Aircraft lessors set for insurance cost shock after Russian sanctions
The head of lessor BOC Aviation warned hefty insurance price rises are coming for lessors after Russia’s invasion of Ukraine and its effect on the aircraft leasing industry.
“One of the unforeseen consequences… will arrive on desks in the form of insurance renewal costs later this year,” Robert Martin said at the CAPA Airline Leader Summit on April 7, 2022. “I’m hearing some horrendous numbers,” he said. BOC Aviation’s insurance renewals aren’t due until 2023 however, he said.
Under sanctions imposed on Russia after its invasion of Ukraine, leasing companies have to end contracts with Russian operators. However, getting their aircraft out of Russia has not been easy and Russian authorities have taken action to re-register aircraft and keep the fleet in the country.
BOC Aviation, part of Bank of China Group, said in a separate quarterly update on April 7, that its portfolio included 17 owned and one managed aircraft that were formerly leased to airlines in Russia. The book value of those aircraft is $589 million, equivalent to 2.5% of its total assets. BOC Aviation’s total fleet includes 530 aircraft that are either owned, managed or on order.
“As a leasing company you want to be globally diverse. We’ve done that,” Martin told the summit.
BOC Aviation has managed to repossess one Boeing 747-800F aircraft that was on lease to Volga-Dnepr unit Air Bridge Cargo. “[It’s] taken on a life of its own,” Martin joked of the media interest in the aircraft.
Martin said the only way for lessors to repossess their aircraft was through negotiation. “I feel sorry for our Russian customers. They’ve been put in this situation not by something they’ve done but by something that someone else has done.”
Martin said the insurers will end up passing on costs if lessors claim for aircraft stuck in Russia. Claims will be made if the situation doesn’t get resolved, he said.
Rival lessor AerCap told analysts after reporting its latest financial results on March 30, 2022 that it has filed a $3.5 billion insurance claim for aircraft and engines left in Russia.
The lessor said it had 135 owned aircraft and 14 engines on lease to Russian airlines, representing some 5% of its fleet value. As of March 30, it had repossessed 22 aircraft and three engines from Russia.
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