CDB signs $650 million leasing agreement for provision of 16 Airbus A320 and A321 Aircraft to Aeroflot

In 2017, China Development Bank (Henan Branch) signed a $650 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 16 Airbus A320 and A321 aircraft to Aeroflot Russian Airlines. The legal adviser for the transaction was LP and King Wood Mallesons. Deliveries of the aircraft were scheduled to begin in March 2017. Four Airbus A320s were delivered in the first half of 2017, and one Airbus 321 was delivered on July 7, 2017. A sixth Airbus was delivered on August 15, 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 16 Airbus A320 and A321 aircraft leased under the 2017 agreement to Aeroflot and/or the eight leased under another 2017 agreement to Aeroflot (Project ID#67101) — 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).

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