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Aeroflot saga: Caught between EU-Russia sanctions?

12 Jun 2022

By Asiri Fernando The Russian carrier Aeroflot has not indicated when it will resume flights to Sri Lanka in the aftermath of the Court action earlier this month (2 June), resulting in a high number of tourist cancellations as Sri Lanka tries to navigate through a European Union-Russia sanctions minefield. When The Sunday Morning contacted Aeroflot last week on the possibility of resuming direct flights to Sri Lanka, the Russian Carrier declined to comment. The Civil Aviation Authority of Sri Lanka (CAASL) also declined to comment regarding the matter, citing the ongoing legal action. “The queries you have made are still subject to judicial consideration at the Commercial High Court of Colombo. Hence, the Civil Aviation Authority of Sri Lanka is not in a position to comment on them,” CAASL Director (Air Transport and Economic Regulation) Rayhan Wanniappa told The Sunday Morning. When contacted, Airport & Aviation Services (Sri Lanka) (Pvt.) Ltd. (AASL) Deputy Head – Airport Management A.M.K. Sanjeewa Amarapathy told The Sunday Morning that the AASL had not been consulted by the Courts prior to the issuance of the order on 2 June. The CAASL and the AASL both declined to comment on whether foreign aircraft had been detained through Court orders before the Aeroflot incident, and if any Sri Lankan aircraft had been subjected to such detention overseas. Sri Lanka Tourism Development Authority (SLTDA) Director General Dhammika Wijesinghe last week told media that the suspension of direct flights between Russia and Sri Lanka could affect Russian tourist arrivals, despite there being no restrictions on Russian citizens to visit the dollar-strapped island. Meanwhile, Transport, Ports, and Aviation Minister Nimal Siripala de Silva said that the Sri Lankan Government was in touch with the Russian Government and was confident that flights from Moscow would resume soon. The Government last week scrambled to mitigate the impact on Russo-Lanka relations due to the grounding of an Airbus A330 aircraft, which was flying in Aeroflot livery at the Bandaranaike International Airport (BIA), following an enjoining order by the Colombo Commercial High Court. The Court order was issued in relation to a dispute regarding the lease and insurance of aircraft with the complainant, Celestial Aviation Trading Limited, an insurance and lessor company based in Ireland. Later, the Court rescinded its order, following which the aircraft returned to Russia. The Government was quick to point out that the dispute was of a commercial nature and was between two commercial entities with no involvement of the State. However, Sri Lanka moved to advise the Attorney General’s Department to fast-track the process, provided details of the case to the Russian Foreign Ministry via Sri Lanka’s diplomatic apparatus, and attempted to soften the impact of the legal action on the relations with a country treasured as a close friend in the international arena. EU sanctions on Russia The Russia-Ukraine war triggered a range of sanctions against Russia from the US and the European Union (EU), which saw a number of Europe-based aircraft leasing companies forced to end their contracts, affecting hundreds of civilian passenger aircraft which were in service with Russian carriers, including Aeroflot. The sanctions regarding the aircraft came into effect in March, pushing major aviation lessors based in Ireland, like Celestial Aviation and its counterparts AerCap and SMBC Aviation Capital, to recall their aircrafts leased to Russian carriers. Under the sanctions regime, leasing firms had been advised to terminate their contracts with Russian clients. According to Irish broadcast news, nearly 100 aircraft, estimated to value more than $ 4 billion, are subject to recall. At the Colombo High Court, Celestial Aviation Trading Limited had alleged that the aircraft’s lease payments and contract terms had been breached. Celestial Aviation Trading and Aeroflot are already in arbitration on the matter related to a number of aircraft in an arbitration platform in the UK, The Sunday Morning learns. Legal action in Colombo – jurisdiction The plaintiff, Celestial Aviation Trading Limited, had held the position that its contract with Aeroflot was “…entitled to seek relief in any court of jurisdiction for the purpose of obtaining interim relief before or after the commencement of arbitration proceedings. Interim relief sought in the Commercial High Court after Celestial instituted arbitration proceedings seeks to preserve the aircraft until the determination of this issue in Arbitration Proceedings in London. Therefore, the Commercial High Court of Sri Lanka has jurisdiction to grant the interim relief sought, purely on a commercial dispute between two parties, as agreed by the parties in the Lease Agreement,” a source close to the proceedings told The Sunday Morning. It is learnt that the main dispute is already referred to arbitration in London, the UK, as agreed by the parties in the Lease Agreement and that it is only interim relief that is being sought in the Commercial High Court of Sri Lanka. The plaintiff is of the view that Aeroflot has used an aircraft leased from it to carry out flights to Sri Lanka without the lessor’s consent. When asked about what would happen with the legal action, the source said: “The Defendants were directed by Court to file objections and make any other applications formally by filing papers. If an application is made by Aeroflot to have the enjoining orders vacated, the Court will take up the inquiry and make an order in this regard. If no application is made to vacate the enjoining orders, the matter will proceed to the interim injunction inquiry.” However, the Ministry of Justice last week decided to suspend the Fiscal Officer attached to the Commercial High Court in Colombo regarding his conduct on serving a Court order on grounding the Russian Aeroflot flight. The officer is charged with abusing the Court process in enforcing the order issued by the Commercial High Court to ground the A330 flight at the Bandaranaike International Airport. The MOJ has also informed the Chief Justice to inquire into the conduct of an Attorney who accompanied the Fiscal Officer to the BIA on 2 June. Impact on tourism The suspension of Aeroflot flights to Sri Lanka has dealt a significant blow to efforts to revive the local tourism industry, which is a key dollar source for cash-strapped Sri Lanka. Responding to a question, former President of the Sri Lanka Association of Inbound Tour Operators (SLAITO) and tour operator for Russian and East European countries Nilmin Nanayakkara told The Sunday Morning that Aeroflot’s decision had caused a significant decline in new bookings and resulted in cancellations of current bookings as well. According to Nanayakkara, bookings by Russian tourists have dropped by almost 50%, with immediate cancellations pushing 60%. Nanayakkara opined that Sri Lanka should address the issue expeditiously, expressing hope that the softened travel advisory from the UK issued last week would help more tourists trickle in. SriLankan Airlines also remains handicapped in carrying passengers to and from Russia as many of its aircraft are also leased from European sources, which prevents it from flying into Russian airspace, Minister de Silva said.  


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