In late March 2022, amid the fallout from Russia’s full-scale invasion of Ukraine that stranded 29 planes in Air Lease Corp.’s fleet inside Russia, Air Lease shares dropped 10%.

To stem further erosion in the stock price, Air Lease co-founder and then-chairman Steven Udvar-Hazy and Chief Executive John Plueger attempted at an industry conference to reassure nervous investors that things weren’t as bad as they seemed. They noted the stranded planes represented less than 5% of the

company’s overall fleet and that it had a strong legal case it could present to its insurers to convince them to cover the stranded planes. The stock stabilized.

Weeks later, Air Lease disclosed in a regulatory filing that it had taken a write-off against earnings of $802.4 million for the 27 planes that remained stranded in Russia. The company’s stock initially fell 5% on the news, though the loss was cut to 1% by the end of the trading day.

The stage had been set for a long battle between Air Lease and its insurers, with few expecting that the Century City aircraft leasing firm would ever recover the total write-off amount.

But in a remarkable turn of events, Air Lease announced that it had done just that – and then some – in its most recent quarterly earnings report.

“To date, I’m very pleased to say that we recovered or have signed agreements to recover 104% of our initial Russia fleet write-off,” Plueger told analysts immediately following the earnings release in early August.

Shares didn’t budge in response, but that was because they had jumped 8% after the previous quarter earnings release, when the company announced a major insurance settlement along the path to recovery.

Nonetheless, it marked a major achievement for the company, one that has helped restore its balance sheet. And it happened quickly as these matters go, not five or 10 years later following a long legal battle.

“(Air Lease) has exceeded my expectations with the speed and size of these recoveries,” said an analyst with Seeking Alpha, who goes by the pseudonym Seeking Profits. “These payments have helped to restore (Air Lease)’s financial strength.”

Stranding of planes in Russia

Before the events of the winter of 2022, Russia had been a very lucrative market for Air Lease. After the collapse of the Soviet Union, several new air carriers arose and began rapidly expanding their route offerings, especially inside the vast expanse of Russia. That meant they needed to lease lots of planes. Air Lease and several other aircraft leasing companies – most notably Dublin-based AerCap Holdings – rushed in to fill the market.

After Russia conducted its full-scale invasion of Ukraine in late February 2022, the United States and its European allies imposed sanctions that, among other things, required most financial transactions with Russian companies cease by March 28 of that year. The deadline was rendered moot when Russian President Vladimir Putin ordered on March 14, 2022, the seizure of all planes that had leasing arrangements with foreign countries, ostensibly to ensure that enough aircraft were available for domestic routes.

Hardest hit was AerCap, which had 113 planes inside Russia. Air Lease initially had 29 aircraft in Russia, and somehow managed to extract two by month’s end.

Making the argument for insurance coverage

In early April 2022, Air Lease took its $802.4 million write-off for the 27 remaining planes. Then in June 2022, the company filed claims worth approximately $791 million with its insurers to recover the value.

In his comments to investors and analysts at that late March 2022 industry conference, Udvar-Hazy cited two arguments in the company’s favor as the negotiations began with the insurers. First, the company argued that Putin’s seizure of the aircraft should trigger the “intent to confiscate” clause in its war-risk insurance riders and policies.

Second, he noted that all the seized planes had their registrations in other countries, most often Bermuda or Ireland.

“You can’t have under international law a dual registration,” Udvar-Hazy told conference participants. “So (the Russian government) can put whatever decals they want, but it won’t be recognized by the international community.”

Settlements start rolling in

Those arguments may have carried some weight. In December 2023, Air Lease announced its first settlement: $64.9 million for four aircraft leased to Russian air carrier S7.

But the big news on the settlement front didn’t come until this spring. On March 24, the company announced that it had received $382.5 million in settlements with insurers during the first quarter, bringing the overall total to $424 million, or about 54% of its total claim amount.

A few weeks later, Udvar-Hazy noted the significance of the settlement trajectory for the company’s balance sheet.

“The significant insurance recoveries we have received to date puts us at our target debt-to-equity ratio,” Udvar-Hazy told analysts during the company’s first quarter earnings conference call. “This now allows us to consider a wide range of capital allocation, and we are doing so, including organic and inorganic growth and returning capital to shareholders.”

He also said the company was awaiting further insurance recoveries.

With more than half of the company’s claims already recovered and a hopeful outlook for much of the rest, Air Lease investors reacted positively, sending shares up 8% in the trading session following the conference call.

More good news came on July 8, when Air Lease announced it had received another $344 million from a settlement with a single insurance company for an unspecified number of planes stranded in Russia. This brought the total amount recovered to $768 million, which was 97% of its total claim amount and nearly 96% of the write-off amount.

The write-off and then some…

Finally, in its second quarter earnings release on Aug. 4, Air Lease said it had entered into agreements to recover 104% of its write-off amount and that it expects to recognize during the third quarter another $60 million in settlements.

In the company’s conference call with analysts, chief executive Plueger said that the company was “still in litigation in London” with one or more of its insurers. He did not indicate whether the litigation pertained to the $60 million the company said it expects in settlements during the third quarter or additional settlements beyond that.

While that additional $60 million would bring the total in recoveries to $828 million, or 104% of the company’s write-off amount, that does not factor in the millions of dollars Air Lease has had to spend in negotiations with its insurers.

Improved debt standing

Whatever the case, the fact that Air Lease is set to recover all of its write-off for its stranded Russian planes and through that has restored its desired debt-to-equity ratio carries enormous financial benefits for the company.

In its normal course of business, Air Lease has to draw on billions of dollars in credit facilities to buy planes that can then be leased to airline customers. A single plane can cost more than $250 million and Air Lease typically buys several planes at a time. In April, the company announced it had increased its existing credit facility with more than 50 financial institutions to $8.2 billion. Maintaining a good debt profile is crucial for the company to continue to access these huge amounts of dollars.

“Our point about just reaching our debt-to-equity ratio is simply that we are building a very, very strong balance sheet with excess capital such that any capital moves or capital deployment we may make will be meaningful,” Plueger said during the conference call. “At the same time, it gives us the ability to retain a very strong balance sheet with no threat at all to our rating – our investment-grade ratings.”