(Bloomberg) — AerCap Holdings NV, the world’s largest aircraft-leasing firm, is seeking about $3.5 billion from insurers related to jets and engines stuck in Russia following the invasion of Ukraine.
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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 caused by the 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 is uncertain whether these efforts will be successful. Ultimately, our economic exposure will also be offset by any recoveries that we obtain from insurance or other claims.”
The shares fell as much as 12%, the most since Feb. 28, and traded down 5.2% at 10:50 am in New York.
Counting the Damage
Foreign leasing firms are starting to tally losses from the war, which has stranded hundreds 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 risk is that without access to parts and maintenance, the aircraft will lose their value.
Claims tied to the conflict may eventually total $10 billion, the most in the history of aviation insurance, Fitch Ratings 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 would be limited to about 10% to 15% of the sum.
AerCap said it may not be allowed to recognize any recoveries due from contested insurance claims under accounting rules, and expects insurers to fight “given the large sums involved across the industry,” Juhas said. The lessor may be forced to write down the entire amount in the first quarter of 2022, and then recognize eventual insurance recoveries as other income, he said.
AerCap has about $2.5 billion at risk 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, along with cash from letters of credit with Russian customers, have reduced its exposure from a carrying value of $3.1 billion, the company said. Insurance claims and further aircraft recoveries could lower the financial hit.
Aercap will keep trying to secure aircraft held by Russian airlines “but it is unclear if we will be able to do so, or what the condition of these assets will be at the time of repossession,” the company said. “We expect to recognize an impairment on our assets in Russia that have not been returned to us as early as the first quarter of 2022, although we have not determined the amount of any impairment.”
AerCap still expects 2022 to be positive as aviation recovers from the effects of the Covid-19 pandemic and ensuing travel restrictions. The company expects revenues to climb through the course of the year, with aircraft deferrals reducing and airlines making full lease payments, the CFO said.
“The events of Russia are certainly a setback, but they are a very manageable setback,” Chief Executive Officer Aengus Kelly said on the earnings call. “The core of the business is still extremely strong.”
(Updates throughout with comments from CFO and CEO on insurance claim, outlook.)
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