Foreign lessors are pursuing legal action against insurance companies, seeking payouts for aircraft stranded in Russia. A court case is underway in Dublin, concerning financial claims brought by lessors against insurers due to the loss of aviation assets remaining in Russia following March 2022. Major leasing companies, including SMBC, Avolon, BOC Aviation, CDB Aviation, Nordic Aviation Capital, and Hermes Aircraft, are seeking compensation for aircraft which became blocked after Western sanctions were imposed on Russian civil aviation.
“Aircraft lessors and several insurance companies, including Lloyd’s, AIG, and Chubb, are disputing who should cover the losses. The case is expected to run for several months, with legal fees for the 180 lawyers involved potentially reaching millions of euros. Alongside a parallel case in the High Court in London, this is one of the largest and most complex commercial cases ever to come before the court,” writes The Guardian’s Ireland correspondent, Lisa O’Carroll.
The heart of the conflict lies in the termination of lease agreements with Russian air carriers in March 2022, which resulted in the unavailability of aircraft worth over a billion US dollars. After the Russian side refused to return the aircraft due to sanctions, lessors are claiming under their insurance policies. The Federal Air Transport Agency (Rosaviatsiya), placed in a difficult position by the unilateral termination of contracts, re-registered approximately 400 aircraft into the Russian registry without the knowledge of their owners. This dispute between lessors and insurers has exposed contradictions in the interpretation of insurance terms and liability in the context of geopolitical instability.
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The technical aspect of the proceedings involves a detailed examination of insurance agreements and the circumstances that led to the loss of control over the aircraft. During the court process, details of correspondence were analysed, demonstrating attempts by leasing companies to remove the aircraft from Russia prior to the imposition of prohibitive measures. For example, correspondence from BOC Aviation describes actions taken to find parking spaces for 14 aircraft at a Lufthansa facility in the Philippines, and also considered options for moving aircraft via a country friendly to Russia. The court proceedings have involved a thorough analysis of electronic correspondence regarding plans to evacuate the aircraft, as well as actions taken to ensure their preservation.
Technical experts are being called as witnesses to provide expert testimony on matters of operation, technical condition, and valuation of aircraft. A representative from BOC Aviation, for instance, provided data demonstrating the impossibility of returning the aircraft in the foreseeable future, which formed the basis of the insurance claims. This evidence and analysis of lessors’ actions aim to prove the legitimacy of their claims against the insurance companies.
The complexity of the case also stems from the significant number of stakeholders, as well as the multitude of legal subtleties associated with international leasing and insurance. Aercap, a leading global lessor, is conducting its own legal proceedings in London. Aercap has already reached partial settlements with insurers amounting to $1.3 billion, but continues to seek full satisfaction of their claims. Clarifications of specific technical details and contract terms are critical in determining liability and the amount of compensation.
The court proceedings in Dublin are currently ongoing, and their completion date remains uncertain. The hearing in the Irish Commercial Court is expected to last at least 12 weeks.
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In reality, many foreign aircraft operated by Russian airlines have dual registration, preventing their use outside of the Russian Federation, even in friendly countries. There are two potential solutions to this problem: negotiating with lessors and purchasing the aircraft, thereby removing their foreign registration, or obtaining permission to return these aircraft to their foreign leasing companies. Permission to return the aircraft can only be granted by the Russian government through a relevant order.
Aviation experts have voiced the view that it is not practical to hold on to aircraft which are banned from flying in Russia, and that it would be more sensible to return them to the lessors. Whilst it is still possible to try and resolve the issue through negotiations with the aviation authorities in Bermuda, as evidenced by the de-registration of at least five Aeroflot A320 aircraft, this has not been the case with lessors.
Siberia Airlines (marketing name S7 Airlines) owned two B737 MAX 8 aircraft, acquired in 2018. After two fatal accidents in Indonesia and Ethiopia in the autumn of 2018 and spring of 2019, the operation of this type was prohibited in Russia. Rosaviatsiya has not conducted a recertification of the B737 MAX 8, however, despite this, foreign carriers are permitted to fly to Russia using this type of aircraft, and the airspace and airports are open to them.
The aircraft with registrations VQ-BGV and VQ-BGW, owned by S7, were in storage at Tolmachevo Airport for a significant period, requiring substantial expenses to maintain them in an airworthy condition. The airline approached the Ministry of Transport seeking permission for their return to the foreign lessor. Permission was granted in the summer of 2022.
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Currently, the former S7 aircraft registered as VQ-BGV is flying as part of the Kazakhstan-based airline SCAT. The aircraft has been given the new registration UP-B3742 and operates primarily within Kazakhstan, and from Kazakhstan to foreign airports, including in Cambodia, Thailand, and Vietnam. The aircraft also occasionally flies to Yekaterinburg.
The second aircraft, VQ-BGW, was returned to US-based Air Lease Corporation (ALC) in 2023, and entered the fleet of Turkish airline Southwind, where it was registered in the Turkish Republic under number TC-GRM. However, in December of that year, the aircraft was transferred to Malta to airline SmartLynx Malta with registration 9H-LYR. This aircraft now operates mainly in Turkey, and occasionally to major cities in Germany.
Therefore, the return of the B737 MAX 8 aircraft, which have no prospects for operation by Russian airlines and which have caused considerable distrust after the accidents, scandals, and fatalities at Boeing, has significantly reduced the financial burden on S7 Airlines.
“It appears sensible to implement a similar return of non-operational A320neo aircraft on terms that are acceptable to all parties. Initial talks with the aircraft owners are going well,” stated Oleg Evdokimov, president of ATEO Air, economist, author of more than 500 articles on aviation economics and known primarily as an aggressive promoter of the Superjet 100 aircraft.
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