The Impact of International Sanctions on Aircraft Leasing: Legal Challenges and Industry Implications
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Introduction
The imposition of international sanctions, particularly following Russia's invasion of Ukraine in February 2022, has had profound effects on the global aviation industry. One of the most significant impacts has been on the aircraft leasing sector, where over 400 Western-made aircraft leased to Russian airlines were grounded, leading to complex legal disputes and substantial financial losses. This article delves into the legal challenges arising from these sanctions, focusing on the Russian invasion of Ukraine and its aftermath, and discusses the broader implications for the aircraft leasing sector.

1. Background: Sanctions and Aircraft Leasing
In March 2022, in response to Russia's invasion of Ukraine, Western nations imposed stringent sanctions targeting various sectors, including aviation. These sanctions led to the grounding of over 400 Western-made aircraft leased to Russian airlines, as lessors were compelled to terminate their agreements to comply with international regulations. Simultaneously, Russia enacted laws facilitating the re-registration of these aircraft under its own registry, effectively nationalizing them. This move was seen as a direct violation of international leasing agreements and has led to numerous legal disputes between lessors and insurers.

2. Legal Disputes and Insurance Claims
The grounding and re-registration of aircraft have led to numerous legal battles between lessors and insurers.

In a landmark judgment delivered in London, the High Court ruled in favor of six leasing companies, including AerCap (Ireland) and Dubai Aerospace Enterprise (DAE), in one of the largest insurance disputes ever brought before the UK courts.

The lessors, who initiated a USD 4.7 billion claim, argued that their aircraft stranded in Russia following the invasion of Ukraine should be deemed “lost” and therefore recoverable under their war risk insurance policies.

Mr. Justice Butcher, in a detailed 230-page decision, concluded that the losses stemmed directly from legislative acts of the Russian government—specifically, the March 2022 decree prohibiting the export of aircraft and related equipment—which effectively nationalized the assets. This finding placed liability on the war risk insurers (including AIG, Lloyd’s, Chubb, and Swiss Re), rather than treating the situation as a matter of commercial default by Russian airlines.

The judgment covered 147 aircraft and 16 engines, with AerCap alone claiming for 116 aircraft and 15 engines, while DAE sought recovery for 22 aircraft (three of which were later retrieved). The ruling underscores both the unprecedented scale of losses faced by lessors—initially estimated at USD 10 billion—and the complexity of disentangling contractual, regulatory, and geopolitical factors in determining insurance liability.

Parallel to the London litigation, the Commercial Court in Dublin has become the stage for another “mega-trial” arising from the seizure of aircraft in Russia. Valued at approximately €2.5 billion, the dispute involves dozens of aircraft stranded after the invasion of Ukraine and pits some of the world’s largest lessors against a consortium of insurers, including Lloyd’s, AIG, and Chubb. The proceedings, ongoing since mid-2023, illustrate both the magnitude and the complexity of the claims: around 400 aircraft are affected globally, with Ireland—home to more than 60% of the world’s leased fleet—playing a central role due to the concentration of leasing companies headquartered there.

Among the claimants are SMBC, Avolon, BOC Aviation, CDB Aviation, Nordic Aviation Capital, and Hermes Aircraft. These lessors have invoked war risk insurance provisions after Russia refused to return the aircraft, instead re-registering many of them domestically and selling them on to Russian airlines. Testimonies in court have revealed the frantic efforts made in early March 2022 to repatriate aircraft before the sanctions deadline—such as BOC Aviation’s attempts to secure parking space for 14 aircraft in the Philippines, and even discussions about leveraging its Chinese shareholder base to appeal to Russia through “friendly” channels. Despite some limited recoveries and partial settlements with Russian insurers, many assets remain beyond reach.

The Dublin case, like its London counterpart, has already generated extraordinary legal costs, with close to 180 lawyers involved. While AerCap—the world’s largest lessor—remains at the heart of the London proceedings, it has also pursued claims in Dublin after initially estimating losses of USD 3.5 billion. AerCap has since secured out-of-court settlements exceeding USD 1.3 billion but continues to pursue remaining claims. Similarly, other lessors have reached partial agreements: in December 2024, for instance, SMBC announced a confidential settlement with Swiss Re. These negotiated outcomes demonstrate the fluidity of the litigation landscape, where simultaneous courtroom battles and settlement discussions are reshaping the contours of liability in the aviation insurance sector.

3. Regulatory and Compliance Challenges

The sanctions have also posed significant compliance challenges for the aviation industry. Companies have had to navigate complex regulations to ensure they do not inadvertently violate sanctions. This includes conducting thorough due diligence, implementing robust sanctions screening processes, and staying updated on evolving regulations enforced by bodies like the EU, OFAC, and OFSI. The complexity of these regulations has made compliance a significant burden for many companies in the aviation sector.

Beyond the courtroom battles, the European Union has also sought to close loopholes by imposing new contractual obligations on exporters of sensitive goods, including aircraft and aerospace components.
Under Article 12g of Council Regulation (EU) No 833/2014, as amended in December 2023, any contract for the sale, supply, transfer, or export of specified categories of goods must now contain a so-called “no re-export to Russia” clause. This provision—applicable to aviation and aerospace products listed in Annex XI, as well as to other controlled items such as jet fuel, high-priority dual-use technologies, and firearms—requires exporters to ensure that their contractual counterparties undertake not to re-export covered goods to Russia or for use in Russia.

