In the first known deal of its kind since sanctions were imposed on Russia for its invasion of Ukraine, a Russian airline and a Western lessor have agreed to settle an insurance claim over Airbus and Boeing aircraft stranded there. AerCap and Aeroflot Group released separate statements confirming not only that the two had been in full negotiations, something that the Russian side had already alluded to, but that a cash payment had been exchanged for the aircraft.
“The process of settling relations with the lessor AerCap (Ireland) for 18 aircraft and five aircraft engines operated by Aeroflot Group companies has been completed,” the majority state-owned Aeroflot, Pobeda, and Rossiya parent said in its statement dated September 5.
“AerCap has terminated its claims against the Russian parties both under insurance policies issued by Russian insurance companies and under leasing agreements with Aeroflot and Rossiya Airlines. Ownership of the aircraft and engines was transferred to the insurance company NSK Insurance Company LLC, which paid the settlement amount,” it added.
Aeroflot Group concluded that it would continue negotiations on the settlement of claims with other lessors of foreign-made aircraft.
Around 400 Western planes are believed to be stranded in Russia following the Ukraine invasion. However, as early as May 2022, less than three months into the war, Aeroflot said it had “purchased” eight A330s “from foreign lessors” and transferred them to the Russian registry.
In its own statement, a filing to the United States Securities and Exchange Commission (SEC), AerCap said that “on September 5, we received cash insurance settlement proceeds in the total amount of approximately USD645 million in full settlement of our insurance claims under Aeroflot Group’s insurance policies in respect of the 17 aircraft and five spare engines on lease to [Aeroflot and Rossiya] at the time of Russia’s invasion of Ukraine in February 2022.” It is not clear why the number of aircraft differed from Aeroflot’s statement by one.
The settlement proceeds came from the Russian state-owned insurance firm NSK, it said, and “we have released our claims against NSK, Aeroflot, Rossiya, and their international reinsurers with respect to these aircraft and engines.”
It stressed that the US Department of Commerce and the US Department of the Treasury had approved the agreement and the receipt of proceeds and that the deal was “consistent with other applicable sanctions regimes.” As the European Commission told ch-aviation in July, EU sanctions do not prohibit such insurance settlements with Russian entities, “provided that certain strict conditions are met.”
All-risks insurance companies continue to be locked in court cases over who should pay for the loss of up to USD10 billion worth of equipment, although AerCap said that its settlement with Aeroflot will lower the bill. AerCap brought a USD3.5 billion lawsuit in London in June 2022 against AIG and Lloyd’s over 141 aircraft and 29 engines it owned that were on lease to Russian carriers, and it said in its latest statement that this would be reduced to about USD2.75 billion.
AerCap ended by saying that “insurance settlement discussions are ongoing with respect to our claims under the insurance policies of several other Russian airlines. However, it is uncertain whether any of these discussions will result in any insurance settlement or receipt of insurance settlement proceeds and, if so, in what amount. In particular, it remains uncertain whether the necessary approvals and funding to complete any such further insurance settlements can be obtained.”
AerCap CEO Aengus Kelly acknowledged during an earnings call in March that his company had been approached by Russian carriers and their own insurance companies in an effort to seek compromise, but he said it was unclear how such a deal could be reached given the dominant nature of the sanctions.
