The Hong Kong-listed unit of Bank of China said in a filing on Sunday evening that it has decided to cut the net book value of 17 leased aircraft remaining under the control of Russian airlines to zero from US$803.6 million.
The company believes “it is unlikely to be able to recover those aircraft from Russia in the foreseeable future, if ever”. It has recovered only one from the country so far since the start of the war in Ukraine.
The net impact of the write-down to its pretax profit is US$580.7 million, as it will be partially offset by cash collateral of US$222.9 million from the airlines. Nevertheless, the company is not able to avoid a net loss of between US$310 million and US$330 million for the first half of the year, compared to a profit of US$254 million a year ago.
The size of BOC Aviation’s Russia-related loss is similar to that of Japan’s SMBC Aviation Capital, which, with 35 aircraft stranded in Russia, has the largest exposure to the country among Asian lessors.
Its parent Sumitomo Mitsui Finance and Leasing said in mid-May that it recorded an extraordinary loss of ¥81.96 billion (US$605 million) for the financial year that ended in March.
Most regional and global lessors acknowledged months ago that they have sustained financial losses due to European Union sanctions requiring the termination of all aircraft leases with Russian companies by March 28.
Apart from Avolon Holdings, co-owned by China’s Bohai Leasing and Japan’s Orix, which reported US$304 million in Russia-related losses, major Chinese aircraft lessors had yet to announce how they would treat their exposure to the Russian market.
According to a tally by Nikkei Asia, BOC Aviation’s announcement brings the aggregate loss by Asian aircraft lessors to about US$1.7 billion so far.
While the EU sanctions only apply to companies operating in the bloc’s member states, many Asian leasing companies base their operations in Ireland for tax reasons. In response to the sanctions, Russia has moved to allow its airlines to hold on to their leased planes and re-register them locally.
BOC Aviation’s Hong Kong-listed shares dropped almost 6% during early Monday trading. They closed 4.3% lower from last Thursday at 63.1 Hong Kong dollars in the morning session. The market was closed on Friday as it was a holiday in Hong Kong.
The Chinese lessor has a dividend policy of distributing 35% of its net profit for the full financial year. Despite expecting a net loss, the company board said it is recommending an interim dividend, without specifying the amount at this point.
BOC Aviation said in its annual report published in late April that 17 of its aircraft were trapped in Russia as of the end of March. It stopped short of saying how it would record any losses stemming from what it called a “complex and developing situation that we are monitoring closely.”
China Aircraft Leasing Group Holdings, another listed mainland aircraft lessor, said in its annual report in early April that it owned two aircraft being leased to two Russian carriers with a total value of 635.5 million Hong Kong dollars (US$81 million), but it only said it “will continue to monitor and assess the situation as it evolves”.