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| Indian carriers take Air France crash hit |
| Shilpy Sinha / Mumbai Jun 30, 2009, 00:13 IST |
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Kingfisher pays 37 per cent higher premium; Air India defers renewal.
The missing Air France aircraft has taken a toll on Indian carriers, whose finances are already under strain.
Private carrier Kingfisher Airlines has had to pay around 37 per cent higher premium to renew its annual cover. And the fear of a similar increase has forced Air India — the state-owned airline that has sought government bailout as it is finding it tough to pay salaries — to defer renewal by three months.
Unlike Vijay Mallya-promoted Kingfisher, Air India’s insurance cover has a clause that allows it to extend renewal by up to three months.
Kingfisher, which is holding talks to raise funds due to mounting debt and losses, has paid over Rs 50 crore ($10.5-11 million, since the payment was in foreign currency) to insure 74 aircraft, as against around Rs 38 crore ($7.9 million) that it paid last year. The airline purchased a $3.09 billion (around Rs 15,000 crore) insurance cover from ICICI Lombard which was effective from June 24, said insurance industry sources.
Indigo’s annual cover is scheduled to come up for renewal on July 31. While National Aviation Company, which flies under the Air India brand, did not respond to a questionnaire e-mailed on Saturday, Indigo could not be reached for comment.
In response to a questionnaire from Business Standard, a Kingfisher spokesperson said: “Our insurance costs are not comparable with last year as we have inducted five wide-body A 330 aircraft and commenced flying internationally, where liability insurance is very high.”
K Ramachandran, executive director, Boda Insurance Brokers, which is among the biggest reinsurance brokers in India, said that typically, premium rates were indifferent to addition of new aircraft or an airline’s move to fly outside its home market.
According to industry sources, Jet, which renewed its insurance cover at the start of the financial year, managed to do without paying a higher premium.
“The Air France crash is expected to provide a $600-$700 million hit (to global insurance companies), which is 40 per cent of the total premium collected, and therefore hardening of reinsurance rates was evident. We had seen prices go up from $2 billion to $4 billion after the 9/11 attacks (in the US),” said ICICI Lombard Reinsurance Head Rajiv Kumaraswamy.
Since January, there have been eight aviation-related claims, which have affected the market. Reinsurance rates are also hardening due to lower capacity in the market following financial problems at AIG and Swiss Re.
A leading insurance broker said, “The increase in the rates was partly due to hardening of the aviation market but largely due to mismanagement of fleet insurance in the reinsurance market.”
The state owned airline, National Aviation Company of India limited (Nacil), had extended its insurance cover for another three months. In June 2008, Air India had taken an insurance of $6.5 billion (over Rs 31,000 crore) from New India Assurance to cover its 140 aircraft.
Sources close to the development said that Air India called for a tender from insurance companies as the extended cover would lapse on September 30. New India, ICICI Lombard Bajaj Allianz, Reliance General Insurance and Iffco Tokio have submitted technical bids.
Also read:
June 3: Kingfisher, Air India, Indigo face rising insurance costs
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