The cost of international sanctions to investors in Russia’s airports: What do airspace closures, compound interest and aircraft manual subscriptions have in common?

Published:  March 2022
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We look at the potential loss of value of Russian airports due to the war in Ukraine. Drivers of impact include the closure of a number of national airspaces to Russian airlines as well as related sanctions that have been imposed since the start of the invasion.


Since Russia invaded Ukraine on 24 February 2022, several countries have closed their airspace to Russian airlines. In this note, we consider what the impact of these and other sanctions have been so far for investors in Russian airports, and what they might be in the future. We use a sample of international airports to estimate the impact on the asset values of degraded revenues from cancelled flights on both Russian and non-Russian airports. We also consider the impact on Russian airports of a more-or-less permanent increase in the discount rate implied by the isolation of Russia from the international financial system. We find that, to date, the immediate harm inflicted on the Russian airport sector is small (less than 5% of NAV) and mostly the result of financial sanctions rather than airspace closures. The later have had a limited impact on the future cash flows of these airports, which translates into a very small impact on their net asset value (NAV).

By contrast, the implied loss of value due to the spike in the price of airport equity risk is almost eight times larger. In turn, the aggregate impact on the non-Russian airport sector is extremely small, making these sanctions not very costly. However, in the longer term, a drawnout conflict will create increasingly larger financial losses. The Russian airport sector will loose more revenues due to the increasing inability of Russian airlines to keep flying foreign-made jets that have been cut off from their maintenance and technical support. Moreover, until the Russian risk premia returns to its pre-war level, fair-value losses will keep mounting exponentially.