Major aircraft lessor SMBC Aviation Capital on Friday recorded an impairment of $1.6 billion to cover the full financial impact of having 34 jets stuck in Russia after European Union sanctions forced the termination of all Russian leases.
Irish-headquartered SMBC, which is owned by a consortium including Japan’s Sumitomo Corp (8053.T) and Sumitomo Mitsui Financial Group (8316.T), said it expects to make substantial recoveries from its insurance coverage.
Lessors and insurers are gearing up for an historic battle over record potential claims worth an estimated $10 billion. SMBC is the latest lessor to take an immediate hit after more than 400 leased planes were left stranded in Russia following Moscow’s invasion of Ukraine on Feb. 24.
SMBC said it wrote off the full carrying value of the aircraft that remained in Russia after determining that it was unlikely to recover the planes within a reasonable timeframe.
Russian airlines continue to fly the aircraft within Russia and to countries from which repossession has not been possible, it added.
The write-off pushed SMBC into a net loss of $1.1 billion in in its financial year to the end of March. Excluding the write-off, it made an underlying profit of $336 million, almost back at the pre-pandemic level of $365 million recorded in 2019.
SMBC Chief Executive Peter Barrett said that, while there were ongoing challenges for the industry, the market recovery continues to gather pace.
The Dublin-based firm said it saw increased demand for the Airbus A320neo and Boeing 737 MAX single-aisle jets, with 41 aircraft placed from its order book.
It also noted a rapid recovery in the sales market, having sold 23 aircraft in the 12 months to the end of March for a $68.3 million profit.
SMBC said it expected its $6.7 billion acquisition of smaller rival Goshawk Aviation – which will make it the world’s second largest aircraft lessor by number of aircraft – to close in the fourth quarter.