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Aircraft leasing firms are tallying up losses stemming from Russia’s invasion of Ukraine, according to the head of Avolon Holdings Ltd., one of the biggest players in the industry.

Lessors are in dialogue with auditors “about what financial provisions should be made” and are preparing to disclose figures with first-quarter results, Avolon CEO Domhnal Slattery said in an interview. “You’ll see how that plays out over the next month or so when the various aircraft leasing companies report.”

Stakeholders in the leasing industry have been struggling to assess the impact of the war, ensuing sanctions and the current tussle over foreign-owned aircraft being held in the country. 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.

Avolon, the world’s second-largest aircraft lessor, recovered four aircraft that were placed with Russian airlines when sanctions were imposed by the European Union, leaving 10 stranded in the country. It estimates its balance-sheet exposure is less than $200 million, Slattery said Tuesday. The Dublin-based firm has canceled all contracts and will draw down deposits and letters of credit from Russian customers, and will make insurance claims to recover potential losses.

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Slattery wouldn’t say what portion of the $200 million will be covered by insurers. Avolon has far less exposure to the Russian market than rivals AerCap Holdings NV and SMBC Aviation Capital, at about 1% of its entire fleet. But its analysis will help investors calculate potential losses, including how much will be borne by insurance firms such as Lloyd’s of London, which dominates the market for aviation.

Slattery said in an interview with Ireland’s RTE Radio that the value of the original 14 Avolon-owned aircraft with Russian carriers totaled about $400 million, suggesting about half of its investment remains at risk.

“We believe that our possessed contingency insurance is in place and is entirely valid,” Slattery said. “And we have complied with all of the conditions of those insurance policies.”

AerCap, the world’s largest jet-leasing firm, had 142 aircraft placed in Russia as of March 10, according to consulting firm IBA. The Irish firm is scheduled to report first-quarter results on Wednesday. The Insurer trade publication reported that AerCap has submitted a $3.5 billion claim on its all-risks policy, triggering what is expected to be a drawn-out battle over who foots the bill.

Representatives for AerCap didn’t respond to requests for comment.

Historic Amount

Claims tied to the war in Russia could total $10 billion, the highest in the history of aviation insurance, Fitch Ratings said in a report last week. Lloyd’s CEO John Neal told Bloomberg Television that those figures were for asset values, and insurers’ liability would be limited to about 10% to 15% of the sums.

Many of the planes re-registered in Russia remain on the rolls in jurisdictions including Bermuda and Ireland. Holding onto aircraft that had their leases cancelled could actually help lessors with their insurance claims, by demonstrating “the intent to confiscate,” Steven Udvar-Hazy, chairman of Air Lease Corp., said earlier this month.

While lessors have the right to repossess planes under international treaties, there is no realistic way of doing so. Avolon-owned planes in Russia include Airbus SE A320-family and Boeing Co. 737 narrow-bodies placed with S7 Airlines, Ural Airlines and Pobeda, the discount arm of state-owned Aeroflot PJSC, according to a list compiled by flight tracking website FlightRadar24.

“Our exposure to Russia was always de minimis, because we were always nervous about the jurisdiction and the political risk,” said Slattery. He called Russia’s offer to purchase the aircraft, seen as an attempt to smooth relations with lessors for after the war, “a no-go zone.”

“I think that’s just propaganda,” he said.

Photograph: The tailfins of passenger jets operated by Pobeda Airlines at Vnukovo International airport in Moscow, Russia. Photo credit: Bloomberg.

Topics Trends Profit Loss Russia