Lessors reached first deals with Russia over seized aircraft

Numerous leasing companies are among those financially affected by the Russian invasion of Ukraine. Moscow refused to return leased aircraft to them and instead confiscated foreign assets and transferred them illegally into the Russian registry. Consequently, when flying abroad, Aeroflot, S7, AirBridgeCargo and others risk having their leased aircraft chained.

But now, things have started to move. Many leasing companies inked deals with the Russian insurance company NLK Finance. Financial volume of the settlements to date: USD2.5 billion. This means that Russia has legally acquired the aircraft from their former owners.

Aeroflot operates a total of 171 Airbus and Boeing aircraft, many of them leased and not returned to their owners – photo: SU

Eight lessors involved
According to a report published by the San Diego-based Insurance Journal, this includes agreements reached between eight lessors and NLK Finance. This applies to Ireland-based AerCap, the world’s largest lessor, that had received US$645 million over 17 jets and five spare engines leased to state-controlled airline Aeroflot and its subsidiary Rossiya.

Ireland-headquartered lessor CDB Aviation, owned by the China Development Bank had settled for US$197.50 million over four planes followed by a settlement for one aircraft (US$20.6 million).

Dubai Aerospace Enterprise said in December it had received a cash settlement totaling around US$118 million for seven aircraft previously leased to Aeroflot.

BOC welcomes repossession of eight B747-8F
Another lessor is BOC Aviation from Singapore. Last November, the company had received US$208 million under an insurance settlement for eight aircraft stuck in Russia. Now BOC has repossessed three B747-8 freighter aircraft leased by Moscow-headquartered AirBridgeCargo Airlines and sidelined at Sheremetyevo Airport since the outbreak of the war. For tax reasons, the three aircraft were all Bermuda-registered. As ABC had not returned them to BOC, the Russian cargo airline risked the aircraft being confiscated by local authorities in the event of foreign operations. This and the refusal to return other freighters to leasing companies led ABC’s business model go to ashes. It was primarily based on cargo flights between the Far East and destinations in Europe with a stopover in Moscow.

Silk Way West replaces ABC
The resulting capacity gap is now being filled by Silk Way West Airlines, based in Baku-Azerbaijan, which has a similar route profile to ABC. Its president, Wolfgang Meier, held leading positions at ABC for many years before moving to Silk Way West.

Even though leasing companies have now reached various settlements with the Russian insurance company NLK Finance, numerous Airbus or Boeing aircraft continue to fly illegally on domestic Russian routes, operated by state-owned flag carrier Aeroflot, its subsidiary Rossiya or S7. So far, the lessors as their rightful owners have not benn compensated for this illegal act of piracy. The financial volume of this theft of assets is shown in a list published by the San Diego-based Insurance Journal.

Further claims are still awaiting a solution
According to this filing, Air Cap is the main affected party. It has sued insurers such as AIG and Lloyd’s of London for US$3.5 billion over the loss of 116 aircraft and 23 aircraft engines in London’s High Court under its all-risks policy. A legal decision is still pending.  

Aircastle filed a claim in New York against more than 30 insurers in October 2022 over nine aircraft and other equipment stranded in Russia, reports the paper.

Irish-headquartered SMBC, owned by a consortium including Japan’s Sumitomo Corp and Sumitomo Mitsui Financial Group, recorded an impairment of US$1.6 billion in 2022 to cover the full financial impact of having 34 jets stuck in Russia. It is suing insurers in Dublin.

Whether and when the aforementioned aircraft insurers will reach an agreement with the Russian NLK Finance on a settlement is completely open. After all, the Western sanctions regime against Russian airlines has not changed and neither have the leasing companies’ ownership claims. But even if an agreement is reached and there is a legal change of ownership, the supply of spare parts to Western aircraft is still ruled out. These are subject to Western sanctions.

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