Leading aircraft leasing firm, SMBC Aviation Capital, has said it is “unlikely” that it will be able to recover 34 owned aircraft stranded in Russia following the country’s ongoing invasion of Ukraine and subsequent sanctions, leading the company to recognise a $1.6 billion write-off.
“34 owned aircraft remain in Russia despite SMBC Aviation Capital terminating the leasing of these aircraft in line with international sanctions, which Russian airlines continue to fly within Russia and to countries from which repossession has not been possible,” reports SMBC in its FY21 results.
The Dublin-based company feels it’s “unlikely” it will be able to recover the 34 aircraft “within a reasonable timeframe, or at all,” resulting in the $1.6 billion write-off, which represents a full impairment of the carrying value.
While the termination of leasing aircraft to Russian airlines has led to a substantial, aggregate one-off impairment, which drove a net loss of $1.1 billion for the firm for FY21, SMBC explains that it has “significant insurance coverage” and expects that “substantial recoveries will be secured.”
SMBC is one of the larger aircraft leasing companies affected by Russia’s invasion of Ukraine, and its comments highlight the potential for a significant aviation insurance claim, as noted by analysts throughout the ongoing war.
As a reminder, when western nations started to impose sanctions on Russia, authorities in the country blocked leased aircraft from leaving its airspace, with reports suggesting more than 400 western-built aircraft worth a reported $10 billion were stranded in the country.
In response to sanctions, the Kremlin said that all western planes still in Russia following the termination of leasing contracts in March will remain in the country indefinitely, while the country has plans to nationalise western-made planes grounded within its borders. Analysts warned that if this move goes ahead, it could be an historic loss for the re/insurance industry.