Written on 13 April 2022.
What is the potential loss of value of Russian airports due to the war in Ukraine? When taking into account the closure of national airspaces to Russian airlines and the international sanctions imposed since the start of the invasion, the short-term losses seem limited, but the costs are likely to increase rapidly, were the conflict and the sanctions to continue longer.
This is the main conclusion of a newly released research note by EDHECinfra, our world-renowned center specialized in providing data to investors in unlisted infrastructure equity and private debt. Published on March 28, 2022 by Frédéric Blanc-Brude, EDHECinfra Director, and his co-authors (1), this note is entitled “The cost of international sanctions to investors in Russia’s airports - What do airspace closures, compound interest and aircraft manual subscriptions have in common?”.
In short, they stress that in the first few weeks of the conflict, the value of private investments in Russian airports has fallen by less than 5% on average. This apparent resilience is in part due to the fact that most of the air traffic that makes up Russian airport revenues is domestic. Most importantly, the research shows that these losses will increase quickly until 2025, following the decline of internal traffic, and the loss of access of Russian airlines to foreign parts and maintenance. All in all, EDHECinfra assesses that air traffic could be reduced to a quarter of its current value in the next three years. In this scenario, the combined effect of lower revenues and the hike in risk premia and interest rates could entail losses for investors of a quarter of the value of their holdings.
(1) Abhishek Gupta, Associate Director at the EDHEC Infrastructure Institute; Jack Lee, Team Lead and Deputy Head of Data at EDHECinfra; Fabien Nugier, Senior Research Engineer at EDHECinfra; Tim Whittaker, Research Director at the EDHEC Infrastructure Institute and Head of Data Collection.