24, 2022 invasion of Ukraine, Western government issued a number of sanctions on the Russian aviation and airline industry. As a result, a number of leasing companies cancelled their lease agreements with Russian airliners. Despite the cancellations, Russia acted to seize the leased aircraft to maintain a fleet of air-worthy aircraft and prevent foreign currency outflows (since leasing contracts are denominated in United States dollars) in violation of the Cape Town Convention, an international treaty that stipulates the return of leased aircraft to their owners when contracts are cancelled. On March 14, 2022, after the beginning of the 2022 Russian invasion of Ukraine, Russia passed a law to allow foreign-registered aircraft owned by non-Russian lessors to be placed on the Russian registry, making it likely that leasing companies would be unable to recover their assets. 10 Airbus A320-214 aircraft and three Airbus A321-211 owned by AviaAM Financial Leasing China — possibly including the eight leased under the 2017 agreement to Aeroflot and/or the 16 Airbus A320 and A321 aircraft leased under another 2017 agreement to Aeroflot (Project ID#67151) — were re-registered in Russia, making it likely that ICBC Leasing would fail to recover its aircraft.

Additional details

1. AidData treats this lease as a loan. A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. The lessor is the legal owner of the asset, while the lessee obtains the right to use the asset in return for regular rental payments. Under a capital lease (a financial arrangement where the lessee/borrower uses an asset and pays regular installments plus interest to the lender/lessor), rental payments are usually classified as interest and obligation payments, similarly to a mortgage (with the interest calculated each rental period on the outstanding obligation balance). 2. The cross-border DLA Piper team included lawyers from London, Shanghai and Moscow. The team was led by Finance partner Richard Skipper in London with assistance from associate Alison Balfour and included Asia senior partner Roy Chan, senior associate Luanne Lu and legal assistant David Zhang in Shanghai and partner Anna Otkina, legal director Philip Lamzin and senior associate Dmitry Perekrestov in Moscow. In addition, the team coordinated with legal counsel in Ireland, Bermuda and New York.

Number of official sources

3

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20