– Russia on Monday passed a law allowing the country’s airlines to place airplanes leased from foreign companies on the country’s aircraft register – a manoeuvre likely to stoke Western fears of a mass default involving hundreds of jetliners.

The bill, signed by Russian President Vladimir Putin, has rattled global leasing firms days before a March 28 deadline to repossess aircraft worth $10 billion as a result of Western sanctions imposed following Russia’s invasion of Ukraine.

Russian airlines have almost 780 leased jets, with 515 leased from abroad.

The new law, part of Russia’s measures to combat the sanctions, says it aims “to ensure the uninterrupted functioning of activities in the field of civil aviation”.

It comes after Bermuda and Ireland, where virtually all foreign-leased jets operating in Russia are registered, said they were suspending airworthiness certificates on the jets because they could no longer be sure they were safe.

Re-registering jets in Russia would aim to keep them flying domestically by granting access to new safety approvals.

But adding Russia as a second host country could put Moscow at odds with international rules barring the registration of civil planes in more than one country at a time.

Unless Western lessors agree to Russian requests to release their jets from foreign registries – widely seen as unlikely while they struggle as it is to regain control of assets – the new policy also paves the way for a major contractual debate.

“It is illegal to register an aircraft without proof of deregistration from the previous registry as well as the agreement of the owner. This would be a default under leasing contracts,” said aviation adviser Bertrand Grabowski.

AIRLINE DILEMMA

Technically, the new law does not instruct airlines to re-register their planes without the permission of owners led by Dublin-based AerCap, the world’s largest air lessor.

But experts said it puts the onus on the airline to apply for new registration to keep flying inside Russia – at the risk of poisoning relations with powerful lessors once the crisis is over – or else do nothing and see their fleets grounded.

Not all of Russia’s 35 airlines, about 15 of which represent 95% of the country’s traffic, are relishing what experts have already warned could spiral into aviation’s largest default.

“We hope to avoid registering our planes in Russia; we want to return them to leasing companies,” a source at one of the airlines said.

“The airline would become an accomplice. The law provides a way to register in Russia, but does not oblige the airline to do so….It is the first step to the kidnapping of the airplanes.”

Moscow’s government insists special measures are needed in the face of sanctions on the economy that President Vladimir Putin has described as “akin to a declaration of war”.

Lawyers say a three-way legal battle between airlines, lessors and insurers could last for a decade.

AerCap and other major lessors declined comment on the law. Major Russian airlines Aeroflot and S7 also declined comment.

The Russian Federal Aviation Agency said 776 planes were registered abroad as of Feb. 24, the day Russia invaded Ukraine. Russia calls its actions in Ukraine a “special operation” to demilitarise and “denazify” its neighbour.

Dozens of older planes that found homes in Russia during the pandemic may never be returned and are said to be worth less than their owners may be able to claim in insurance.

But the world’s 11th largest aviation market also includes some of the newest jets including a state-of-the-art Airbus A350 delivered to Aeroflot on the day of the invasion.

The United States and Europe on one side and Russia on the other have blocked their airspace to each others’ airlines.

Russia’s state aviation authority recommended last week that airlines with foreign-leased aircraft suspend flights abroad, making it harder for lessors to make repossessions. Some 425 jets are most at risk, the consultancy Ascend by Cirium says.

(Reporting by Reuters; Editing by Tim Hepher, Edmund Blair and Emelia Sithole-Matarise)

By Francesco Guarascio

BRUSSELS – European Union states are set to adopt new sanctions against Russia’s oil majors Rosneft, Transneft and Gazprom Neft, but will continue to buy oil from them, an EU source told Reuters on Monday.

The three companies are already subject to EU restrictions on loans and debt financing. Under the new package to be discussed later on Monday by EU top diplomats, they will also face an investment ban, which is expected to freeze their funding from sources in the EU in new production and exploration projects in all fossil fuels.

