Lessors are already seeing a “horrendous” hike in insurance costs as the Kremlin’s retaliation against Western sanctions start to bite, said BOC Aviation’s boss Robert Martin.
“Because there are going to be huge claims on these insurances this year for confiscation or theft if the aircraft aren’t given back, this will then have a knock on effect on insurance costs,” the chief executive told an aviation conference.
“This is one of the unforeseen circumstances that is going to hit us later this year and I’m hearing some horrendous numbers for some of the near term renewals due at the end of March.”
More than 400 leased planes worth $10bn are still in Russia as President Putin signed a law in March allowing Russian airlines to take ownership of foreign-leased planes in the country.
“As for leasing payments, let me remind you that a significant part of them were supposed to be paid to companies from so-called unfriendly countries, and they violated their contractual obligations,” Putin said last week.
The move could create a £10bn “nightmare scenario” for both lessors and insurers, as any disputes would likely be subjected to lengthy legal battles, City A.M. reported.
According to Martin and others such as David Warnock-Smith, professor of aviation management at Buckinghamshire New University, the situation could force the industry to completely rethink they way it does insurance coverages.
“Those companies with greater exposure may be the most likely to try to increase lease rates to try and compensate for losses in the short-term,” Warnock-Smith told City A.M recently.