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Airlines tackle Russia risks as Ukraine fallout widens

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© Reuters. FILE PHOTO: A passenger plane approaches Ted Stevens Anchorage International Airport on a cold and clear day in Achorage, Alaska, November 8, 2011. REUTERS/Nathaniel Wilder
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By Jamie Freed, Allison Lampert and Rajesh Kumar Singh

(Reuters) -Virgin Atlantic and British Airways both began routing flights around Russian airspace on Friday after London and Moscow banned each other’s airlines in tit-for-tat retaliation over Russia’s invasion of Ukraine.

While the extent of the longer-term fallout from the attack was unclear, airlines have been asking Anchorage Airport in Alaska about capacity, harking back to Cold War days when it was a popular refuelling hub for jets barred from Soviet airspace.

Beyond the closing of airspace over and around the conflict zone, airlines, lessors and manufacturers were all assessing the growing risks of doing business with Russia as Western nations slapped sanctions on companies, banks and individuals.

U.S. carrier Delta Air Lines Inc (NYSE:DAL) said on Friday it had suspended its codesharing service with Russia’s Aeroflot, effective immediately.

“It will be more difficult for investors to accept portfolios of aircraft assets containing Russian airlines. Nobody wants to take Russian risk today,” aviation adviser Bertrand Grabowski said, adding that fears included a lack of insurance coverage.

Ukrainian President Volodymyr Zelenskiy vowed to stay in Kyiv as his troops battled Russian invaders closing in on the capital on Friday in the biggest attack on a European state since World War Two.

Airspace in Ukraine, Moldova, parts of Belarus and in southern Russia near the Ukraine border was closed when the invasion began on Thursday, giving airlines a narrower range of routing options.

Japan Airlines cancelled its Thursday evening flight to Moscow, citing potential safety risks and Britain closed its airspace to Russian airlines, including Aeroflot, as part of a raft of punitive measures.

In response, Moscow barred British airlines from landing at its airports or crossing its airspace.

Virgin Atlantic said skirting Russia would add 15 minutes to an hour to its flights between Britain and India and Pakistan.

American Airlines (NASDAQ:AAL) Group Inc said it has re-routed its Delhi-New York flight. Rival United Airlines, however, is still using Russia’s airspace for Delhi-Chicago and Delhi-Newark flights, according to flightradar24.

The U.S. Federal Aviation Administration (FAA) on Thursday expanded the area in eastern Europe and Russia where U.S. airlines and U.S. pilots cannot operate following Russia’s invasion of Ukraine.

A United Airlines spokesperson said the new FAA directive does not affect the carrier as it has already been avoiding the airspace covered in the alert.

Logistics giant United Parcel Service Inc (NYSE:UPS) said it was avoiding restricted areas and implementing contingency plans to serve customers in Russia.

SANCTIONS RISKS

Gulf carrier Emirates said it had made minor routing changes to Stockholm, Moscow, St. Petersburg and some U.S. flights that were hit by the airspace closings following Russia’s invasion, leading to slightly longer flight times.

OPSGROUP, an aviation industry cooperative that shares information on flight risks, said any aircraft travelling through Russian airspace should have contingency plans in place for closed airspace due to risks, or sanctions.

“Russia are unlikely to initiate their own sanctions and airspace bans as they would not wish to see Aeroflot receive reciprocal bans,” OPSGROUP said. “However, they may react in response to sanctions from other states.”

The governing council of the International Civil Aviation Organization (ICAO), a U.N. body, will discuss the Ukraine conflict at a meeting on Friday, a spokesperson said.

As airlines assessed the airspace risks, they have also been hit by a spike in oil prices to more than $105 a barrel for the first time since 2014. That raises operating costs at a time when travel demand remains low because of the pandemic.

Jefferies analysts said European airlines were likely to take a longer-term hit in light of the conflict, pointing to a 27% fall in travel from the European Union to Ukraine and Russia over the two years after Russia annexed Crimea in 2014.

Aviation bosses were also worried about the impact on dealings with Russian firms. Sanctions could disrupt payments to leasing firms and affect the supply of aircraft parts.

Washington announced major export restrictions against Russia on Thursday, hammering its access to goods, including aircraft parts. The measures, however, include carveouts for technology necessary for flight safety, raising the prospect of a limited rather than sweeping hit to the industry.

“Notably, we believe that sanctions and export control activities should not hinder the need to maintain flight safety of commercial aircraft,” said Eric Fanning, chief executive of the U.S.-based Aerospace Industries Association.

Russian companies have 980 passenger jets in service, of which 777 are leased, according to analytics firm Cirium. Of these, two-thirds, or 515 jets, with an estimated market value of about $10 billion, are rented from foreign firms.

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