But in a sign of EU’s concerns about the impact of sanctions on oil prices and supplies, EU governments insisted on clarifying that the new measures would not prevent EU states and companies from buying oil from the three Russian companies, the source said.

That contrasts with action by the United States last week to ban oil imports from Russia, which led to a jump in oil prices. The United States does not import as much gas from Russia as the EU does..

Under the new EU sanctions, Rosneft, Transneft and Gazprom Neft would be subjected to a “transaction ban,” the official said, which would block investments and other transfers of financial resources to them.

“We will propose a big ban on new European investments across Russia’s energy sector,” the head of the EU Commission Ursula von der Leyen said on Friday pre-announcing the sanctions but without indicating the targeted companies.

“This ban will cover all investments, technology transfers, financial services, etcetera, for energy exploration and production,” she added.

Many EU governments requested carve outs that would allow EU companies to pay their bills to the Russian majors and continue buying their oil, the source said.

That request has led to a slight delay in the approval of the new sanctions, which had been initially submitted for approval on Sunday.

After some changes to the legal texts to make completely clear that oil can still be purchased from the Russian companies, EU top diplomats are set to discuss and approve the amended proposal later on Monday, the source said.

(Reporting by Francesco Guarascio @fraguarascio. Editing by Jane Merriman)

BEIRUT -A Lebanese judge froze the assets of five top banks and members of their boards while she investigates transactions they undertook with the country’s central bank, a judicial document showed on Monday.

The asset freeze against Bank of Beirut, Bank Audi, SGBL, Blom Bank and Bankmed applies to properties, vehicles and shares in companies owned by the banks or the members of their boards.

She has not charged any of the parties mentioned with any crime.

Lebanon’s banks association in statement said the decision by Judge Ghada Aoun was “illegal” and would further destabilise the country’s banking system, already crippled by a financial meltdown that has seen most depositors locked out of their hard currency accounts.

Raya Hassan, chairman of the board of Bankmed, declined to comment, as did Blom Bank chairman Saad Azhari and a spokesperson for Bank Audi.

Bank of Beirut and SGBL did not immediately respond to requests for comment.

Judge Ghada Aoun on Thursday issued travel bans against the heads of the boards of the five Lebanese banks as a precautionary measure while she carried out her probe, she told Reuters.

(Reporting by Timour Azhari; Writing by Nadine Awadalla; Editing by Jon Boyle and Barbara Lewis)

By Sruthi Shankar and Shreyashi Sanyal

– European stocks rose on Monday, clinging to hopes of diplomatic efforts by Ukraine and Russia to end weeks-long conflict, while shares in Volkswagen surged after the German carmaker doubled its operating profit.

The pan-European STOXX 600 index ended 1.2% higher, extending gains from Friday when Russian President Vladimir Putin signalled a positive shift in talks with Ukraine.

Russia and Ukraine gave their most upbeat assessments following weekend negotiations, even as Russia attacked a base near the Polish border and fighting raged elsewhere.

“The initial fighting in Ukraine prompted an outbreak of risk aversion in markets, but for now the situation seems to have settled down, at least for markets,” said Chris Beauchamp, chief market analyst at online trading platform IG.

“Western intervention still looks highly unlikely, and for now negotiations continue … For now it looks like bullish sentiment will revive, but there are still plenty of unknowns to deal with.”

Auto stocks climbed 3.3% to lead gains among sectors. Volkswagen AG surged 4.4% as higher prices and a more favourable product mix boosted operating profit.

However, China-exposed miners, which have outperformed recently, fell 2.6%, as surging COVID-19 infections in the world’s top metals consumer fanned worries over economic growth prospects.

Shares of luxury brands such as LVMH and Richemont, which depend on China for a large part of their sales, also declined.

Investors waited for policy decisions from the U.S. Federal Reserve and the Bank of England later this week, with both the central banks expected to raise interest rates.

