Is it possible that the Russian government wants to compensate the aviation leasing companies for aircraft and engines that the government expropriated?
Russia expropriated aircraft and engines of multiple U.S. leasing companies when the U.S. and U.K. governments prohibited Western insurance companies from providing insurance for aircraft flying to and from Russia as part of the sanctions regime imposed on Russia because of the Ukrainian war. The sanctions aim to penalize Russia for the war on Ukraine, not to punish non-Russian aviation leasing companies that leased their aircraft or engines to Russian air carriers. In response to the sanctions, and in order to maintain its air transportation capability, Russia ordered expropriation of the affected aircraft and engines. Without these aircraft and engines, the Russian air transportation system would have collapsed.
Instead of suing Russia directly for expropriation, the U.S. aviation leasing companies whose aircraft and engines were expropriated chose to sue their insurance carriers, notwithstanding that political risk — including expropriation — are excluded from their policies. (As expected, the insurance companies are vigorously opposing these claims on the basis that, among other defenses, expropriation is not covered under their policies.)
U.S. aviation companies (and only U.S. entities) have an alternative way to recover because they can directly sue Russia in U.S. courts for expropriation under the Foreign Sovereign Immunities Act, 28 U.S.C. § 1605(a)(3) (“FSIA”). Importantly, the Russian Federation has significant assets in the U.S. (frozen by the U.S. Government) that could be attached to satisfy a judgment issued by a U.S. court. The FSIA also authorizes enforcement against specified categories of foreign government assets in the United States. 28 U.S.C. § 1610(a) or (b). In passing the FSIA in 1976, Congress specifically intended to provide relief from the very type of expropriation engaged in by Russia.
In many cases involving expropriation, the offending government will do whatever it can to avoid providing compensation to foreign parties whose property was expropriated. In the case of Russia, however, recent events appear to indicate that the Russian government may be willing to provide compensation to leasing companies for expropriation.
Recently, Russia authorized NSK Insurance Company, a Russian insurance company, to pay $645,000,000 to Aercap Holdings, a major Irish aircraft leasing company, as compensation for the loss of aircraft and engines that the Russian Federation expropriated. The receipt of insurance payment of $645,000,000 was also approved by the U.S. Department of Commerce and the U.S. Department of Treasury. (The U.S. Government’s approval is necessary because U.S. sanctions restrict Russia’s use of the international financial systems, such as SWIFT.) See Aercap Holdings N.V. Form 6-K.
Russia similarly demonstrated its desire to maintain commercial relationships with the West when the Russian government took extreme and creative measures to try to pay interest and principal on its sovereign bonds in order not to default on its debt obligations. Russia defaulted on those obligations only when sanctions shut down all possible payment methods.
The foregoing examples suggest that Russia might be willing to pay compensation for expropriated aircraft and engines if it can do so within the confines of existing sanctions regimes.
The FSIA provides a clear legal pathway for U.S. aviation leasing companies to obtain compensation from Russia, and unlike other sovereigns sued under the FSIA, Russia has the financial means to provide compensation. Presented with facially valid expropriation claims under the FSIA, Russia may well choose to pay compensation voluntarily, and the U.S. government may well authorize such payments out of frozen Russian assets.