Analysis: Aircraft lessors prepare to fight insurers over Russian plane default

Passenger planes of Aeroflot – Russian Airlines are parked at Sheremetyevo International Airport in Moscow, Russia March 12, 2022. REUTERS/Marina Lystseva

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  • Major landlord promises ‘vigorous’ pursuit of claims
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DUBLIN, May 10 (Reuters) – Lessor companies with hundreds of planes stranded in Russia are bracing for what is said to be a “vigorous” pursuit of insurance claims while maintaining low-key contact with some customers after Moscow has blocked the departure of planes.

The loss of more than 400 leased planes worth almost $10 billion since Western countries sanctioned Russia has led to a series of lessors writing hundreds of millions of dollars in recent weeks.

But lessors, speaking at a major industry conference in Dublin, said they may have to wait years to find out how much they will get from unpredictable battles with insurers.

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In the meantime, they face much higher insurance bills.

“In practice, I don’t think anyone expects to get their planes back anytime soon… mentally, we’re going beyond that,” said the head of U.S. lessor Aircastle, which booked $252 million in impairment charges. .

“That doesn’t mean our teams aren’t working and chasing, preparing for what we expect to be contentious discussions with our insurance companies,” CEO Michael Inglese said at the Airline Economics conference.

Steven Udvar-Hazy, Founder of Air Lease Corp (AL.N)which recorded an $802.4 million write-down, said it was pursuing “vigorous” insurance claims.

The largest claim was made by AerCap (AER.N)the world’s largest aircraft lessor, which has submitted a $3.5 billion insurance claim for more than 100 jets. Read more

Chief executive Aengus Kelly acknowledged his company was on the “wrong side” of default, with the sector’s biggest exposure to Russia, but said “insurance companies will have to settle” at some point as he ignored the higher bonuses.

“Costs will go up, but I’m not going to listen to what the insurance companies are saying because they themselves will face competition at some point,” he said.

Genesis Ireland chief Karl Griffin said it was one of the first lessors to renew insurance after Western sanctions cut off all Russian leases – adding it was “not a pretty sight “.

Few can say how the impending battle between lessors and insurers will play out. S&P Global has forecast a wide range of aviation insurance losses from $6 billion to $15 billion.

“Nobody knows exactly where it will land,” said Niels Jensen, co-head of aviation finance at law firm Vinson & Elkins, who said it would depend on the specific wording of the policy.

Lawyers say the most burning issue is the number of “occurrences” or trigger events involved in Russia’s default. This judgment could considerably influence the value of the colonies.

In London, several leading law firms have been lined up to fight over the implications of this single, sparse term.

Dubai-based lessor DAE Capital, which described its $538 million write-off as “manageable”, said it expected to collect insurance. “It will just take time,” general manager Firoz Tarapore told the conference.

“WE DIDN’T STOLE”

Even though many are writing off assets and pursuing claims, a number of lessors said they kept in touch with Russia’s private airlines, which in recent years have relied heavily on Western lessors and been good at paying invoices.

All said they were strictly adhering to the sanctions.

“We’re all pursuing the same strategy, making insurance claims, talking to airlines, private airlines…but they’re not allowed to do much,” said Dan Coulcher, chief commercial officer of Willis Lease Finance, which on Monday suffered a $20.4 million write-down on two engines left in Russia.

The Russian airlines that leased the planes were a lucrative market before the invasion. The lessors say the carriers want to avoid closing the door completely on future business, but are under heavy pressure from Moscow to cut ties. Russian President Vladimir Putin said donors from “hostile countries” violated their contractual obligations. Read more

“A lot of them tell us on the phone, ‘Look, we’re not crooks. We didn’t steal your planes. We hope you get paid for your planes, but we’re both stuck,'” said John Plueger. , CEO of Air Lease Corp (AL.N).

Some airline officials have shunned cellphones, with some adopting “burner” phones or meeting away from base.

“Obviously their concern (is) that we don’t know who is listening. And that fear … intensified as the crisis progressed,” Plueger said. The dialogue continues but is “much more reserved”, he added.

Russia accounts for just a modest 4% of global traffic, but experts fear the claims battle could sour attitudes towards risk in general.

“I think the most important thing is that we could see the same thing happen in a much, much bigger country starting with a ‘C’ in Asia,” said World Star Aviation partner Marc Iarchy.

“It will be a much bigger shock to the system. But it’s entirely possible,” he warned.

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Written by Conor Humphries; Editing by David Gregorio

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