S7 talks reignite insurer hopes of fresh settlements over seized aircraft
Russia’s S7 Airlines is nearing a deal with aviation lessors to settle disputes over jets detained in the country following the invasion of Ukraine, in a move which could further reduce the (re)insurance industry’s overall loss.
- Russia’s largest private airline in settlement talks with lessors
- Follows Aeroflot settlements with lessors AerCap, SMBC and CDB
- $10bn+ of disputed claims currently; majority in London
Aviation market sources said S7, Russia’s largest private airline and the second-largest overall, has approached a number of international lessors to reach a sanctions-compliant deal which could see the airline’s domestic insurers – thought to include Ingosstrakh and NSK – pay out for stranded aircraft.
The talks have been described as being at an “advanced stage”. Lessors involved are understood to include Ireland-based AerCap and SMBC Aviation Capital – both of which have recently penned multi-million dollar settlements with Russian flag carrier Aeroflot and its subsidiaries over seized aviation assets.
Publicly available data reveals that S7 had more than 40 aircraft leased from AerCap worth in excess of $740mn at the time of the invasion in February 2022.
Talks between S7 and its lessors are noteworthy as a number of legal claims filed by lessors against aviation (re)insurers in both London and Dublin concern aircraft on lease to JSC Siberia Airlines, the legal holding company behind S7.
These include separate High Court claims brought by Carlyle Aviation Management and Falcon 2018, an entity managed by Dubai Aerospace Enterprise, against insurers including AIG, Allianz Global Corporate & Specialty, Axa XL, Lloyd’s Insurance Company and Munich Re-backed MGA Global Aerospace.
It comes shortly after The Insurer reported that a number of lessors – including US-headquartered Air Lease Corporation – had notified their international (re)insurers that they were pursuing settlement talks with Russian airlines.
However, discussions are at an early stage and significant uncertainty remains, with issues over sanctions and aircraft value still requiring clarity, sources said.
Last month, AerCap agreed to settle an insurance claim over 17 jets and five engines leased to Aeroflot and its subsidiary Rossiya, part of a wider dispute involving more than 400 Western-owned planes.
The $645mn commercial settlement – which was approved by US and Russian authorities – is expected to be a model and framework that AerCap will try to replicate with other Russian airlines and operators.
It noted that settlement discussions were ongoing with respect to claims under the insurance policies of several other Russian airlines, but stressed that it remained uncertain as to whether these discussions would result in any insurance settlement.
Crucially, it set a structure for other settlements to follow which – if agreed – would see the current ~$10bn of disputed claims shrink to $2bn-$2.5bn and which could then be subject to further negotiated settlement between insurers and the lessor companies.
The landmark deal – which saw the aircraft become the property of Russian state-owned insurer NSK – has been followed by two further settlements between lessors and Aeroflot worth a combined $904mn.
News of the S7 talks comes less than a week after Dublin-based CDB Aviation – the lessor owned by China Development Bank – reached an insurance settlement of $194mn covering four aircraft previously on lease to Aeroflot.
China Development Bank Financial Leasing Co said in a Hong Kong stock market filing that the payment was made by NSK in “full compliance with all applicable laws, sanctions and regulations”.
This followed news that lessor SMBC Aviation Capital had penned an insurance settlement of $710mn for a number of aircraft previously leased to Aeroflot.
Japan's Sumitomo Mitsui Financial Group, SMBC’s parent company, said in a 2 October stock exchange filing that it had received the cash settlement from NSK with respect to 16 aircraft and their engines.
Despite the settlements, all three lessors – AerCap, CDB and SMBC – and their parent companies said they continue to actively pursue litigation in London and Irish courts under insurance policies with other insurers relating to losses with Russian airlines.