Unprecedented crisis in aviation will escalate into years-long battles

Unprecedented crisis in aviation will escalate into long-term battles

Air sanctions against Russia for the West can turn into ten-year legal battles between lessors and insurers. This is how aviation experts assessed the situation. “The scale of potential losses here is staggering. This could potentially be the largest aviation insurance loss in market history,” estimated Garrett Hanrahan, global head of aviation and space at insurance broker Marsh, a division of Marsh McLennan

As a reminder, leasing firms wishing to reclaim the aircraft of Russian airlines have until March 28 to terminate contracts in accordance with European Union sanctions and broader banking bans. And since Russian airlines will not give aircraft to lessors in accordance with the decree of the President of the Russian Federation, leasing companies begin to prepare the ground for covering their losses at the expense of insurers, and those, in turn, at the expense of reinsurance companies. Moreover, none of them wants to pay and is trying to find loopholes in order to minimize the damage to themselves. As a result, everyone can go bankrupt.

The following figures are given below: as of March 16, foreign lessors leased 509 aircraft to Russian operators. So far, the owners have been able to return – mainly by arresting abroad – only 14 aircraft.

As James Healy-Pratt, an aviation lawyer and partner at Keystone Law in London, said: “The scale of the challenge ahead will be massive and I expect years of litigation between landlords, insurers and underwriters over who pays the bill,” he said. He noted that only a few “captured” aircraft during the war between Iraq and Kuwait became the cause of decades of proceedings. Here, the scales are incomparable and there will be real battles.

The first process, by the way, has already begun. Singapore-based lessor BOC Aviation Ltd. this week sued the Russian airline AirBridgeCargo Airlines LLC over a Boeing Co. aircraft currently in Hong Kong. BOC Aviation claims that the cancellation of the reinsurance policy resulted in a default on their lease agreement, allowing the aircraft to be returned to possession. “As a result of the canceled and invalid insurance, BOCA terminated the lease of the aircraft and exercised its contractual right to demand the immediate return of the aircraft with all necessary documents,” BOC Aviation claims in the lawsuit. “However, AirBridge refuses to acknowledge the termination of the aircraft lease and refuses to return the documents. Instead, he is demanding that BOCA allow the plane to fly from Hong Kong to Russia.”

Some experts hope that the situation will be resolved quickly. If leasing companies can successfully get all of their planes back from Russia, any claims could vanish, according to Marsh's Hanrahan. Lloyd's of London's dominance of the reinsurance market could also discourage claims as canceled policyholders refrain from filing claims against the main insurance provider for fear of being excluded from business processes, people familiar with the matter say. Lloyd's of London, the world's largest insurance exchange, said its operations in Russia and Belarus accounted for less than 1% of its business. According to two acquaintances, the exchange offers coverage for loss or damage, as well as liability policies and a special type of “confiscation” insurance for aviation.

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