Finally, after two years, a glimmer of hope for Century City-based aircraft leasing company Air Lease Corp. in its struggle with insurers to get recompense for more than 20 aircraft stranded in Russia after that country’s invasion of Ukraine and resulting Western nation sanctions.
Last month, Air Lease disclosed the first of what it hopes will be many settlements with insurers: a nearly $65 million payout from a Russian insurer for four stranded planes leased to a Russian airline.
That development followed a relatively upbeat fourth quarter aircraft sales and financing activity report from the company.
The insurance payout disclosure came in a Dec. 22 filing with the Securities and Exchange Commission. It said that NSK Insurance Co., the Russian insurer for Russian airline JSC Siberia Airline – commonly known as S7 Airline – had on Dec. 21 paid $64.9 million to settle Air Lease claims on four aircraft – three Airbus A-320-200 and one Airbus A321-200 – that had been leased to S7.
Air Lease went on to say in its filing that the settlement with NSK did not cover five other Airbus A321neo aircraft that it had previously leased to S7 Airlines.
The company declined to comment further beyond what was in the filing.
Nonetheless, this is the first settlement with insurers over the 21 Air Lease-owned aircraft that remain stranded in Russia.
At the time of Russia’s invasion of Ukraine in late Feb. 2022, 29 Air Lease planes were stranded in Russia by actions of both Russian President Vladimir Putin and the United States and its European NATO allies.
In the immediate aftermath of the invasion, the United States and its European partners ordered aircraft lessors such as Air Lease to repossess all planes on lease to Russian air carriers. But before this order could be carried out, Russian President Vladimir Putinordered the effective seizure of the hundreds of aircraft in question. He signed a law that required Russian government approval before any leased aircraft could be repossessed and taken out of the country. At the time, he stated he took the action to ensure that there were enough planes for domestic flights within his vast country, which covers 11 time zones.
Despite these orders, Air Lease was able to negotiate to get eight of its leased aircraft out of Russia, though the company declined to provide any details on how this was achieved.
Concurrently, in June 2022, Air Lease filed claims against the carriers underwriting its aviation insurance policies, setting the stage for what many considered to be a long battle. In December of that year, Air Lease followed up by filing a series of lawsuits in California Superior Court in Los Angeles against these insurers.
That same December, Air Lease announced that it had taken an $802 million writedown on its planes remaining in Russia; that writedown has since been adjusted downward to $772 million.
This first settlement covers only about 8% of that revised total writedown cost, a fact noted by one analyst who follows the company.
“It’s a relatively small settlement when compared to the totality of outstanding claims,” said Helane Becker, analyst with New York-based TD Cowen. “We are pleased to see this insurance payment come through, but we believe the claim process remains open and additional monies will be forthcoming.”
One of Air Lease’s competitors has been much more successful so far in its claims recovery. In October, Dublin, Ireland-based SMBC Aviation Capital announced that it had received $710 million in claim settlement proceeds from the same insurer, NSK, for 16 aircraft leased to Moscow-based air carrier Aeroflot.
But SMBC Aviation Capital had a total of 34 planes stranded in Russia and took a writedown totaling $1.6 billion, twice the amount that Air Lease took.
Air Lease said in its filing that it is committed to securing as much as possible in payouts on its remaining claims.
“The company continues to have significant claims against its aviation insurance carriers and will continue to vigorously pursue all available insurance claims and its related insurance litigation, and all rights and remedies therein,” the filing stated.
Aircraft deliveries up
Meanwhile, in its fourth quarter activity summary, Air Lease reported delivering 22 new aircraft from its order book, up from 16 for the same quarter the previous year.
The company also reported purchasing roughly $1.2 billion worth of new aircraft from the two global manufacturers: Leiden, Netherlands-based Airbus S.E. and Chicago-based Boeing Co. That was up from approximately $1 billion from the fourth quarter of 2022.
In addition, Air Lease during the fourth quarter sold seven aircraft to third-party buyers; proceeds from those sales totaled about $440 million.
Analyst Becker expressed cautious optimism about these figures.
“The volumes were more than we expected, but we wouldn’t read too much into (that),” Becker said. “The manufacturers tend to try to deliver as many aircraft as possible to make their own numbers, so we generally expect a small positive surprise in the fourth quarter.”
The report also contained a fleet summary. As of Dec. 31, Air Lease’s fleet was comprised of 463 owned aircraft and 78 managed aircraft, with 334 new aircraft on order from Boeing and Airbus set to deliver through 2029.
That compares with 417 company-owned aircraft and 85 managed aircraft as of Dec. 31, 2022. But the number of aircraft on order was lower than the end of 2022 level of 398 new aircraft on order from Boeing and Airbus that were set to deliver through 2028.
Air Lease will provide more thorough fourth quarter data when it releases its fourth quarter and full-year earnings in two weeks. Company executives will also get their say in the accompanying earnings teleconference call on these activity levels – and on the insurance settlement.
