AerCap's $1 Billion Insurance Win: A Catalyst for Re-Rating in Aviation Leasing

The aviation leasing sector has long been a bastion of steady returns, but few companies have navigated recent crises with the resilience of AerCap Holdings (AER). The company's recent $1 billion insurance win—a ruling by London's Commercial Court mandating its insurers to cover losses from Russia's 2022 invasion of Ukraine—has positioned AerCap at a pivotal inflection point. With total recoveries now nearing $2.5 billion against a $2.7 billion pre-tax charge taken in 2022, the path to balance sheet normalization is clearer than ever. This resolution of lingering liabilities could finally unlock the valuation gap that has persisted for AerCap, rewarding investors who bet on its ability to turn legal battles into financial clarity.

The Ukraine Conflict: A Stress Test for AerCap's Balance Sheet

When Russia invaded Ukraine in February 2022, AerCap faced a catastrophic loss: nearly $3 billion in aircraft and engines leased to Russian airlines were stranded or written off. The company promptly recognized a $2.7 billion pre-tax charge that year, a massive hit to its earnings and shareholder confidence. The question then—and for two years after—was whether AerCap could recover any of these losses through insurance or legal claims.

The answer, it turns out, is a resounding yes. By 2023, AerCap had recovered $1.3 billion through asset sales and partial settlements, followed by $195 million in 2024. The recent $1 billion indemnity award—granted under the “War and Allied Perils” clause of its insurance policy—brings total recoveries to 93% of the 2022 charge. While unresolved claims against Russian insurers remain, this latest win reduces the uncertainty clouding AerCap's financial outlook. The company now stands to collect the $1 billion by July 2024, with only questions of interest and costs lingering for a September hearing.

Why This Matters for Investors

The $2.5 billion recovery milestone is transformative for three reasons:
1. Balance Sheet Strength: AerCap's net debt-to-EBITDA ratio, a key metric for its credit profile, should improve as cash flows from recoveries offset past losses. With over $5 billion in liquidity as of Q1 2025, the company is well-positioned to reinvest in its fleet or return capital to shareholders.
2. Reduced Tail Risk: The Ukrainian losses were a “black swan” event that weighed on AerCap's valuation. Their partial recovery reduces the likelihood of further surprises, allowing investors to focus on the company's core strengths: a young, fuel-efficient fleet and long-term leases with top-tier airlines.
3. Industry Outperformance: While broader aviation leasing peers like Avolon (AVOL) or CIT Group (CIT) face macroeconomic headwinds, AerCap's legal wins and $100 billion+ backlog of committed lease payments give it a durable moat.

Risks and Remaining Challenges

Optimism must be tempered by lingering risks. First, AerCap's claims against Russian insurers and reinsurers—still unresolved—could underdeliver if courts side with Russian entities or if policies are found to exclude certain liabilities. Second, geopolitical tensions remain: a renewed escalation in Ukraine or sanctions regime changes could reignite asset risks. Finally, the aviation sector's recovery from pandemic-era disruptions is uneven, with some airlines still struggling to repay leases.

The Case for Buying AER Now

Despite these risks, AerCap's valuation offers compelling upside. At a 12.5x 2025E EV/EBITDA multiple, the stock trades at a discount to its five-year average of 14x, reflecting lingering caution about the Ukraine fallout. However, as recoveries materialize and uncertainties fade, this multiple could expand.

Investors should also note AerCap's dividend yield—currently 2.8%, a premium to peers—and its track record of returning capital during downturns. The company's five-year financial targets, including a 20% ROIC goal, further suggest management is focused on shareholder value.

Final Analysis: AER is a Buy on Improved Risk-Reward

The $1 billion insurance win marks a turning point for AerCap. With over 90% of the 2022 charge recovered, the company's balance sheet is stabilizing, and its growth engine—the global demand for modern aircraft—is intact. While geopolitical risks persist, they are now priced into the stock. For investors seeking exposure to aviation leasing's recovery, AerCap's combination of asset quality, legal clarity, and dividend discipline makes it a standout opportunity.

Recommendation: Buy AerCap (AER) for a long-term portfolio, targeting a 12–18 month horizon to capture multiple expansion and dividend growth.

Disclosure: The author holds no positions in AerCap at the time of writing.