Tragically, the war in Ukraine has entered its second year. The fallout from the war is being felt across Ireland’s financial services sector, and nowhere more than in the aircraft leasing sector, where Ireland leads the world. Over 60% of the world’s leased aircraft are managed from Ireland, with a collective value of well over US$100 billion.
When Russia invaded Ukraine, there were over 400 aircraft leased to Russian airlines. The EU, UK and US imposed immediate sanctions to prohibit leasing of aircraft to persons in Russia or for use in Russia and allowing a window for the wind-down of existing leasing arrangements. Global lessors took swift action to seek to recover aircraft wherever possible, and while they had a degree of success, it is estimated that between $12bn and $15bn in aircraft assets remain within Russian territory. These aircraft are unlikely ever to be returned.
Airlines hold insurance for loss of or damage to aircraft, whether owned or leased, arising from a wide range of perils, including war risks. Where the aircraft are leased, the lessor is normally added as an additional insured to the airline’s policy. Further, aircraft lessors generally take out “contingent/possessed cover”, which allows the lessors themselves to bring direct claims against their own insurers either where the airline’s cover has not responded or where the lessor had repossessed the aircraft or was targeting repossession.
Arising from the invasion and its aftermath, multiple insurance claims have been filed globally. The airlines, unsurprisingly, have mostly been passive. Lessor firms have filed claims in their capacity as additional insureds under airline policies and under their contingent/possessed policies for total loss of the aircraft.
Although commercial insurance policies are often governed by English and New York law, given Ireland’s position as a global centre for aircraft leasing and following the UK’s exit from the EU, many Irish lessor firms’ policies are governed by Irish law and subject to Irish jurisdiction. Therefore, Ireland is emerging as a significant centre for claims brought by lessor firms, with six lessor firms already having commenced proceedings in the Irish High Court. The other main centres for litigation are the English Commercial Court and the Florida and California courts.
The arguments on both sides remain to be fully developed. In very general terms, the lessor firms argue that, since their policies provide cover for war risks, including restraint or detention, they should be compensated since the aircraft have been detained in Russia and their return is unlikely. Meanwhile the insurers argue that the lessors have not shown that they will be permanently deprived of the aircraft and have not shown that they have taken all reasonable steps to repossess them.
The world’s largest aircraft leasing company, AerCap, has commenced proceedings in England, while the third and fourth largest, Avolon and SMBC Aviation, are suing in Ireland. Also suing in Ireland are Goshawk, CDB Aviation, Nordic Aviation and BOC Aviation. Dubai Aerospace are suing in England, while Aircastle and Carlyle are suing in the US courts.
The Irish proceedings involve a wide variety of insurers and underwriters including Lloyd’s of London, HDI Global, Swiss Re, Chubb, Fidelis, Great Lakes, AIG and SCOR. The potential cost of all lessor claims to the global aviation insurance market has been estimated by the media as between US$10 and US$15 billion.
The timeline for these cases is uncertain, but it seems likely that no hearings will take place either in Ireland or in England before 2024. Progress will be keenly watched, not least by international companies that have been encouraged by the “Ireland for Law” initiative to adopt Irish governing law and jurisdiction clauses in commercial contracts post-Brexit. How well the Irish High Court manages these complex and multi-faceted claims as compared with the English Commercial Court is certain to be an important factor in Ireland’s future development as an international commercial dispute resolution centre.
For more information on the progression of these cases in the Irish courts and the likely impact of their respective outcomes, contact a member of our Dispute Resolution or Aviation & International Asset Finance teams.
The content of this article is provided for information purposes only and does not constitute legal or other advice.