What do the Russian sanctions mean to aviation lenders in the U.S.?
Are you considering an international aviation transaction? Given the recent Russian sanctions that the U.S. has implemented, there are significant concerns of which everyone needs to be aware. With sanctioned individuals, entities and countries changing rapidly, it is difficult to keep up with the latest developments. Overall, the situation creates an environment that makes it more challenging to lend in emerging markets, especially Eastern Europe. People often forget that sanctions apply to individuals, entities, vessels and aircraft. Even if an aircraft may be owned by a non-sanctioned individual, if it is sanctioned itself, no lender may lend against it.
How do you manage loans that involve—tangentially or directly—people who are under sanction by the U.S. government? While doing business with sanctioned individuals violates U.S., U.K. and E.U. laws, it also presents the potential for negative impacts on their reputation.
When it comes to financing aircraft sales, being under Russian sanctions is the equivalent of having your name on a no-fly list. Doing business with someone who wasn’t on the sanctions list earlier, but suddenly is, creates a challenge for lenders. Experts recommend calling an event of default on the loan and once the right to cure period is over, making every effort to retrieve the aircraft involved, which presents its own challenges in the current environment. Most loan contracts have a default clause for sanctions violations, providing ample recourse for terminating the transaction, but not necessarily a path to obtaining possession of the aircraft.
NAFA thanks Ford von Weise (Citi Private Bank) and JC Ferrer (Holland & Knight, LLP, Miami FL) for contributing to this article.
This NAFA article was originally published in Business Air, Issue 5 2022, p. 38 in May 2022.
