Volga-Dnepr Group halts all flight operations of its scheduled cargo airline subsidiaries with immediate effect, in response to the sanctions imposed on Russian airlines since Russia’s invasion of Ukraine, adding further pressure on an already tight air freight capacity market

By Will Waters

Russian air freight specialist Volga-Dnepr Group (VDG) has suspended all flight operations of its AirBridgeCargo (ABC) and Atran cargo airline subsidiaries with immediate effect, in response to the sanctions imposed on Russian airlines by the US, the EU, and various other international authorities since Russia’s invasion of Ukraine.

VDG confirmed to Forwarder magazine on 22 March that it had “suspended operations aboard all the planes belonging to AirBridgeCargo and Atran – due to the sanctions that had been imposed by lessors earlier and actions from BCAA (Bermuda Civil Aviation Authority) with respect to suspension of airworthiness certificates”, noting that the group’s management “is working together with its partners and regulators to find possible solutions under the current situation”.

It stressed that the group “continues its An-124-100/150 and Il-76TD-90VD operations – planes belonging to Volga-Dnepr Airlines – and finds alternative solutions for cargo transportation using other modes (air, sea, truck, rail).”

Additionally, it said some staff not engaged into operations had been placed on furlough at the moment.

Requirements on lessors
The sanctions include an obligation on US and European affiliated aircraft lessors to terminate any aircraft lease deals they have with Russian airlines, alongside a ban on US and European manufacturers providing parts to Russian airlines. And on 12 March, Bermuda’s aviation regulator – where much of Russia’s international aircraft fleet is registered – said it was provisionally suspending all airworthiness certificates for Russian aircraft registered in the British overseas territory, saying it was “unable to confidently approve these aircraft as airworthy” due to the impact of sanctions on its ability to conduct safety oversight.

All of AirBridgeCargo’s fleet of 18 freighters – four B747-400Fs, 13 B747-8Fs and one B777F – are listed on the Bermuda registry, along with Atran’s entire fleet of nine freighters, of which three are B737-400SFs and six are B737-800BCFs.

The grounding of these aircraft is another major blow to Russian international carriers although, in practice, most of ABC’s fleet – which chiefly operated on Asia-Europe routes, via Russia – had been inactive since Russian airlines were banned from EU and most European airspace at the end of February.
Of the nearly 1,000 civil aircraft in the Russian civilian air fleet, 745 were registered in Bermuda, according to aviation consulting firm IBA, of which 713 were leased and 32 owned.

Sanctions imposed by the EU following Russia’s invasion of Ukraine give leasing firms until 28 March to extricate themselves and their aircraft from agreements with Russian airlines. Since then, Russia has proposed allowing foreign-owned aircraft leased by Russian airlines to be registered as the airlines’ own property, and for them to be given Russian airworthiness certificates, with Russia’s state aviation authority recommending Russian airlines with foreign-leased aircraft to suspend international flights to make it harder for lessors to repossess the aircraft.

However, BCAA said dual registration would be in breach of the Convention on International Civil Aviation.

Mixed air freight outlook
In the meantime, freight forwarders and air freight operators and analysts report a mixed picture for the air freight market currently, which is going through a traditional seasonal lull in demand that has eased the pressure on a capacity shortfall that was already intense prior to Russia’s invasion of Ukraine led to further capacity challenges.

After seeing freight volumes, capacity and load factors stabilise by February close to 2019’s levels with rates also slowly trending downwards, the sudden drop in capacity on Europe-Asia routes and overflight issues caused by the Ukraine war were already having an effect into North East Asia routes in the closing days of February, reported Clive Data Services, with rising oil prices also expected to significantly impact global air freight rates.

The Baltic Air Freight Index saw average air freight prices drop by around 25% in February from the previous month, but by 21 March, Shanghai-Europe average prices had rebounded from around US$5.50 in mid to late February to US$7.30 – although Hong Kong-Europe rates remained at around $5 per kilo. Meanwhile, prices from China to the US had remained firm at around $8.80 per kilo during the week to 21 March, following several weeks of fluctuating between $6.80 and $10 per kilo.

High prices
An Asia market update dated 22 March from freight forwarder Norman Global Logistics highlighted that air freight rates from Asia “have soared since the start of the war in Ukraine. The lack of capacity means that alternative routes are used with extended lead times and costs. The Russian airspace has been the traditional route from Asia to Europe and the closure of the airspace limits schedules and available capacity pushing the rates upwards.”

It highlighted that China’s recent zero-Covid measures had “further limited the capacity for local transport and terminal handling to handle the air cargo to and from the airports.
The trend is expected to continue as long as the Covid outbreaks and the Ukraine conflict continues.”

But freight forwarder Flexport’s 22 March market update noted that rates from North China “continue to decrease as a result of a shortage of demand. Some key reasons are factory closures, trucking issues, and the lack of manpower due to quarantine policies. The number of positive Covid cases in Shanghai has also increased and the situation is not expected to improve this month.”
For shipments out of southern China, it noted that “carriers ex-HKG have reduced their flight frequency due to the Covid outbreak and the Russia-Ukraine conflict but the market demand is slowly getting better as Shenzhen gradually lifts restrictions. Cross-border trucking capacity remains very limited; however, some factories and terminals are beginning to resume work. Rates remain similar to last week.”

Stable demand
For Europe, it noted that demand was stable again in the past week, but “the upcoming change in season is seeing a small increase in air freight requests for inventory to be stocked for summer. Rates are at a stable high and we are seeing fuel surcharges be the reason for pricing increases by airlines. The IATA Jet Fuel Index is at record high levels, and airlines will pass through the cost.”

Flexport noted that freighter capacity “is heavily reduced and booking to uplift window is approximately 10 days. Deferred routings are still providing a viable routing option if already tight lead times can take it. We also see cheaper options on the market to secondary hubs where airlines have regular passenger flights.”

It reported “slight congestion at EU terminals, through high volumes, therefore a potential increased transit time”.

Nevertheless, other air freight specialists believe that any prolonged war in Ukraine will continue to put pressure on air freight capacity, with passenger freighters likely to remain in the market for much of the next two years, adding to volatility at airport cargo handling facilities and wider air freight operations.