AXA Pays Settlement to DAE Over Jets Seized by Russia

Dubai Aerospace Enterprise (DAE) has reached a confidential settlement with French insurer AXA regarding 19 aeroplanes stranded in Russia following the 2022 invasion of Ukraine.

The trial, which began on the 2nd of October, centres on multiple disputes over around 150 aircraft seized by Russia since the conflict began over two years ago.

As well as DAE, the trial encompasses the cases of leading lessors such as AerCap, Merx Aviation, KDAC Aviation Finance and Falcon.

Insurers facing these claims include AIG, Lloyd's, Chubb and Swiss Re. The lawsuit is part of a broader industry effort to recoup losses from Western-owned jets unable to be retrieved due to the ongoing conflict.

The settlement, revealed at the start of the "mega trial" in London, could have far wider implications for the aviation and insurance sectors.

DAE gets its compensation

DAE's settlement with AXA represents a significant step in the protracted negotiations between lessors and insurers held in the context of the Russia-Ukraine war.

Alistair Schaff, a lawyer representing DAE, told the London High Court: "A confidential settlement has been secured."

AXA XL, AXA’s commercial insurance arm, declined to comment on the settlement or any further details.

Before the trial began, DAE valued its claim at US$737.8m, but even if just a small percentage of that amount is recouped it will represent a successful outing for the Dubai-based lessors.

The implications of the settlement

Though the size of the compensation will remain undisclosed, this deal could set a precedent for other insurers involved in similar disputes.

At the heart of the case is the fate of nearly 400 aircraft, valued at approximately US$10bn, left in Russia following Western sanctions.

AerCap, the world’s largest aircraft lessor, emphasised the grim reality faced by the aviation industry during the trial.

Mark Howard, a lawyer for AerCap, said: "The reality is [...] the aircraft and engines are lost," referring to the near-impossibility of retrieving these assets from Russia.

The London trial focuses on around 150 jets with an original value of US$4.7bn, though settlements with Russian lessees—at prices significantly below insured values—have reduced the contested amount to US$3bn.

Insurers argue that there is no definitive evidence of destruction or damage to the planes, with some contesting whether the policies cover the failure to return the aircraft at all.

Why the insurers and the claimants disagree

The dispute highlights a critical issue for the insurance industry: the interpretation of insurance policies under unique geopolitical circumstances.

Lessors are pursuing claims under “contingent and possessed” policies, which typically cover losses under broad all-risks clauses or more specific war-risks clauses.

However, insurers maintain that they are not liable for many of these claims, pointing out that the planes may still exist and may be recoverable, even if they are currently beyond reach due to the war and sanctions.

AerCap, which claims to have lost 116 aircraft and 15 engines, is seeking US$2.06bn under its all-risks policy or US$1.2bn under its capped war-risks policy.

Other lessors, such as Merx Aviation and Falcon, are also pursuing significant compensation, with claims ranging from US$43.4m to US$184m.

It remains to be seen whether DAE's settlement will have any bearing on the outcome of other lessors' cases.

Will the aircraft ever be returned?

DAE’s attempts to recover its aircraft from Russia were unsuccessful. In court filings, DAE revealed that its president, David Houlihan, visited Moscow in March 2022 to engage with lessees in an effort to secure the return of the jets.

Nevertheless, the negotiations were fruitless, further complicating the situation for lessors seeking compensation through insurance claims.

As the trial progresses, the case is being closely watched by industry players, with parallel lawsuits underway in Ireland and the United States.

The outcome of these disputes could significantly influence the future of aviation insurance in conflict zones, particularly with regards to the interpretation of war-risk policies.

Mark Howard’s remarks captured the essence of the challenge lessors are facing. He says: "The insurers have to know there is no realistic prospect of these Western-owned aircraft being returned."

**************

Make sure you check out the latest edition of InsurTech Digital and also sign up to our global conference series for our sister site – FinTech LIVE 2024.

**************

InsurTech Digital is a BizClik brand.