New £472m claim lodged against insurers over aircraft stranded in Russia

Some of the world’s leading insurers are facing a new £472m claim for aircraft that have been stranded in Russia since its invasion of Ukraine.

In a new twist to a long running legal battle between the world’s biggest aircraft lessors and the (re)insurance market, STLC Europe Sixteen Leasing has lodged a claim against several insurers over the insurance cover for the loss of six of its Boeing 737-800 planes under its war risk policy.

The is the latest case in a long running series of disputes between leasing companies and insurers over liability for aircraft, which were leased to Russian airlines or stranded in Russian airports when the invasion occurred.

It is estimated that the majority of the 900 aircraft currently on the Russian civil aviation register have been leased by companies in countries that have imposed sanctions following the invasion.

Reaction to sanctions

As sanctions were imposed, leased planes saw certificates of airworthiness revoked or suspended by international registries, effectively leaving them unable to fly.

Russia reacted by switching the planes onto the country’s register, which was met by leasing companies demanding the planes were returned. 

With the aircraft and a range of parts, including engines, marooned for over two years, lessors submitted insurance claims for the total loss of their assets.

However, those claims have been complicated by disputes over the coverage and exactly where the claim would fall in terms of the lessors’ various policies.

These coverage disputes have prompted a range of court actions, with lessors suing for an estimated $10bn for the costs of more than 400 aircraft.

Cases

AerCap, the world’s biggest lessor, had filed a $3.5bn lawsuit in the UK against a range of insurers for the costs of over 141 aircraft and 29 aircraft engines it owned that were on lease to Russian airlines.

Now, STLC said it had leased aircraft to a Russian airline and when sanctions over leasing of the planes were implemented in the EU, sought to have the planes returned but they were not.

In its case, the company said even with a theoretical prospect of the geopolitical situation changing and the aircraft being redelivered in the future, the cost of bringing them up to an airworthy standard would exceed their value.

It comes a month after reinsurers lost a landmark case in which they had sought to have the multitude of claims that had been brought against them heard in Russia instead of UK courts.

The lessors fought the case in the UK High Court, which ruled in their favour.

The value of the claims that would have been affected by the ruling was put at $9.7bn.

Deals

Last year, lessors had made efforts to limit their exposures by seeking to strike deals to sell their stranded aircraft to Russian buyers.

The Russian government and state airline Aeroflot has been looking to acquire the stranded aircraft and engines at reduced prices, with lessors prepared to reduce their losses as the court cases continued.

Last year, AerCap announced it had agreed a deal with Aeroflot and insurers for 17 aircraft and five engines for a figure of $645m.

AerCap also announced that it would be reducing its claim in the courts to $2.75bn due to the deal.

Aeroflot said the deal has seen the ownership of the aircraft transfered and added that it was keen to undertake similar deals with other lessors.

In October, SMBC announced that it had received a cash insurance settlement totalling around $710m in respect of its aircraft previously leased to Aeroflot.

The deals had raised hope that if similar agreements can be struck, insurers may see their liability shrink.

(Re)insurers have been reluctant to talk, but one senior market figure said there had been a rush to conclude deals before the end of last year.

“There is an ongoing issue over where these liabilities will land in terms of war or all-risk coverages and how the reinsurance market will react,” they explained.

“The other problem for the market is that aviation premium rating has been unable to react because it still does not know the size of the claims the market will eventually face.”