A-I, Ia Begins Talks For 3rd Party Cover

Air-India and Indian Airlines have started negotiations with insurers to obtain third-party liability cover from November 1 onwards when the government's letter of comfort expires. The two state-run airlines are currently operating backed by government guarantee which will come to a close on October 31.

Without adequate third-party liability cover airline operations could be badly hampered especially in the case of Air-India, which flies its planes outside the country. The size of cover required depends upon the agreement signed with lessors and the sectors flown by the airlines.

India's privately owned Jet Airways has got full third-party war cover from the global insurance market, as required by its aircraft leasing and financing agreements. Jet Airways managed to get a cover of $ 750 million for its fleet of 29 Boeing and six propeller-driven planes. The airline, which operates more than 195 flights daily to 38 destinations across India, had been seeking additional sources of private insurance through its Indian insurer, Oriental Insurance company after reinsurers capped the third party liability cover at $ 50 million. This was imperative as Jet leases 15 of the Boeing and six turbo-props and owns the rest of its fleet through financing deals.

 

The cover (comfort letter), which has been extended by the Centre till October 31 for the two state-run airlines, provides liability cover beyond the $ 50 million cap imposed by global underwriters. The two airlines are currently in negotiations with reinsurers to increase the available third-party liability.

Following the September 11 terrorist attacks on the United States, global underwriters capped third-party liability cover to $ 50 million. Subsequently they has increased it in stages at an additional surcharge.

A-I with its fleet of 27 planes requires a cover of $ 1.5 billion to fly its planes to all sectors. Indian Airlines on the other hand with 55 aircraft but flying only within the country needs a cover of $ 500 million. Presently, 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 to the tune of $ 1,450 million, while in the case of Indian Airlines, it is $ 450 million. The cover was initially given by the government for a period of 15 days till October 15, and then extended until October 31.