How Sanctions Reshaped the Aviation Leasing and Insurance Market

Photo by © aviateka.su

In June 2025, the High Court in London delivered one of the most significant rulings in the history of international aircraft leasing. AerCap, the world’s largest commercial aircraft owner and an Irish company, was awarded $1.035 billion in compensation from leading insurers for aviation assets that remained in Russia following the onset of the military conflict in Ukraine in February 2022. The lessor effectively lost about 147 aircraft and 16 aircraft engines.

In February and March 2022, Western nations imposed what the US Congress termed “hellish” sanctions against Russia, directly targeting the aviation sector. The most severe measures included bans on aircraft deliveries and maintenance, the severing of supply chains with Russian aerospace enterprises, and the freezing of Russian airline assets. These actions led to the termination of leasing contracts with Russian carriers. In response, on March 10, 2022, the Russian government enacted Decree No. 311 (dated March 9, 2022), which prohibited the export of certain goods—including aircraft, drones, satellites, and aviation equipment—outside Russia through December 31, 2022.

Additionally, on March 8, 2022, the Russian President signed Decree No. 100, introducing special economic measures in the field of foreign economic activity, including regulations on the operation and export of foreign aircraft under sanctions. Exceptions were made for deliveries to member states of the Eurasian Economic Union, Abkhazia, South Ossetia, and for transit through Russian territory.

These measures formed the legal basis for courts to recognize that foreign aircraft remaining in Russia were inaccessible to their owners due to Russian legislation. This restriction has not been lifted and remains in effect through subsequent legal acts and decrees governing the leasing and operation of foreign aircraft in Russia. Foreign lessors found themselves unable to repossess their aircraft, which continued to be operated in Russia. This legal impasse resulted in substantial losses for lessors and sparked disputes over liability for compensation.

In international aviation insurance, various policy types are used to allocate risks. Not all risks are covered equally—some are considered more predictable, while others are extraordinary, linked to conflicts or government actions. The two primary types of insurance are “all-risks” and “war risks” coverage.

“All-risks” insurance covers a broad range of accidental damage or loss, including technical malfunctions, accidents, fires, and other standard operational risks. However, such policies often exclude losses caused by war, political events, or acts of government. “War risks” insurance is a separate policy activated by losses resulting from war, terrorism, hijacking, sabotage, and other conflict-related or governmental actions.

While the terms may sound similar, they have fundamentally different implications in practice. This distinction led to disputes between lessors and insurers. Lessors argued that the Russian government’s ban on aircraft export constituted a “government act,” triggering war risks coverage. Insurers, meanwhile, sought to limit payouts, claiming that the aircraft were not lost and should be covered under all-risks policies.

The British court, however, rejected these arguments and recognized the situation as a “government act” under war risks insurance, entitling lessors to claim under these policies rather than all-risks. High Court Judge Christopher Butcher emphasized that EU and US sanctions do not exempt insurers from liability, and that the lessors’ losses were directly caused by Russian government actions.

War risks insurance is triggered when standard all-risks policies do not apply, such as during bans, sanctions, or armed conflict. In the current context with Russia, war risks coverage has become the primary mechanism for compensation. Sanctions and Russia’s countermeasures have created an unprecedented legal dilemma, posing a major challenge for the global leasing industry. Recent court decisions confirm that risks in this sector have risen dramatically, and insurance policies now require careful reassessment.

The High Court’s ruling paves the way for similar claims by other lessors, such as Merx Aviation and Dubai Aerospace Enterprise, whose aircraft also remain in Russia. This could lead to a surge in insurance payouts, forcing insurers to revise war risks coverage terms, significantly raise premiums, or even withdraw from covering certain regions or aircraft types. Such developments may create additional challenges for airlines and drive up air transport costs for end consumers.

Leasing and insurance experts note that the current crisis has been a wake-up call for the industry, exposing the vulnerability of international supply and leasing chains amid sanctions and political instability. More than just a lesson, this represents a fundamental paradigm shift, altering the rules of the global aviation leasing and insurance market. It demonstrates that geopolitical risks have been underestimated by lessors and insurers. Going forward, the industry must develop more sophisticated risk assessment models, factor in political risks, and establish contingency reserves for potential losses.

First, the court clearly classified the aircraft losses as the result of a “government act or order by the Russian government,” rather than as technical faults or ordinary property loss. This legal precedent establishes that state actions—such as export bans—can trigger war risks insurance payouts. This approach significantly broadens the scope of insurance obligations under geopolitical instability.

Second, the court affirmed that EU and US sanctions do not relieve insurers of their obligations. This sends a clear message to the insurance market: political and economic restrictions cannot be used as grounds for denying contractual payouts. For lessors and insurers, this means a need for more rigorous risk assessment and a revision of insurance products to reflect new realities.

Third, the $1 billion award, in addition to the $1.3 billion previously recovered, brings AerCap’s total compensation to approximately $2.3 billion. While this only partially offsets the losses from the inability to recover aircraft from Russia, it underscores the scale and complexity of the dispute-AerCap’s original claim exceeded $3.4 billion. Ultimately, this ruling opens the door to similar recoveries by other major lessors with aircraft “stranded” in Russia. Collectively, this could result in multi-billion-dollar payouts and force the industry to adapt to new risks associated with political and military conflicts.

Experts increasingly point out that such situations are a direct consequence of sanctions policy and retaliatory measures, which deeply impact not only sanctioned companies but also global markets and the leasing business in sanctioning countries themselves. This underscores the need for prudence and restraint among policymakers, who must carefully weigh the long-term consequences of sanctions for the aviation sector and the global economy, avoiding political decisions that could harm strategically important industries.

Otherwise, we may see further fragmentation of the global aviation market, the emergence of regional “bubbles” with their own rules and standards, and a rise in protectionism within the industry. Such trends would negatively affect international trade and global mobility.

By Artem Kirillov
for Aviation of Russia Website.

Sources:

24
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