Two Irish units of aircraft lessor Aircastle have filed a nearly $25 million lawsuit against UniCredit in London to enforce letters of credit related to aircraft seized by the Russian government, according to the Irish Independent has experienced .
And Aircastle’s chief legal officer, Chris Beers, has warned that the entire aviation sector, including airlines, should be concerned that Russia’s actions could have a major knock-on effect in terms of insurance coverage.
“We saw war risk coverage disappear after 9/11,” he said Irish Independent. “Commercial markets simply retreated and governments had to step in. This could become a much broader problem affecting the airline industry.
“Airlines will not operate without war risk insurance. While we hope that doesn’t happen, we should be prepared.”
Mr Beers confirmed that two Irish units of Aircastle in London have taken legal action against UniCredit. UniCredit guaranteed lease payments due to its Irish subsidiaries on behalf of a Russian lender.
Lessors can use such letters of credit in the event of a lessee’s default.
“They have a bank that won’t cash their letters of credit when they should pay,” Mr Beers said.
“Many banks have paid,” he added.
“I can’t tell you if they use sanctions to avoid paying or if their compliance departments are just risk-averse. Conclusion: It doesn’t matter. We don’t get paid.”
Mr Beers said: “It would help if governments were 100 per cent clear that enforcing these letters of credit or receiving these funds does not violate sanctions. There is no reason why we should pay lawyers to do this.”
Western aircraft rental companies – many of them based in Ireland – have had to cancel leases with Russian airlines due to sanctions imposed on Russia following its invasion of Ukraine.
The Russian government has effectively seized about 400 planes leased from Western companies to airlines in the country.
Units of Dublin-based AerCap – the world’s largest aircraft rental company – have also sued UniCredit in London over $48 million in letters of credit.
Connecticut-based Aircastle owns 251 aircraft and manages nine with a net book value of $6.8 billion (€6.4 billion).
When Russia invaded Ukraine, Aircastle had leased 12 jets to six Russian airlines. It took back two and nine remain in Russia. Another is being maintained outside of Russia and is not operational.
Last month Aircastle announced that it had posted a net loss of US$216 million for the three months ended February, mainly due to US$252 million in non-cash impairments on its aircraft based in Russia.
Aircastle had letters of credit totaling $50 million (€47.4 million), with half of the amount due already being paid to the lessor.
The lessor has also made an insurance claim in relation to its jets seized in Russia.
“It was pretty clear that once the tanks crossed the border and sanctions were announced, the planes weren’t going to come out,” Mr Beers said.
“We will continue to seek redemption but for that very reason we buy insurance and expect them to respond. However, we are prepared for a long, contested process.”
“We hope that’s not the case,” he added.
“Sanctions don’t exclude insurance companies, but we want to be sure that insurers don’t also raise them as a problem. It should be quite clear that sanctions will not affect the process and payment of insurance claims.”
https://www.independent.ie/business/irish/aircastle-becomes-latest-aircraft-lessor-to-sue-unicredit-over-russia-41628563.html Aircastle becomes the latest aircraft lessor to sue UniCredit over Russia