Banks gained 3.2%, extending a rebound from one-year lows hit last week as investors ramped up expectations of rate hikes to combat soaring inflation.

Hopes of progress in peace talks sent oil prices lower. Oil has surged this month after Western sanctions against Russia over its invasion of Ukraine raised concerns about supply disruptions. [O/R] [MET/L]

Telecom Italia climbed 5.0% after it said it would start formal talks with KKR to assess the U.S. fund’s potential 10.8 billion-euro ($11.8 billion) offer for Italy’s biggest phone group.

Dutch tech investor Prosus, which owns a stake in China’s Tencent, tumbled 10.4%, reflecting worries over regulation.

French power utility EDF slipped 0.1% after it warned on its 2022 profit outlook, while shares of Italian energy group Eni dropped 0.4% on the company’s agreement to sell a 49% stake in power generation unit Enipower to U.S. investment firm Sixth Street.

(Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila and Matthew Lewis)

– Foxconn Technology Group is in talks with Saudi Arabia about jointly building a $9 billion facility that could make microchips, electric-vehicle components and other electronics, the Wall Street Journal reported on Monday.

Saudi Arabia is reviewing Foxconn’s offer to build a dual-line semiconductor contract manufacturing facility known as a “foundry” in Neom, a tech-focused city-state it is developing in the desert, the report said, citing people familiar with the matter.

The company and Saudi Arabia authorities did not immediately respond to Reuters requests for comment.

Foxconn, the world’s largest contract electronics manufacturer and a major Apple supplier, has expanded into areas including electric vehicles (EVs) and semiconductors in recent years.

The company and other Taiwanese firms like TSMC are looking to diversify their production amid U.S.-China trade tensions, which have impacted the semiconductor industry.

Besides Saudi Arabia, Foxconn is also talking with the United Arab Emirates about potentially situating the project there, the report said.

Riyadh wants the company to guarantee that it would direct at least two-thirds of the foundry’s production into Foxconn’s existing supply chain, according to the report.

Foxconn, formally called Hon Hai Precision Industry Co Ltd, has been signing large investment deals, including plans in Taiwan and India. Last year, however, it drastically scaled back a planned $10 billion factory in Wisconsin that former U.S. President Donald Trump once called “the eighth wonder of the world”.

(Reporting by Chavi Mehta in Bengaluru; Editing by Devika Syamnath)

By Andrea Shalal, Natalia Zinets and David Lawder

WASHINGTON -Ukraine’s economy is expected to contract by 10% in 2022 as a result of Russia’s invasion, but the outlook could worsen sharply if the conflict lasts longer, the International Monetary Fund said in a staff report released on Monday.

The report, prepared ahead of the IMF’s approval of $1.4 billion in emergency financing, said Ukraine’s economic output could shrink by 25% to 35%, based on real wartime gross domestic product data from Iraq, Lebanon and other countries at war.

Ukraine had an external financing gap of $4.8 billion, IMF staff said in their March 7 report, but its financing needs were expected to grow and it would require significant additional concessional financing as a result of the war.

The IMF is working to set up a trust fund instrument through which bilateral donors can channel resources to Ukraine, an official with the global lender said.

The $1.4 billion already approved in emergency financing is the maximum Ukraine can borrow under current IMF rules, but the loan is having a “catalytic” effect in encouraging other donors, the official said.

Ivanna Vladkova Hollar, the IMF mission chief for Ukraine, said Ukrainian authorities were making “a remarkable effort” to keep the country’s economy and financial system running in the face of the war.

“Making wage and pension payments, restocking ATMs with cash, opening bank branches … continuing to make payments on external debt obligations, so that post-war they can resume normal operations with their creditors and markets. It’s really actually a remarkable, remarkable effort,” she said.

The report forecast a deterioration in Ukraine’s growth outlook of at least 13.5 percentage points relative to a pre-war baseline, with output falling 10% in 2022, assuming a prompt resolution of the war, and substantial donor support.

