(Bloomberg) -- AerCap Holdings NV, the world’s largest aircraft-leasing firm, filed insurance claims totaling about $3.5 billion tied to jets and engines stuck inside Russia that it hasn’t been able to recover since the invasion of Ukraine.
The claims were filed last week, Chief Financial Officer Peter Juhas said on a conference call Wednesday. Its size exceeds the Dublin-based firm’s exposure to potential asset writedowns, signaling a looming battle with insurers over who will shoulder financial losses caused by the war.
“We also plan to pursue all other avenues for the recovery of value of our assets, including other legal claims available to us,” Juhas said after AerCap reported annual results. “However, it is uncertain whether these efforts will be successful. Ultimately, our economic exposure will also be offset by any recoveries that we obtain from insurance or other claims.”
The shares fell 13% in New York ahead of regular U.S. trading.
Counting the Damage
Foreign leasing firms are starting to tally losses from the war, which has stranded hundreds of planes leased to customers in Russia. Sanctions require the owners to cancel contracts and demand the jets’ return, which AerCap said it has done. But Russia’s government has prevented the planes from leaving the country, and the risk is that without access to parts and maintenance, the aircraft will lose their value.
Claims tied to the war in Ukraine may eventually total $10 billion, the most in the history of aviation insurance, Fitch Ratings estimated in a report last week. Lloyd’s of London, which dominates the aviation insurance market, disputes that total.
Lloyd’s Chief Executive Officer John Neal told Bloomberg last week that insurers’ liability would be limited to about 10% to 15% of the sums.
Aircraft Recovery
AerCap has about $2.5 billion at risk tied to Russia’s invasion of Ukraine, and said Wednesday it expects to at least partially write down the value of the assets.
The Dublin-based firm has retrieved 22 of the 135 planes placed with Russian carriers at year-end, it said in an earnings presentation. The removals, along with cash from letters of credit with Russian customers, have reduced its exposure from a carrying value of $3.1 billion at year-end, the company said. Insurance claims and further aircraft recoveries could lower the financial hit.
Aercap will keep trying to secure aircraft held by Russian airlines that used to be its customers, “but it is unclear if we will be able to do so, or what the condition of these assets will be at the time of repossession,” the company said. “We expect to recognize an impairment on our assets in Russia that have not been returned to us as early as the first quarter of 2022, although we have not determined the amount of any impairment.”
Russian Move
Avolon Holdings Ltd., the world’s second-biggest lessor, which currently only has 10 planes in Russia, estimated its balance-sheet exposure was less than $200 million, Chief Executive Officer Domhnal Slattery said in an interview Tuesday.
Russia’s move to transfer almost 800 jets to its own registery has triggered a wave of insurance claims from leasing firms, Bloomberg News reported last week.
Aircraft and engines in Russia at year-end represented about 5% of AerCap’s global fleet by value, it said in the earnings statement, describing potential losses as “manageable.”
(Updates throughout with insurance claim)
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