Russia-Ukraine war still impacting aircraft leasing

Two years on from the start of the Russia-Ukraine war, many aircraft and related assets are still stranded within Russia, causing huge challenges for aircraft leasing companies, both in Ireland and worldwide. As a result, lessors have been suing dozens of insurers over losses of at least $8 billion, with vast court trials scheduled in Dublin in June and London in October. Some settlements have been reached, but the situation remains problematic for many lessors.

“Reports indicated that at the time of the EU deadline of March 28, 2022 for aircraft lessors to have ended their lease agreements with Russian carriers, only 31 aircraft had been returned, with approximately 400 still located in Russia,” commented Jamie Ensor, partner and head of restructuring & insolvency at Dillon Eustace, a leading law firm with a dedicated aviation and asset finance team.

“In March 2022, the Russian Deputy Prime Minister said that all foreign-leased aircraft still in Russia after the termination of Western leasing contracts would remain in Russia. Therefore the recovery of aircraft from Russia, if not achieved in the immediate aftermath of the invasion of Ukraine, has proved very difficult and requires the approval of the Russian Transport Ministry.”

Many lessors have resorted to costly litigation to recover their assets or offset their losses. “Unpaid lease obligations can give rise to causes of action against the airlines/operators, as well as any entities that have guaranteed the lease repayments,” said Ensor. “Those obligations may be owed by non-Russian entities (although usually connected or within the same group of companies), that can still have substantial assets outside of Russia. In some circumstances, worldwide freezing orders can be obtained, preserving those non-Russian assets until court judgment is obtained and then continuing those orders in aid of execution of any judgment granted. Litigation of this kind can also result in negotiated settlements.”

Success in such litigation is dependent on many factors, and there are significant challenges, warned Ensor. “There are challenges in identifying assets of Russian airlines/operators located outside of Russia and obtaining preserving orders before those assets are moved. Having Irish orders recognised throughout Europe is reasonably straight-forward, but not necessarily so in jurisdictions such as the Middle East, for example. In addition, the costs of bringing time-critical and/or long-running litigation before the Commercial Court in Ireland can be significant.

“Every case is different and the prospects for any case will depend on a multitude of factors, but we are aware of at least one successful outcome for a leasing firm in the Irish Courts.”

With several big court cases still to come, some aircraft leasing firms have already secured settlements with Russia. At the end of January, Reuters reported that several lessors, many located in Ireland, have secured over $2.5 billion for over a quarter of the roughly 400 aircraft stuck in the country since Moscow’s invasion of Ukraine in 2022. These planes will then be handed over to state insurance company NSK, which will transfer them to Russian airlines.

NLK-Finance, a subsidiary of NSK, had reportedly been allocated 296.8 billion roubles ($3.31 billion) to buy out aircraft from these lessors, according to Russia’s finance ministry in January.