Currently, airline balance sheets are peculiar in that the headline risk isn’t actually the headline risk. Iran, the Strait of Hormuz, and jet fuel prices that have increased by more than 100% since February are the first items on the whiteboard in any aviation analyst’s office in London or Dublin. It’s all real. It’s all visible. However, the underwriters at Lloyd’s, the credit teams at the lessors, the quiet ones at Kennedys and WTW—those who actually price airline risk for a living—are looking elsewhere. They are examining what is not covered.
One of those terms that seems comforting until you read the fine print is aviation war-risk insurance. Airlines have liability insurance, hull insurance, and the entire nominal package. What they lack, and have never truly had, is substantial revenue protection in the event that a war breaks out and operations simply cease. The hidden liability is that gap. It’s not brand-new. All of a sudden, it’s huge.
In early March, a second industry source told Reuters what the majority of senior insurance officials will say in private: revenue losses resulting from operational disruption are covered by business interruption policies, which nearly always do not include war. Therefore, the airlines bear the consequences of suspending British Airways’ Middle East routes, canceling 15,000 flights across seven regional airports in less than a week, and stranding over 1.5 million passengers. Each dollar. Because the cash flow impact lags the news cycle by a quarter or two, ratings analysts believe that the market hasn’t fully priced this yet.
The initial outlines are available on Lufthansa’s Q1 call. Growth, resilience, geopolitical challenges, and the typical well-chosen language of an earnings transcript. The carriers with robust fuel hedges—EasyJet, Air France, the IAG group, and Lufthansa itself at about 80% coverage—look very different from United, American, and Delta, which have no known hedges at all. The fuel shock is absorbed raw by the American majors. Additionally, they operate in a market where their war-risk towers were constructed for an extinct world.
Only a small number of lessors and a small portion of the trapped fleet were covered by the Butcher judgment, a 2025 London High Court ruling on the seizures of aircraft by Russia and Ukraine. Twelve billion dollars’ worth of aircraft are stranded in Russia, and years later, the majority of the contractual disputes remain unresolved. Underwriters are now motivated by that memory. They’re not hiding just yet. It’s being repriced. raising the price. restricting exclusions. quietly keeping the option to cancel under circumstances that the majority of airline CFOs haven’t given much thought to in years.
Underneath all of this, it’s difficult to ignore how thin the margins are. The industry has never exceeded five percent, and the IATA forecast for 2026 places its net profit margin at 3.9 percent. The entire margin is consumed by a few percentage points of cost increases, war-risk premiums, longer routes around restricted airspace, technical stops in Baku or Tashkent, crew overtime, and the lodging bill when an A350 spends the night in Geneva rather than Dubai. That is not covered by insurance. Only a P&L statement is present.
I’m more concerned about the smaller carriers than the giants as I watch this develop. The balance sheet of a Lufthansa is different from that of a Pegasus or Jet2. AerCap has a longer runway than a regional lessor with older metal and a lengthy delivery line for the new fuel-efficient models. There could be an end to the conflict. Ceasefires hold, wobble, and then hold once more. Eventually, fuel might settle. However, the contracts have already been revised. Already, the exclusions have been strengthened. And once the auditors have completed their work, the hidden liability ceases to exist somewhere in the following set of annual reports. Nobody is quite prepared for that part.