That compares to a 6.6% drop in output in 2014, the year that Russia annexed the Crimea region of Ukraine, and just under 10% in 2015.

IMF staff said there was massive uncertainty about the outlook, given the intensity of the conflict, and warned that increasing loss of physical capital stock and huge refugee flows could result in “significantly more pronounced output contraction,” a collapse in trade flows and lower tax revenues.

RISING DEBT

The war – the biggest in Europe since World War Two – has sparked a massive humanitarian and economic shock, the IMF report said, citing rapidly increasing loss of life and significant infrastructure damage across the country. Russia describes its invasion as a “special military operation.”

It said Ukrainian authorities had continued to service their external debt obligations and the country’s payment system remained operational, with banks open and mostly liquid.

It said authorities had implemented appropriate emergency measures to stabilize markets and the economy, but the downside risks were “exceedingly high” and the country faced large fiscal and external financing gaps.

The country’s public debt was expected to spike to 60% of GDP in 2022 from around 50% in 2021, the report said.

Vladyslav Rashkovan, alternate executive director for Ukraine at the IMF, told the IMF’s board that Ukrainian authorities were in broad agreement with the IMF staff’s assessment of the economic situation, and underscored the need for more financial support.

He said liquidity buffers adopted after the Russian invasion were sufficient for financing expenditures and repaying liabilities, with most Ukrainian companies still paying taxes and some even paying in advance to support the budget.

In his statement, Rashkovan said Ukraine had spent the equivalent of $1.4 billion on servicing and repayment of its foreign exchange public debt since the start of the war.

(Reporting by Andrea Shalal and David Lawder in Washington and Natalia Zinets in Lviv; Editing by Paul SImao)

By Jonnelle Marte

– U.S. consumers upped their outlook for where inflation will be a year from now and in three years time, and they expect to spend substantially more on food, gas and rent in the next 12 months, according to a survey released on Monday by the New York Federal Reserve.

Expectations for where inflation will be in one year increased to 6.0% in February from 5.8% in January, returning to the high reached in November for the survey, which was launched in 2013. Expectations for inflation three years out rose to a median of 3.8% from 3.5%, remaining below the levels seen in November and December of last year. The rise in inflation expectations reverses some of the declines seen in January.

Graphic: Inflation expectations edge higher: https://graphics.reuters.com/USA-FED/CONSUMER-EXPECTATIONS/myvmnbbbzpr/chart.png

U.S. households are coping with the fastest pace of price increases in 40 years and policymakers are watching closely to see if the shock leads to higher inflation expectations, which could fuel further price hikes, or if consumers largely view the surge in prices as temporary. While near-term inflation expectations have soared, consumers’ longer-term expectations have so far been less affected.

The Russian invasion of Ukraine, which has led to higher fuel prices and may lead to increased food costs, adds more uncertainty to the outlook.

A measure of market-based U.S. inflation expectations by the London-based ICE Benchmark Administration (IBA) showed that near-term forecasts jumped sharply in response to government data that showed inflation running about 7%, and rose again after the Russian attack. Long-term inflation expectations inched higher following the Russian invasion.

Fed officials are expected to take a key step in the fight against inflation when they meet this week on Tuesday and Wednesday by raising interest rates from near-zero levels, roughly two years after they slashed rates in response to the coronavirus pandemic.

The U.S. economy is on more stable footing now, with the unemployment rate at 3.8% and wages rising. But many households are also struggling with rising costs.

As of February, consumers said they expect their spending to increase by 6.4% in one year, up sharply from the 5.5% anticipated in January and reaching a new high for the survey. They also expect food prices to increase by 9.2% in one year, up from the 5.9% expectation in January, and gas prices to rise by 8.8%, up from a previous estimate of 7.3%.

The New York Fed’s monthly survey of consumer expectations is based on a rotating panel of 1,300 households.

(Reporting by Jonnelle Marte; Editing by Paul Simao and Andrea Ricci)