Aviation news international – The Boeing groundings which began in 2019 spiralled into a $3bn+ loss impacting multiple XoL treaties and retro programs, while Russia\u2019s invasion of Ukraine created the black swan event whereby ~400 Western-owned aircraft were left behind in the pariah state.<\/p>\n
The latter \u2013 as we documented in yesterday\u2019s edition of our Monte Carlo Dailies \u2013 has prompted a tidal wave of litigation from aircraft lessors against insurers providing different pockets of coverage, including contingent all risks and war.<\/p>\n
Our tracker \u2013 also published yesterday \u2013 lists claims worth ~$10bn principally in the UK courts. However, this has the potential to grow, as most estimates suggest the total value of aircraft trapped or confiscated in Russia at around $13bn.<\/p>\n
The situation is fiendishly complicated and, on account of the traditionally high limits expected in aviation reinsurance, potentially costly. It also raised the prospect of years of highly paid lawyers arguing multiple points around wordings coverage, the impact of sanctions, loss causation and cancellation terms.<\/p>\n
But on the eve of the\u00a0Rendez-Vous<\/em>\u00a0came a potentially major breakthrough. AerCap \u2013 the world\u2019s largest lessor \u2013 agreed a settlement with Russian operator Aeroflot relating to 17 aircraft which, crucially, had the approval of US authorities and indeed banks, and was thus not in breach of sanctions.<\/p>\n After all, if the lessors are able to strike deals with the Russian operators, then this not only reduces the loss but also opens up the possibility of the international insurers reaching commercial settlements with the leasing companies.<\/p>\n As Lloyd\u2019s CEO John Neal said: \u201cIt\u2019s good news for us too \u2013 it means we can sit down and start to have the conversation about what the claim is.”<\/p>\n Indeed, this publication understands that the outlook may be even more positive than originally assumed, following our analysis of the structure of the settlement after talking to aviation specialists familiar with the deal.<\/p>\n The $645mn settlement saw Aeroflot pay around two-thirds of the insured value of the aircraft and engines. In addition, AerCap retains its circa 10 percent maintenance reserves, which means the \u201cinsured loss\u201d falls to around 25 percent of the assets in scope (following the settlement AerCap reduced its claim against all-risk insurers to $2.75bn).<\/p>\n Being the largest and most influential aircraft lessor, it is reasonable to assume this will be a framework that AerCap will apply with other operators and which may also be adopted by other lessors.<\/p>\n Furthermore, one sticking point had been US sanctions and Western banks wary of transacting any deal. This settlement proves there are workarounds with regulators and financial institutions.<\/p>\n If the overall loss falls by circa 75 percent then there is clearly a much more manageable figure to negotiate commercial settlements between insurers, reinsurers and the lessors. Few would want to roll the legal dice of uncertainty in that situation.<\/p>\n In other words, the likelihood of the worst loss outcome has significantly reduced \u2013 this can only be good news for primary aviation insurers and their reinsurers.<\/p>\n