CargoLogicAir, casualty of Russia sanctions, faces liquidation

5 December 2022

CargoLogicAir, casualty of Russia sanctions, faces liquidation

CargoLogicAir, the U.K.-based all-cargo airline affiliated with Russia’s Volga-Dnepr Group, appears to be officially going out of business, collateral damage from the invasion of Ukraine.

The airline, which flew two Boeing 747-400 freighters out of London airports, ceased operations earlier this year after the U.K. government sanctioned majority shareholder Alexey Isaykin for signing a deal with the city of Moscow for Volga-Dnepr Airlines to maintain supply chain connectivity with countries in Asia and the Middle East.

On Wednesday, CargoLogic Air (CLA) appointed corporate restructuring firm Buchler Phillips to administer its insolvency, including how to realize value from assets to pay off debts and determine the best options for the company’s operations while temporarily protected from creditors. But barring a miracle, CargoLogicAir is likely to be liquidated.

CLA was a small carrier, but the grounding of two extra-large freighters is part of the story behind the shortage of cargo capacity compared to pre-COVID times and why rates haven’t dropped more with weak demand. Sister company CargoLogic Germany, with a fleet of four Boeing 737 freighters, has also been grounded after filing for bankruptcy protection in May. And AirBridgeCargo, Volga-Dnepr’s scheduled airline that flew a large fleet of Boeing 747 freighters, has been shut down along with subsidiary Atran Airways.

Established in 2015, CLA had a spotty history. It reduced operations in 2019 under weak market conditions and closed down in early 2020 but regained its operating certificate in April when the pandemic created intense demand for freighter service. CLA employed about 130 before the sanctions and turned a profit in 2020, according to a news release from Buchler Phillips.

The second half of 2020 was an outlier for air cargo volumes and high rates because supply chains were completely broken and passenger airlines were no longer flying with cargo. The news release didn’t mention 2021 results.

Isaykin is a Cypriot national who founded Volga-Dnepr Group and was its president when sanctions began. The U.K. government froze his assets and issued a travel ban in June for providing material assistance to the Russian government. He resigned as a CLA director in June. The airline ceased operations in March when Western nations banned Russian airlines from flying U.S. or European-made aircraft. It technically was allowed to maintain limited operations because of its U.K. registration but could not overcome sanctions on banking activity.

“The company has been unable to trade effectively since [Isaykin] was made the subject of U.K. government sanctions against businesses deemed Russian controlled following the Russian invasion of Ukraine in February 2022,” Buchler Phillips said in a statement. “As a consequence, the company sought and was granted licenses for minimal continuance of operations from HM Treasury. However, it ran into problems operating its bank accounts on a timely basis: The company faced increasing difficulties with its bankers despite having considerable funds in its account which should have left the company solvent.”

Buchler Phillips criticized the government’s treatment of CargoLogicAir.

“The appointment of administrators at CargoLogicAir is a very unfortunate, unintended consequence of sanctions generally applied against British businesses perceived as Russian controlled,” the firm said. “This is a unique British business performing a valuable commercial service to British customers trading overseas, employing British people and paying British tax.”

By Eric Kulisch