This is how the airline industry will suffer from the war in Ukraine 1:20
New York (CNN Business) --
As Russia's economy is hit by ever-tightening Western sanctions over its invasion of Ukraine, the country's crucial airline industry could really take a hit.
Russian airlines have been virtually cut off from much of the world.
But that is the least of the sector's problems.
Russia's domestic air sector could soon become a mere remnant of what it used to be due to restrictions placed on its operations.
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Sanctions imposed by the United States and the European Union mean that the world's two largest aircraft manufacturers, Boeing and Airbus, can no longer supply spare parts or provide maintenance support to Russian airlines.
The same goes for jet engine manufacturers.
This means Russian airlines could run out of needed parts in a matter of weeks, or fly planes without equipment being replaced as often as recommended for safe operation.
"The Russian government's priority does not include consumer safety and reliability," said Charles Lichfield, deputy director of the Atlantic Council's Center for Geoeconomics, an international think tank.
Russia's major airline Aeroflot no longer has access to Saber, which used to provide the core network for the airline's ticket reservations.
And aircraft leasing companies, which own about 80% of the nearly 900 commercial planes in the Russian fleet, have been ordered to take back those planes by the end of this month.
Those leased planes have a declared value of $13.3 billion, according to data from aviation analytics company Cirium, though the true market value right now is probably a fraction of that.
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"A year from now, Russia will no longer have any kind of viable airline industry," said Richard Aboulafia, CEO of AeroDynamic Advisory.
In his view, the country's airline industry could soon find itself somewhere between the heavily sanctioned industries of Iran and North Korea.
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Airlines are crucial to Russia's economy
This poses a serious problem for Russia's overall economic activity.
Russia is the largest country in the world in terms of land mass, more than twice the size of the United States.
It needs to have a viable airline industry to keep its economy going, Lichfield said.
"The Russians don't fly as much as the Americans. They don't fly to Siberia for vacations," he said.
But the airline sector is a crucial link for companies, not only for international flights, but also for the domestic service of their energy sector, due to the need to transport engineers, other workers and equipment to their distant oil fields.
"It's an important part of the Russian economy. They need that backbone. They need a basic domestic [airline] industry to sustain themselves," Lichfield said.
The domestic operations of Russian airlines are a fraction of the size of the domestic operations of the US airline sector, with about 7% of the number of flights last year, according to data from Circium.
But unlike the US industry, it has fully recovered from the pandemic and, in fact, had 8% more domestic flights in 2021 than in 2019, while US domestic flights remain lower than the total. of 2019 by 22%.
With Russia's economy taking a beating from myriad sanctions, its economy likely won't need all those flights in 2022, or likely for years to come.
But the loss of essential parts and the possibility of the planes being impounded means that Russia's ability to recover in the future will be severely damaged.
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Planes could be seized
Some of the companies that lease planes to Russian carriers are Chinese, and China has yet to impose any sanctions of its own.
But even Chinese leasing companies may feel compelled to try to take possession of Boeing and Airbus aircraft they have leased from Russian airlines, Aboulafia said.
This is because these Chinese companies do not want to risk getting into trouble buying planes from Airbus or Boeing in the future.
"These are Western planes. I'm not sure how Chinese companies will deal with sanctions," he said.
"And most importantly, these jets will no longer be supported with parts and maintenance. It's a real problem if they lose their airworthiness certificates, which can happen if proper records are not kept, or especially if they are cannibalized for parts." .
China has already indicated that it will not send Russia spare parts for those planes, according to a report by Russia's TASS news agency, citing Valery Kudinov, head of the airworthiness department at the country's Federal Air Transport Agency.
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Russia on Thursday announced plans for a new law that would prevent such planes from leaving the country.
But that would create a situation where its airlines would have trouble leasing planes in the future, even after the sanctions end.
"Russian airlines want to do business with leasing companies. They suspect they will ultimately need planes in the future," said Betsy Snyder, a credit analyst at Standard & Poor's who follows aircraft leasing companies.
"But the powers that be in Russia tell them not to do it."
It is much easier for the global aviation sector to live without Russia, which only accounts for about 1% of total commercial aircraft purchases, than it will be for Russia to live without planes or parts from the United States and the European Union.
Russia's attempts to build its own commercial aircraft have produced aircraft of dubious safety that have found no buyers on the international market.
Can a country as big as Russia live without a modern and viable airline industry?
"It's a thesis that has never been put to the test," Aboulafia said.
"But it's about to be."
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