Administrators of UK-based freight operator CargoLogicAir expect to realise sufficient funds to pay all creditors in full, but have outlined the difficulties of its task given the company’s Russian links and the international sanctions regime.

CargoLogicAir, which operated Boeing 747 freighters, was forced to halt services after sanctions relating to the Ukrainian conflict prevented it from flying to European Union and US destinations.

Its ultimate shareholder, Volga-Dnepr entrepreneur Alexei Isaikin, had also been placed on a list of sanctioned individuals.

CargoLogicAir’s management sought to free itself from Russian ownership, the administrator reveals, by applying to the UK government’s Office of Financial Sanctions Implementation to have its ownership transferred to a UK-based trust structure which would give ownership and control to the company’s employees.

But the government refused this re-organisation proposal. CargoLogicAir was also experiencing significant difficulties in paying staff and suppliers because its bank was carrying out detailed evaluation of payments by the company.

After the bank notified the carrier that it would close its accounts by the end of November last year, CargoLogicAir was unable to find a UK bank willing to take on a Russian-linked company, and administration became the best option.

CLA 747-c-CargoLogicAir

Source: CargoLogicAir

CargoLogicAir formerly operated a fleet of 747 freighters

The administrator, Buchler Phillips, was appointed in November. It says it has newly obtained draft copies of a licence from the Office of Financial Sanctions Implementation, and is awaiting a final version.

It adds that it has conducted an ethical review of the case, owing to its complexity and the sanctions regime, and believes the level of ethical risk is “acceptable”.

The sanctions regime has proven obstructive. Law firm DLA Piper has been assisting the administrator with efforts to free CargoLogicAir electronic records blocked by Microsoft.

Both CargoLogicAir and Volga-Dnepr UK were also locked out of premises near London Heathrow, but the administrator has been able to gain access to obtain company books and records.

The administrator estimates £17.1 million of total assets can be realised including £10.6 million in cash, £3 million in tax refunds, and £2.2 million in stock relating to 747 spares – mostly held at East Midlands, Amsterdam and Frankfurt Hahn airports.

But realisation of the stock requires access to an airline maintenance software system which is blocked as a result of sanctions. The administrator states that it will be able to gain access once the final OFSI licence has been obtained.

The administrator says the recovery of some £4.3 million in deposits is uncertain, and that retrieving around £3.2 million in deposits from two 747 leasing entities is “likely to involve litigation” in different jurisdictions.

Based on estimates of CargoLogicAir’s financial position, the administrator says all known creditors of the company “are expected to be paid in full” and, as such, it does not need creditor approval for its proposals.

Owing to the sanctions situation, it adds, any funds that might be paid to Isaikin will be held in a blocked account until he is no longer subject to UK restrictions.