Kingfisher, Air India, Indigo face rising insurance costs

Kingfisher Airlines, National Aviation Company of India Ltd (Nacil), the state-owned company that runs Air India, and Indigo could face additional cost pressures, with reinsurance rates expected to harden following the accident involving the Air France aircraft that was flying from Rio de Janeiro to Paris with 228 passengers on board.
Vijay Mallya-owned Kingfisher’s cover is due for renewal on June 24, while Delhi-based Indigo will seek a renewal at the end of July. Nacil’s insurance cover lapses on June 30 but unlike the the two private carriers, it has the option to extend the cover by up to three months.
While the size of the insurance covers taken by Kingfisher and Indigo could not be ascertained, in 2008-09, New India Assurance had provided a $6.5 billion insurance cover to Air India’s 140 aircraft.
The premium depends on the aircraft and its size, and varies from 0.5 to 2.5 per cent of the aircraft value.
A higher insurance premium is, however, unlikely to translate into higher ticket prices or result in a significant increase in cost because the premium accounts for around one per cent of an airline’s operating cost, said Kapil Kaul, CEO, South Asia, at the Centre for Asia Pacific Aviation, an agency focused on aviation sector research.
So far in 2009, there have been eight accidents in the aviation sector, which generated global premium of $1.4 billion during the year ended March. Insurers said with the latest claim arising from the accident involving an Airbus A 330-200 aircraft, up to 50 per cent of the premium income could be wiped out.
In addition, the Indian airlines are expected to face further pressure due to General Insurance Corporation’s (GIC) exposure to Air France.
GIC, which is the designated Indian reinsurer, had a 3.5 per cent share in the reinsurance cover, with Axa being the underwriter. The insurance included a $100 million cover for the hull and another $500 million for liabilities, including losses to passengers.
03/06/09 Business Standard

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Categories: Air India - International Jun 2009, Indigo Airlines Jun 2009, Kingfisher Apr 2007, NACIL Mar 2009