Aviation Company Says Bank Wrongfully Dishonored LCs Backing Russian-Leased Planes

Celestial Aviation Services, a subsidiary of Irish-based aircraft leasing giant AerCap, filed a USD 45.8m suit in London High Court against UniCredit, claiming that the Italian bank is in breach of its obligations under letters of credit supporting aircraft leasing payments on behalf of Russia’s Sberbank.

Celestial’s suit against UniCredit relates to LCs backing leases of two Boeing jets leased to AirBridge Cargo Airlines, part of Moscow-based Volga-Dnepr Group, and three Airbus jets leased to Aurora Airlines, a subsidiary of Russia’s Aeroflot.

Between 2017 and 2020, Sberbank issued seven standby letters of credit in favor of Celestial in relation to the aircraft it leased. UniCredit “guaranteed” the letters of credit, according to reporting by Ireland’s Independent. On 2 March 2022 following Russia’s invasion of Ukraine, Celestial made a demand for payment of USD 44.5m to UniCredit under four of the LCs and on 4 March made a demand for USD 1.3m under the other three LCs. The LCs had required Celestial to state that it was drawing due to default on the part of the leasees. UniCredit responded to Celestial in writing on 7 March, stating it was unable to make the payments as sanctions prohibited it from doing so.

Celestial disputed UniCredit’s contention and stated: “The letters of credit operate independently of the underlying transactions (namely, the leases) and create autonomous payment obligations”, as reported by Independent.

“Wrongfully and in breach of its obligations under the letters of credit, the defendant has refused to pay these sums or any part thereof,” Celestial said in its claim filed with the High Court in London, according to Independent.

Independent has further reported that AerCap said in March that it had LCs valued at USD 260m related to its Russian assets. By the end of the month, it had received about USD 175m from demands on those LCs.