Analysis: Aircraft lessors gird to battle insurers over Russia jet default

Willis Lease Finance

10/05/2022 20:02

* Major lessor vows 'vigorous' pursuit of claims
    * Legal expert says results could be unpredictable
    * Surging insurance rates 'not a pretty sight' 
    * Lessors keep in touch with Russian airlines

    By Padraic Halpin, Conor Humphries and Tim Hepher
    DUBLIN, May 10 (Reuters) - Lessors with hundreds of jets
stuck in Russia are preparing for what one said would be a
"vigorous" pursuit of insurance claims while maintaining
discreet contact with some customers after Moscow blocked the
jets from leaving.
    The loss of over 400 leased planes worth almost $10 billion
since Western countries sanctioned Russia has led to a string of
lessors writing down hundreds of millions of dollars in recent
weeks. 
    But the lessors, speaking at a major industry conference in
Dublin, said they may have to wait years to find out how much
they will secure from unpredictable battles with insurers. 
    In the meantime they face much higher insurance bills. 
    "Practically speaking, I don't think anyone's expecting to
get their planes back anytime soon ... mentally we're moving
past it," said the head of U.S. lessor Aircastle, which has 
booked $252 million in impairment charges.
    "That doesn't mean our teams aren't still working and
chasing, preparing for what we expect to be contested
discussions with our insurance carriers," CEO Michael Inglese
told the Airline Economics conference.
    Steven Udvar-Hazy, founder of Air Lease Corp  AL.N , which
has booked an impairment of $802.4 million, said it was pursuing
"vigorous" insurance claims.
    The largest claim has been made by AerCap  AER.N , the
world's biggest aircraft lessor, which has submitted a $3.5
billion insurance claim for more than 100 jets.  urn:newsml:reuters.com:*:nL2N2VX1WX
    Chief Executive Aengus Kelly acknowledged his firm was on
the "wrong side" of the default, with the industry's largest
Russia exposure, but said "the insurance companies will have to
settle" at some point as he shrugged off higher premiums.
    "Costs are going to go up, but I'm not going to listen to
what the insurance companies are saying because they're going to
face competition themselves at some point," he said. 
    The head of Ireland's Genesis, Karl Griffin, said it was one
of the first lessors to renew insurance after Western sanctions
halted all Russian leases - adding it was "not a pretty sight."
    Few can say how the looming battle between lessors and
insurers will play out. S&P Global has forecast a huge range of
aviation insurance losses of $6-15 billion.
    "No one knows exactly where it will land," said Niels
Jensen, co-head of aviation finance at Vinson & Elkins law firm,
who said it will come down to the specific policy wording.
    Lawyers say the most heated issue involves the number of
"occurrences" or trigger events involved in Russia's default.
That judgment could sway the value of settlements dramatically.
    In London, multiple leading law firms have been lined up to
do battle over the implications of that single, sparse term.
    Dubai-based lessor DAE Capital, which described its $538
million write-off as "manageable", said it expected to collect
on insurance. "It will just takes time," Chief Executive Firoz
Tarapore told the conference. 
    
    'WE DIDN'T STEAL'
    Even as many write off assets and pursue claims, a number of
lessors said they were keeping some contact with private Russian
airlines, which have in recent years relied heavily on Western
lessors and have been good at paying bills.
    All said they were adhering strictly to sanctions.
    "We're all pursuing the same strategy, making insurance
claims, talking to the airlines, private airlines... but there
is not much they are allowed to do," said Dan Coulcher, Chief
Commercial Officer of Willis Lease Finance, which on Monday took
a $20.4 million impairment on two engines left in Russia. 
    The Russian airlines who leased the planes were a lucrative
market before the invasion. Lessors say the carriers want to
avoid closing the door completely to future business, but are
under heavy pressure from Moscow to cut ties. Russian President
Vladimir Putin has said lessors from "unfriendly countries"
violated their contractual obligations.  urn:newsml:reuters.com:*:nL5N2VY6NV
    "We have many of them basically tell us on the phone: 'look
we're not crooks. We didn't steal your airplanes. We hope you
get paid for your airplanes, but we're both stuck'," said John
Plueger, chief executive of Air Lease Corp  AL.N .
    Some airline officials have shied away from cellphones, with
some adopting 'burner' phones or meeting away from base.
    "Obviously their concern (is) we don't know who's listening.
And that fear ... escalated as the crisis went" on, Plueger
said. Dialogue continues but is "much more guarded" he added.
    Russia makes up a modest 4% of global traffic but experts
worry the claims battle could sour attitude to risk in general.
    "I think the bigger thing is could we see the same thing
happening in a much, much bigger country starting with a 'C' in
Asia," said Marc Iarchy, a partner at World Star Aviation.
    "It will be a much bigger shock to the system. But it's
entirely possible," he warned.

 (Writing by Conor Humphries; Editing by David Gregorio)
 ((conor.humphries@thomsonreuters.com; +353 1 236 1915;))