The war in Ukraine is creating financial stress for two aircraft leasing companies in South Florida whose planes are being held hostage in Russia.
The firms are seeking an estimated $850 million combined from more than 30 insurance carriers over their alleged refusal to pay claims resulting from the Russian government’s seizure of jetliners and engines at the start of the invasion of Ukraine, according to separate complaints filed in Miami-Dade Circuit Court.
The planes, according to the lawsuits, have been impossible to recover as a result of economic sanctions against the Russian Government by the U.S., United Kingdom and members of the European Union. The sanctions triggered the terminations of aircraft leases with multiple Russian airlines, according to the lawsuits.
Russia, in turn, refused to allow the planes to be returned to their rightful owners. And to this day, jetliners including relatively new Boeings and Airbuses continue to fly in the service of several Russian airlines.
“There are on the order of 500 western-leased aircraft under sanction, and considering how long this process has continued, I suspect many have been and will be cannibalized to provide spare and repair parts for aircraft still being operated,” said industry consultant Robert Mann of RW Mann Associates of Port Washington, N.Y. He is not involved in any of the litigation.
The estimated value of the seized aircraft in Russia is around $10 billion, according to industry reports.
The lawsuits, brought by Carlyle Aviation Partners of Miami and Aviator Capital Management of Aventura, collectively involve nearly 30 jetliners they leased to Russian airlines before Vladimir Putin’s troops stormed into Ukraine on February 24.
Carlyle, one of the world’s biggest leasing operators, is seeking $700 million from multiple U.S. and European insurers and reinsurers including the American firms AIG and Axis. Neither company responded to emailed requests for comment.
“In blatant breach of their contractual obligations, and months after the Carlyle plaintiffs first notified defendants of their covered losses, defendants have failed to provide coverage for these losses,” the Carlyle lawsuit alleges.
Aviator Capital Management’s suit is aimed at insurers including Chubb European Corp. and various underwriters at Lloyd’s London. It seeks $147 million for the carriers’ failure to pay claims on four planes and three engines that are on lease to airlines in Russia and Ukraine.
Both leasing companies are represented by the Miami law firm of Podhurst Orseck, which specializes in U.S. and international aviation disputes.
“Carlyle Aviation Partners is bringing this lawsuit for the benefit of its investors, given it has exhausted all avenues for recovering the affected aircraft, and has not been compensated as required by its insurance policy,” the company said in a statement to the South Florida Sun Sentinel. “We have complied with all obligations under the insurance policy, designed precisely for this type of risk in this situation.”
Aviator Capital Management declined comment.
The companies’ planes aren’t the only ones held hostage in Russia.
AerCap Ireland Ltd., the world’s largest leasing firm, has filed a lawsuit against AIG Europe S.A. and Lloyd’s Insurance Co. S.A. in the High Court of Justice in London. The lawsuit states that AerCap tried and failed to reclaim 116 aircraft and 23 engines.
Meanwhile, the airlines re-registered the planes in Russia and continue to fly them.
AIG reportedly insured the planes against all risks, except for those military involving action. Lloyd’s underwrote policies for war-related risks, for a total coverage of $3.48 billion.
But in written defenses filed with the court, AIG argues that the Russian airlines’ actions were a function of “political purposes,” thereby nullifying the need for any payments. Lloyd’s asserts its policies are enforceable only if the planes were destroyed.
In the European litigation, several aviation insurers—including several of those Carlyle named in the Miami complaint—”have formally represented to courts that the Russian Government took steps amounting to confiscation, seizure, restraint and/or detention of foreign-leased aircraft during or before the first week of March, 2022,” according to the Carlyle suit.
Yet, the insurers have yet to pay any money for the claims.
Unsuccessful repossessions
In their lawsuits, the South Florida leasing companies assert they did all they could to retrieve their planes either before or shortly after the breakout of hostilities.
They say they were unable to retrieve their planes after the Kremlin ordered the Russian airlines not to turn them back to their owners.
In Aviator Capital’s case, the company tried to retrieve three Airbus jetliners from the Russian carrier Red Wings. Those efforts were unsuccessful.
The company also had leased or subleased planes with engines to the Ukrainian carriers UIA and Azur Air Ukraine.
A month before the invasion, Aviator Capital tried to retrieve its planes and engines but the impending outbreak of hostilities and the resignations of the company’s contacts at both airlines made any recovery impossible.
After the invasion, the company’s aircraft and engines operating in Ukraine were grounded due to the close of Ukrainian airspace, its suit says.
Carlyle, meanwhile, had the bigger task of trying to extract 16 Boeings and seven Airbuses leased to 12 airlines in Russia, according to its court filing. Five of the Boeings were leased to Utair, a regional carrier operating out of western Siberia.
The company even went to the extent of securing storage facilities for the planes in Spain and the United Kingdom.
Three days after the invasion, the company sent letters to the airlines requesting the return of all 23 planes in their possession.
Elusive planes
But on the same day, the Russian government restricted flights through its airspace from the neighboring nations of Latvia, Lithuania, Slovenia, and Estonia. And all of the airlines advised Carlyle that it would not be possible to return the planes due to Russian government restrictions.
On February 28, the lawsuit says, Russian officials met with top executives of several carriers including Aeroflot, S7 Airlines, Ural 15 Airlines and Utair. Their tacit message: “that aircraft leased from foreign lessors must not be returned.”
Moreover, air carriers from 36 countries including the U.S., United Kingdom and all of the European Union states would need special government permits to fly in and out of Russia.
Throughout early March, Carlyle said it made a series of repossession efforts, even hiring crews to fly the planes out of Russia.
But Russia intensified its restrictions to keep the planes in a bid to prevent the collapse of its civil aviation system.
According to Russian media, the Russian government moved to re-register Russian-operated foreign registered leased aircraft, the Carlyle suit says.
Starting in April, the suit says, “the Russian Government additionally instructed Russian airlines to operate flights using foreign-owned aircraft, even if doing so would contravene the wishes of the aircraft’s owners and lessors and violate the terms of any leases.”
Most of the Carlyle planes are still in Russia, the suit says, although one was flown to the nearby nations of Tajikistan and Uzbekistan, while another was flown to Kyrgyzstan. Efforts to retrieve the planes were unsuccessful.
Another plane ended up in Egypt “and has remained there for months,” the suit says. But the Egyptian Civil Aviation Authority was uncooperative and did not recognize Carlyle’s ownership.
