Ukraine Sanctions May Stifle Russia’s Commercial Aviation Growth For 10 Years

By David Stewart, Sam Sargent, and Carlo Franzoni

_{David is a London-based Oliver Wyman aviation partner who also supports Oliver Wyman CAVOK, the firm’s airline technical consulting business. Sam is a Boston-based principal in the aviation practice, and Carlo is a technical specialist with CAVOK in Atlanta.}

The war in Ukraine and the subsequent prohibition against selling Russia Western-made aircraft and parts are taking a toll on the Russian commercial aviation industry. While Russia has been able to keep aircraft flying and people traveling so far— albeit almost entirely to domestic destinations — the nation’s commercial in-service fleet shrank 17% in 2022 year-over-year, with more to come this year and over the next 10.

The biggest decline was in the number of widebody aircraft, which decreased 48%. That drop was prompted by the loss of most international business after economic sanctions were imposed on Russia by the United States and other North Atlantic Treaty Organization (NATO) members after its invasion of Ukraine. By 2033, the Russian fleet will be 25% smaller than it was in January 2022 — a month before Russia’s attack, according to our analysis in the recently released Global Fleet and MRO Market Forecast 2023-2033.

Taking aircraft out of service is only part of the problem Russian airlines face; the other is keeping in-service jets flying. Unable to buy Western-manufactured equipment, Russian airlines — as early as July 2022 — had reportedly started to “cannibalize” aircraft in storage for replacement parts to support aircraft that were still in service. At the end of 2022, Rosaviatsia, the Federal Agency for Air Transport in Russia, gave permission to aircraft operators to use parts from cannibalized planes on the in-service fleet, another indication that the harvesting of parts had started.

Flying less

While some gray-market parts are probably making it through via countries still doing business with Russia, it’s more likely that Russia is able to keep flying at this point because its airlines are literally flying fewer aircraft less. Based on analysis from the Global Fleet Forecast, Russia’s fleet is flying almost 28% fewer hours and cycles compared with 2019, and to state the obvious, the less an aircraft is flown, the lower its maintenance requirements.

Russia represents about 3% of the global aviation market, so while the impact is substantial for its industry and economy, it has become only a small drag on the outlook for growth worldwide. Our analysis anticipates the global fleet surpasses its January 2020 peak size before the end of the year.

Still, geopolitical tensions have had an inordinate impact on aviation over the last 12 months. Besides disruption to flight paths over Russia, Ukraine sanctions have also unsettled global markets for commodities like steel, titanium, aluminum, nickel, and oil and gas — resources critical to aviation — because of fears of a cutoff of Russian supply. Titanium, for instance, makes up 14% of an A350 aircraft, and while purchase of Russian titanium was never prohibited, many suppliers switched away from using it. Titanium prices increased sharply in 2022, only to fall significantly in 2023. Similarly, the disruption in shipments of Russian oil and gas pushed up jet fuel prices globally in 2022.

Obstacles to new Russian narrowbody

The Western sanctions also may delay Russia’s previously announced plans to produce its own narrowbody aircraft. Before the war, Russian commercial aircraft tended to rely extensively on Western-made parts, including US-made engines. To build aircraft, Russia would have to design, develop, and produce its own components and engines. An indication of the difficulties facing Russian aerospace manufacturing was the recent sale of the stake in the Sukhoi Superjet 100 program held by the Russian state-owned aerospace company, United Aircraft Corporation.

Engines are also likely to be the biggest problem for maintenance, repair, and overhaul (MRO) of the Western-made Russian fleet, according to a recent Forbes article. Fully built engines or expensive life-limited parts aren’t easily obtained on the black market, and MRO on engines is performed by a narrow circle of authorized shops — most of which operate out of the US and Europe. “If this war lasts five years, I don’t see Russia being able to fly Western commercial aircraft because all of the engines will have been burned out,” Abdol Moabery, founder of a Florida-based aircraft-parts distributor, told Forbes.

Even once the war is over, Russian aviation may find Western companies hesitant to do business after President Vladimir Putin prohibited leased Western aircraft from leaving Russia shortly after the invasion — essentially expropriating the planes. A few quick-moving lessors were able to extract a limited number, but the bulk are stuck in Russia. That hesitancy to do business with once-sanctioned countries isn’t unusual. Most are unable to pick up the business they had before sanctions, with companies in other countries fearing criticism or that sanctions will be slapped on again.

In response to Putin’s seizure of the aircraft, Western countries suspended their airworthiness certificates. Without these certificates, it would be difficult to sell the aircraft to non-Russian buyers. Most of them will end up being scrapped for parts, and those that aren’t will probably never leave Russia again.

When or if?

There is also no certainty that sanctions will be lifted in the next few years, depending on the outcome for the war. If, for instance, Russian forces managed to hold onto a significant chunk of Ukraine territory after fighting stops, it is possible Western allies would still not lift the prohibitions as the seizure would be seen as illegitimate.

Meanwhile, the Russian economy is paying a dear price for the 2022 invasion. Last year, it shrank 2.2%, according to the International Monetary Fund, the only region in the IMF World Economic Outlook for January 2023 to contract. This year and next, the economy will grow slowly, according to the IMF forecast. In 2023, the expectation is for only 0.3% growth, which would be the slowest anticipated among emerging market and developing economies.

While there’s no doubt the Russian industry will work hard to get back on a growth path, the sanctions are likely to serve as enough of an obstacle to prevent anything better than the ability to slow the decline.