Leasing company AerCap has written off $2.7 billion of assets linked to the Ukraine conflict, mainly comprising aircraft and engines stuck in Russia.
Prior to Russia’s invasion of Ukraine, AerCap had 135 aircraft and 14 engines on lease with Russian airlines, representing about 5% of AerCap’s fleet.
The company has managed to retrieve 22 aircraft and three engines, leaving 113 aircraft and 11 engines still in Russia.
“During the first quarter, we ceased all of our leasing activity to Russian airlines and took a charge primarily related to our aircraft and engines that remain in Russia,” chief executive Aengus Kelly commented in a first quarter earnings statement on May 17, 2022.
“The reality is all of those aircraft are gone, whether it was to private or state-owned [airlines],” Kelly commented to analysts when asked on an earnings call if it made a difference whether aircraft were leased to private or state-owned airlines.
Along with the aircraft and engines, AerCap has also written down other items linked to those aircraft such as security deposits and maintenance reserves.
AerCap has also managed to offset some of the write-downs by calling in letters of credit related to the aircraft and engines leased to Russian airlines. The letters of credit total approximately $260 million and it has received payments for $210 million.
“We have initiated legal proceedings against one financial institution which rejected our payment demands in respect of certain letters of credit,” AerCap said in the earnings statement.
AerCap confirmed it had filed a $3.5 billion insurance claim covering all engines and aircraft remaining in Russia and said it intended to “vigorously pursue” all options to recover its losses.
“However, the timing and amount of any recoveries under these policies are uncertain and we have not recognized any claim receivables as of March 31, 2022,” AerCap said in the first-quarter earnings statement.
Asked by an analyst whether AerCap was still having conversations with its Russian customers, Kelly highlighted that dialogue resulted in the retrieval of the 22 aircraft previously in Russia. “We continue to work with them to mitigate our risk there,” he added.
The write-off led to AerCap reporting a net loss of $2 billion for the first quarter of 2022. Without the charges linked to Russia, AerCap made a net income of $540 million.