Russia has published a draft law that could prevent its airlines returning leased aircraft, including some owned by Irish companies, raising the stakes in a showdown with Western finance over $10 billion of jets.
Sanctions imposed after Russia's invasion of Ukraine give leasing firms until March 28 to free themselves from deals with Russian airlines, sparking a game of cat-and-mouse as lenders try to seize back jets - with very little success.
Under the proposed law drafted by the transport ministry, Russian airlines will pay leases in roubles throughout 2022.
If a foreign lessor terminates the agreement, a special government commission is to decide whether the aircraft can be returned or rule that the aircraft must stay in Russia.
"It is a bad offer tied to an even worse offer," said Eddy Pieniazek, head of analytics and advisory at UK-based aviation consultancy Ishka.
The rouble has plunged around 30% since Russia sent troops into Ukraine on Feb. 24, prompting sanctions from the West.
Leasing contracts are denominated in U.S. dollars, the currency in which the mainly Ireland-based leasing industry usually borrows money and pays for aircraft.
If contracts are terminated, an international treaty called the Cape Town Convention calls for airlines to return planes with minimum interference, something Western sources say is not happening though Russia insists the sanctions are improper.
"Cape Town should come into play meaning an orderly process of aircraft recovery. What they are suggesting is breaking terms of contracts for all the aircraft," Pieniazek said.
Sanctions have already cut off the supply of most aircraft and parts to Russia and forced its carriers to cancel many international flights for fear their aircraft will be seized by foreign lessors or banks.
They have also frozen much of Russia's foreign reserves and forced authorities to look for ways to limit foreign currency outflows.
For the global leasing industry, which owns more than half of the world's airliner fleet, the standoff risks what experts have described as its largest mass default, though the immediate impact is dwarfed by global groundings in the COVID-19 crisis.
The resulting flood of claims could trigger a decade-long legal battle between lessors and insurers amid uncertainty whether war-risk policies will pay out, experts say.
Lessors worry the crisis could lead to insurance contracts being cancelled amid the lack of a clear blueprint over what happens next, and are seen likely to delay taking writedowns until it is clear whether they can be compensated.
On Thursday, BOC Aviation, which has 4.8% of its assets by book value leased to Russian airlines, became one of the first lessors to voice insurance concerns.
"The international aviation insurance markets are progressively cancelling certain elements of insurance policies in relation to aircraft located in Russia or leased to Russian airlines," it said with its results.
"This is a complex and rapidly developing situation that we are monitoring closely."
In total there are almost 780 jets leased by Russian airlines, including 515 from foreign lessors.
Some 425 of these are most immediately at risk, according to consultants Ascend by Cirium.
The world's largest lessor, Dublin-based AerCap, has the largest exposure by number of units with 152 planes rented to Russian airlines, according to industry data.
It declined comment on the draft law on Thursday but said on February 28 around 5% of its fleet by net book value was on lease to airlines in Russia and that it would cease activity there.