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How Aviation Finance Is Preparing for the Next Market Shock

The aviation industry has spent much of the past several years navigating aircraft shortages, supply chain disruptions and elevated maintenance costs. At ISTAT’s sessions at the ISTAT Hub at the Farnborough Airshow, another theme emerged just as clearly: Geopolitical uncertainty has become an increasingly important factor shaping aviation finance.

Across three sessions covering Russian aircraft insurance litigation, fuel-price risks and airline trading markets, speakers discussed how recent events have reshaped the industry’s approach to insurance, portfolio management and risk assessment. While the challenges facing the market continue to evolve, panelists generally agreed that aviation enters this period from a position of greater resilience than in previous cycles.

The Lasting Impact of the Russian Aircraft Insurance Litigation

More than three years after hundreds of leased aircraft became stranded in Russia following the country’s invasion of Ukraine, the legal and commercial implications continue to influence the aviation finance market.

Moderator Bree Taylor, managing partner at Alius Law, opened the discussion by revisiting the extraordinary sequence of events that left approximately 400 aircraft and numerous engines beyond the reach of their owners. Sanctions, Russian government actions and export restrictions prevented lessors from recovering assets despite widespread efforts to repossess them.

As the aircraft remained stranded, insurers and lessors found themselves facing questions that aviation insurance policies had never been required to answer on such a scale.

Johnny Wadhams, managing director at WTW, noted that the market was dealing with unprecedented circumstances. “The language hadn’t been fully tested in a situation like this.”

Much of the litigation centered on whether the losses constituted war-risk claims or all-risk claims, along with questions surrounding contingent coverage, policy interpretation and sanctions. Richard Sharman, partner at Holland & Knight, emphasized that the factual circumstances were unusually complex, making an independent judicial determination essential before claims could be resolved.

Ultimately, one of the most significant conclusions reached by the English High Court was that the central issue was not whether the aircraft had been physically destroyed, but whether government actions had permanently deprived lessors of their assets.

For lessors, that distinction reflected the practical reality they faced.

“We knew how to repossess an aircraft,” said Ed Riley, general counsel at Avolon. “That wasn’t the question. It was whether we could.”

Panelists agreed that the litigation has already changed how lessors, insurers and financiers evaluate geopolitical exposure. Greater attention is now being paid to governing law, insurance policy wording and jurisdiction-specific risks long before aircraft are delivered.

Andrea Wilson, CEO of Wilson Consulting Group, said geopolitical considerations have become much more prominent when evaluating portfolios and insurance placements. She also encouraged companies to fully understand both the protections — and limitations — contained within their insurance policies.

“Know what’s in it, and more importantly, know what’s not in it,” she said.

Although appeals and some claims remain unresolved, speakers suggested the litigation has already prompted revisions to policy language and strengthened discussions around lease documentation, contingent coverage and insurer relationships.

Fuel Prices Alone Are Unlikely to Trigger the Next Downturn

Geopolitical tensions also framed the presentation by Douglas Harned, managing director at Bernstein, examining whether rising fuel prices could produce the first fuel-driven aviation downturn in more than three decades.

His conclusion was measured. Higher fuel prices present meaningful challenges, but history suggests they rarely cause major aviation downturns on their own. Instead, the greater risk would be a prolonged period of elevated fuel prices combined with a significant economic slowdown.

“If oil prices come down, and we keep a strong economy, that is really good,” Harned said.

While conflict in the Middle East has pushed energy markets higher and tightened refined fuel supplies, airlines today benefit from several structural advantages that did not exist during previous downturns. Strong passenger demand, constrained aircraft deliveries and limited fleet growth continue to support pricing power across much of the industry.

Manufacturers also remain well insulated by historically large order backlogs extending well into the next decade.

Instead, Harned identified the aftermarket — including maintenance providers, engine lessors and parts suppliers — as the area most likely to experience pressure should airlines begin conserving cash.

“The most exposed part of this, in our view, by far, is the aftermarket,” he said.

Historically, airlines facing financial pressure have deferred maintenance, parked aircraft approaching expensive shop visits and prioritized aircraft with greater remaining engine life. Those behaviors could return during a recession, although today’s environment differs from previous cycles because maintenance providers already face substantial backlogs.

Major MRO providers continue operating with shop visit schedules extending well into the future, offering considerably more protection than existed during earlier downturns.

Trading Markets Continue to Adapt

The industry’s resilience was echoed during the presentation by Stuart Hatcher, chief economist and chief data officer at IBA Group Limited, examining how trading markets could respond if airline financial conditions deteriorate.

Despite higher fuel costs and increasing geopolitical uncertainty, overall fleet growth remains positive while aircraft storage levels continue to decline.

That does not mean stress is absent.

Rising operating costs are beginning to expose weaker airline credits, particularly among carriers with limited fuel hedging or thinner balance sheets. Payment delays, lease restructurings and rent deferrals are becoming more common, and speakers expect sale-and-leaseback activity to increase as airlines seek additional liquidity.

Even so, the market continues to benefit from one powerful advantage: supply remains exceptionally constrained.

Engine shortages continue to influence nearly every aspect of aircraft trading, from storage decisions to lease rates and asset values. Many otherwise serviceable aircraft remain grounded simply because engines are unavailable, while demand for spare engines continues supporting values across both current- and previous-generation fleets.

Those conditions also create opportunities for lessors.

Historically, periods of airline restructuring have enabled lessors to reposition aircraft, acquire assets and support customers through lease restructurings. Panelists suggested the current environment is likely to produce similar opportunities if economic conditions weaken.

Preparing for a More Complex Risk Environment

These three sessions painted a picture of an industry that is adapting rather than retreating. The Russian insurance litigation has prompted a reassessment of insurance structures and geopolitical risk. Higher fuel prices have increased attention on airline profitability, but structural supply shortages continue to support aircraft utilization and manufacturer order books. Trading markets remain active even as airline credit conditions become more uneven.

Rather than pointing toward an imminent downturn, the discussions suggested aviation finance is entering a period where resilience will increasingly depend on understanding jurisdictional risk, maintaining disciplined portfolio management and responding quickly as market conditions evolve.

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