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Russian sanctions could cost aircraft register $25 million

An Aeroflot aircraft: the Russian airline has more than 150 aircraft registered in Bermuda and Ireland (File photograph)

Sanctions against Russia over its invasion of Ukraine would cost Bermuda $25 million in aviation revenue over 12 months, MPs heard.

Lawrence Scott, the transport minister, said that even if the restrictions lasted for just three months, the island would lose $5 million.

He explained sanctions would hit the collection of regulatory fees and revenue by the Bermuda Civil Aviation Authority, which is responsible for the regulation and safety of aviation on the island and the aircraft on the Bermuda Aircraft Registry.

Mr Scott told the House of Assembly: “As we speak right now, there are no financial impacts on the BCAA’s financial statement. If these sanctions extend for an additional three months it is projected that there could be approximately a $5 million impact.

“If these sanctions go on for 12 months it is projected that is an approximate $25 million impact.”

Budget blues

Lawrence Scott’s warning that 12 months of sanctions against Russia could lead to a $25 million reduction in aviation revenue would wipe out the BCAA’s projected $17.8 million profit for the year.

The BCAA’s budget for 2022-3, published this week in the Official Gazette, showed projected revenue of $32 million against expenses of $14.5 million.

Although some expenses would be lower if the BCAA was unable to carry out airworthiness inspections and the like, the drop in revenue could result in a loss of up to $7 million.

Mr Scott would not be drawn when asked if aircraft would be seized under the sanctions regime.

He said: “We are currently first focused on having the assets returned or make it to jurisdictions outside of sanctioned airspace so that they can be recovered by other stakeholders and partners throughout Europe.”

Mr Scott said earlier that the BCAA’s ability to get paid by aircraft operators on its register may also be hampered by a ban on Russian banks from international money transfer systems.

He added aircraft affected by sanctions against Russia or Belarus may also be withdrawn from service, although he did not say how many aircraft may be affected.

Mr Scott said the situation on sanctions was “very fluid” and he would update the House as early as next week.

He twice said his remarks were confined to the financial impact of the sanctions and not on the foreign policy positions behind them.

Scott Pearman, an Opposition MP, asked Mr Scott why he had made the distinction.

Mr Scott said the BCAA dealt with Government House on foreign policy questions which fell outside the remit of the transport ministry.

He added the BCAA and Ministry of Transport would comply with the sanctions but did not say if the Government would support punitive action against Russia.

Mr Pearman said he hoped the Government would because “the world is watching”.

Many aircraft on the Bermuda register are owned by leasing companies in Ireland and are leased to airlines in other countries.

The bulk of the aircraft are believed to be in service in Russia and Belarus.

Mr Scott said there were 748 aircraft on the island’s register.

He added 484 aircraft were registered through entities incorporated in Ireland through leasing companies, 174 were registered to entities incorporated in Bermuda, five were registered to United Kingdom or other Overseas Territories entities and the remaining aircraft, approximately 85, were registered to other qualified entities incorporated mainly in European Union member states.

Mr Scott said UK sanctions, which would be extended to Bermuda, would only apply to entities incorporated in the UK, except where there was funding from an EU bank or there was an EU director on the board.

He added: “Sanctions on other entities would depend on sanctions declared by the State of incorporation.”

Mr Scott said: “For example, when EU sanctions were established on Belarus, a sanction required Irish leasing companies to withdraw their aircraft utilised by Belarus air operators.”

He added financial sanctions on Russia could also affect the register.

Mr Scott explained: “Many of the major Russian banks have been banned from the Swift system, making it difficult for BCAA to receive payment for regulatory services.

“It goes without saying financial sanctions are complex – as such, BCAA has engaged its legal counsel to ensure that it does not violate these sanctions.”

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Published March 05, 2022 at 8:07 am (Updated March 05, 2022 at 8:07 am)

Russian sanctions could cost aircraft register $25 million

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