AerCap Holdings NV, the world’s largest aircraft-leasing firm, is in search of about $3.5 billion from insurers related to jets and engines stuck in Russia following the invasion of Ukraine.
The claims were filed last week, Chief Financial Officer Peter Juhas said on a conference call Wednesday. Their size exceeds the Dublin-based firm’s exposure to potential asset writedowns, signaling a looming battle over who should shoulder financial losses brought on by the war.
Jet Leasing Firms Tally Up Losses Stemming From Russia-Ukraine 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. “It’s uncertain whether these efforts shall be successful. Ultimately, our economic exposure may even be offset by any recoveries that we obtain from insurance or other claims.”
The shares fell as much as 12%, probably the most since Feb. 28, and traded down 5.2% at 10:50 a.m. in Latest York.
Counting the Damage
Foreign leasing firms are beginning to tally losses from the war, which has stranded a whole lot 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 danger is that without access to parts and maintenance, the aircraft will lose their value.
Claims tied to the conflict may eventually total $10 billion, probably the most within the history of aviation insurance, Fitch Rankings estimated in a report last week. Lloyd’s of London, which dominates the market, disputes that total.
Lloyd’s Chief Executive Officer John Neal told Bloomberg last week that insurers’ liability could be limited to about 10% to fifteen% of the sum.
AerCap said it is probably not allowed to acknowledge any recoveries due from contested insurance claims under accounting rules, and expects insurers to fight “given the big sums involved across the industry,” Juhas said. The lessor could also be forced to put in writing down all the amount in the primary quarter of 2022, after which recognize eventual insurance recoveries as other income, he said.
AerCap has about $2.5 billion in danger from the Ukraine invasion and has retrieved 22 of the 135 planes placed with Russian carriers at year-end, it said in an earnings presentation. The removals, together with money from letters of credit with Russian customers, have reduced its exposure from a carrying value of $3.1 billion, the corporate said. Insurance claims and further aircraft recoveries could lower the financial hit.
Aercap will keep attempting to secure aircraft held by Russian airlines “but it surely is unclear if we are going to find a way to achieve this, or what the condition of those assets shall be on the time of repossession,” the corporate said. “We expect to acknowledge an impairment on our assets in Russia which have not been returned to us as early as the primary quarter of 2022, although we’ve not determined the quantity of any impairment.”
AerCap still expects 2022 to be positive as aviation recovers from the consequences of the COVID-19 pandemic and ensuing travel restrictions. The corporate expects revenues to climb through the course of the yr, with aircraft deferrals reducing and airlines making full lease payments, the CFO said.
“The events of Russia are actually a setback, but they’re a really manageable setback,” Chief Executive Officer Aengus Kelly said on the earnings call. “The core of the business remains to be extremely strong.”