Reduced 3rd-Party Cover May Hit A-I Operations

Air-India (A-I) may be forced to ground some of its aircraft unless the lessors to 4 of its 27 aircraft accept a reduced third-party liability cover, industry sources said.

However, a domestic insurance company is negotiating for cover from the overseas market. Since the present cap on third-party liability cover globally stands at $ 1 billion, Air India falls short of $ 500 million to meet the required cover of $ 1.5 billion.

Come November 1, passengers flying on Air India will be expected to shell out at least an additional $ 3.10 towards meeting the surcharge for the $ 1 billion cover that is currently being negotiated in the world market. According to industry sources, the first $ 50 million attracted a surcharge of $ 1.25. The surcharge is higher by $ 0.35 for an additional $ 100 million cover, and $ 0.80 for the next $ 350 million. Insurers are charging $ 0.70 for the last $ 500 million cover. This amounts to $ 3.10 per passenger per flight.

Nevertheless, Air-India's third-party liability requirement is higher at $ 1.5 billion, based on the agreement signed with lessors and the sectors flown by the airline. Indian Airlines, on the other hand, needs a cover of $ 500 million only even though it has a larger fleet of 55 aircraft since it flies within the country. This will see an additional levy of $ 2.40 per passenger per flight.

At present, the Centre has provided cover beyond the $ 50 million cap available to the two airlines. In the case of Air-India, the government's exposure is of $ 1,450 million, while in the case of Indian Airlines, it is $450 million. The cover was initially given by the government for 15 days till October 15, and then extended until October 31.

Following the September 11 attacks, global insurers curtailed the third-party liability cover to $ 50 million at a surcharge of $ 1.25 per passenger. Worldwide, governments stepped in to bail-out airlines and stood guarantee to meet the shortfall in the liability cover. The Japanese government guaranteed third-party insurance to the country's airlines for a period of six months.

Other governments -- Australia, Canada, the European Union and Thailand -- agreed to provide a 30-day indemnity to their respective airlines. The Indian government also stepped in to provide the necessary guarantee till October 31.

Recently the global market shored up the liability cover, capping it at $1 billion. Some of the international airlines -- Estonia Air and Lanchile -- have been able to get the maximum cover of $ 1.5 billion. Reinsurance brokers in the country did inform state insurers that cover beyond $ 1 billion is not available in the market.