The Russian Federal Air Transport Agency (known as Rosaviatsiya) is once again considering a proposal to ban Russian airlines from operating foreign-registered aircraft.

Russian operators of western-built aircraft have tended not to register those aircraft in Russia (typically those aircraft have been registered in either Bermuda or Ireland). Historically, this practice has been driven by:

(a) high import taxes arising upon the registration of foreign-built aircraft in Russia; and 

(b) concerns on the part of the lessor / financier community regarding (i) Russian airworthiness standards (and the resultant remarketing issues) and (ii) the process for repossessing / de-registering aircraft from the Russian Civil Aircraft Register following an airline default (notwithstanding Russia's ratification of the Cape Town Convention).

The issue referred to at (a) above was addressed in 2019 by the passing of a bill by the Russian government allowing aircraft to be imported in to Russia with a perpetual right to be zero-rated for VAT.  Additionally, that bill allowed for existing foreign-registered aircraft to remain VAT exempt until 2023.

However, and as noted in the featured article, the passing of this bill has not achieved the desired results; presumably because of pressure from the lessors / financiers, whose concerns (as noted above) persist.  If Rosaviatsiya manages to push through the ban, it will be interesting to see how the leasing / financing industry responds.

Lessors and financiers will not want to turn their backs on such a lucrative market. However, it seems likely that it will be the Russian airlines that will ultimately pay the price for their aviation authority's stance; through higher lease rates to compensate the lessors for the actual (or perceived) increase in risk associated with registering aircraft in Russia.