10 Boeing 777s Sold to Aeroflot (Be Wary)

Reuters is reporting that Aeroflot recently purchased 10 Boeing 777 aircraft that it previously had on lease.  They purchased the aircraft from the Irish lessor. 

What makes this transaction unusual? Aeroflot is subject to a Temporary Denial Order that would appear to make a transaction like this illegal (absent a US export license).

Boeing 777 aircraft are produced in the United States and are therefore subject to U.S. export and re-export standards.  The ownership of the aircraft does not matter to this assertion of jurisdiction over re-exports – so long as it remains an aircraft that was produced in the United States it is subject to U.S. export and re-export standards..

On April 12, 2022, the United States issued a Temporary Denial Order (TDO) affecting Aeroflot (the TDO was renewed in October).  Under that TDO, Aeroflot may not buy any item subject to the EAR (like an aircraft) that was previously exported from the United States.  In fact, the TDO also prevents them from even negotiating to acquire such an asset. Typically Aeroflot would also be forbidden from applying for licenses for transactions but there is an exception to this clause that permits them to apply for a BIS for transactions directly related to safety of flight.  So it is possible that the transaction was licensed by BIS, but the news articles we’ve been able to find do not provide this information.

There is a corollary provision in the TDO that also makes it illegal to facilitate acquisition by Aeroflot of ownership of items like aircraft.  This also permits a license to be issued for safety of flight transactions. This side of the restriction would seem to make the transaction illegal from the lessor’s point of view, as well (unless there was a license of license exception that applied to the transaction).

One news article asserts that the transaction is legal because of a provision in European law that permits such transactions.  This statement may not be 100% accurate because it fails to take into account the US laws that apply to the transaction.  This EU provision would not insulate the companies from compliance with U.S. export laws.  Again, we do not know if a license was sought from the U.S. government that would have permitted the transaction to be concluded in compliance with US BIS export provisions.

Last month, Reuters had reported that such talks were beginning, and a week later Reuters announced that Aeroflot had concluded the transaction.

The Reuters article suggests that the leasing company is a subsidiary of VEB. If this is true then there may be additional problems with the transaction, because VEB is a specially designated nation (SDN) under the OFAC sanctions programs. OFAC sanctions flow-down (apply) to entities that are 50% (or more) owned by an SDN.

ASA members should be careful around transactions like this. If you see others performing transactions like this, then do not assume that you can perform a transaction like this without restriction. On the other hand, bear in mind that identifying the applicable restrictions and obtaining the right government licenses can allow you to perform transactions that might otherwise seem “impossible.”