The clause must also provide for “adequate remedies” in the event of breach, such as termination rights or penalties, and exporters are obliged to notify national authorities if they become aware of any infringement. Certain exemptions exist, notably for transactions involving partner countries (such as the US, UK, Japan, and Switzerland), as well as for intra-EU transfers.

The measure, which took effect in March 2024, underscores the Commission’s determination to make lessors and suppliers responsible for controlling end-use and end-destination risks, thereby adding a new layer of compliance scrutiny to aircraft financing and leasing contracts.

4. Broader Implications for the Aircraft Leasing Industry
The sanctions regime and the ensuing wave of litigation have generated far-reaching consequences for the aircraft leasing industry, extending well beyond the immediate disputes in London and Dublin. Financially, the impact has been severe: the grounding of hundreds of aircraft and the impossibility of repossession in Russia have translated into multi-billion-dollar losses for the world’s leading lessors. AerCap, for example, reported a net hit of approximately USD 2 billion linked to the seizure of its aircraft and engines by Russian authorities, while other lessors have been forced to write down large portions of their fleets. These financial shocks have, in turn, influenced credit ratings, funding costs, and the overall risk appetite of an industry that has long prided itself on stable returns.

Operationally, sanctions have disrupted established leasing frameworks and undermined the predictability on which the global aviation finance model is built. Lessors accustomed to relying on standardized remedies in cases of default found themselves unable to deploy repossession strategies, leaving them with limited tools to mitigate losses. Lessees, for their part, faced uncertainty over contractual obligations and exposure to potential claims, further complicating the balance between operational continuity and compliance with international restrictions.

Equally significant are the legal precedents now being shaped in courts across Europe. The judgments in London and the ongoing proceedings in Dublin are beginning to delineate the boundaries of liability between lessors, insurers, and lessees in a sanctions-driven context. These decisions are likely to serve as reference points for years to come, not only clarifying the scope of war risk versus all-risk insurance coverage but also influencing how future disputes are argued and adjudicated. For an industry that depends heavily on legal certainty, such guidance is invaluable.

Finally, the insurance dimension has emerged as a central battleground, underscoring the need for clearer and more comprehensive drafting in policy wordings. The scrutiny given to the interaction between sanctions and insurance coverage has exposed ambiguities that, until now, were largely theoretical. As new claims continue to be pursued and partial settlements are reached, both insurers and lessors are re-evaluating how policies should be structured to anticipate geopolitical risks of this magnitude. The outcome of this process will almost certainly reshape market practice, forcing a recalibration of contractual protections and risk allocation mechanisms across the leasing industry.

5. Conclusion

The intersection of international sanctions and aircraft leasing has given rise to one of the most complex legal and commercial challenges the industry has ever faced. What began as an emergency response to geopolitical upheaval has evolved into a sustained test of the resilience of leasing companies, insurers, and the contractual frameworks underpinning global aviation finance. The disputes currently unfolding in London and Dublin illustrate the sheer scale of the issues at stake, not only in terms of financial exposure but also in terms of legal doctrine and market practice. For lessors, the inability to repossess hundreds of aircraft has exposed vulnerabilities in a business model that relies on cross-border enforceability and confidence in the rule of law. For insurers, the ongoing litigation has raised fundamental questions about the scope of war risk coverage and the extent to which policy language can withstand unprecedented geopolitical shocks.

At the same time, these disputes are beginning to generate a body of jurisprudence that will serve as a reference point for years to come. Courts are clarifying how contractual obligations interact with sanctions regimes, how losses should be characterized for insurance purposes, and where the balance of liability lies between lessors, lessees, and insurers. These developments will inevitably shape future drafting practices, encouraging more precise allocation of risk and more explicit coverage terms. They will also influence how financing institutions, rating agencies, and investors assess the stability of the leasing industry in the face of sanctions risk.

The regulatory dimension adds yet another layer of complexity. Measures such as the European Union’s requirement to include “no re-export to Russia” clauses in contracts demonstrate that compliance obligations are no longer confined to the initial point of sale but extend throughout the life of the asset. This evolution underscores the growing convergence between sanctions law, contract law, and aviation finance. Lessors and financiers must now integrate sanctions compliance into their operational and legal strategies as a matter of course, ensuring that their contracts anticipate not only commercial contingencies but also political and regulatory shifts.

Looking ahead, the challenges posed by sanctions are unlikely to disappear. On the contrary, as geopolitical tensions continue to reshape global trade, sanctions are set to remain a central tool of economic statecraft. For the aircraft leasing industry, this means that adaptability and vigilance will be essential. Firms will need to balance the pursuit of growth in emerging markets with the heightened risks of operating in jurisdictions subject to political volatility. They will also need to cultivate closer collaboration with insurers, regulators, and financiers to ensure that the allocation of risk remains both commercially viable and legally sustainable.
Ultimately, the current wave of disputes may be remembered not only for the losses it imposed but also for the structural changes it triggered. By forcing the industry to confront its exposure to sanctions risk head-on, these cases are likely to reshape contractual practices, insurance markets, and compliance strategies in ways that will endure well beyond the immediate crisis. The lessons being learned today will define how the aircraft leasing industry navigates a future where legal certainty, geopolitical awareness, and contractual precision are more critical than ever.