Narrative
Full Description
Project narrative
In 2013, ICBC Financial Leasing Co., Ltd. (ICBCFL) entered into a $800 million facility agreement with PJSC State Transport Leasing Company (STLC) (GTLK) — a Russian state-owned leasing company — to finance the procurement of five Airbus A321s and three Boeing 777-300ERs for Russian airline Aeroflot. The lessors under the corresponding financial lease agreements are Sky High XXVI Leasing Company Limited and Sky High XLII Leasing Company Limited, companies controlled by ICBCFL. All of the aircraft were transferred to Aeroflot successfully. 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. Three Airbus A321-211 aircraft owned by ICBC Leasing — possibly amongst the five leased under the 2013 agreement to Aeroflot or amongst the six leased under a 2016 agreement to Aeroflot (Record ID#98575) — were re-registered in Russia, making it likely that ICBC Leasing would fail to recover its aircraft.
Staff comments
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. There is some evidence that the financing of the acquisition of the Boeing 777-300ERs was a later addition. On October 13, 2014, ICBCFL, STLC, and Aeroflot signed an agreement for the financing and leasing of three new Boeing 777-300ER planes. The aircraft were to be delivered in the first half of 2015 and then handed over to Aeroflot. The first aircraft arrived in March 2015. The monetary value of the October 13, 2014 financial agreement is unknown. However, it is known that a new Boeing 777-300ER costs around $320.2 million per plane. This issue warrants further investigation. 3. ICBC Financial Leasing Co. Ltd. is a subsidiary of the Industrial and Commercial Bank of China (ICBC).