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ENS ECONOMIC BUREAU
MUMBAI, APRIL 2: Even as the Air India board has cleared a proposal to sale of three of its Boeing 747s, the recent turmoil in the aviation reinsurance market, triggered by the Swiss Air crash off Canadian coast, has forced Air India to pay almost 30 per cent higher premium for seeking an insurance cover during 1999-2000.
Air India had proposed the sale of four aircraft but the board took up the sale of only three 747s, which are more 22 years old, an airline spokesman said here today. The airline had six months ago put forward the sale of only two aircraft and even bids had come in but the board then suggested that the aircraft should be leased out. A recent proposal to lease out two aircraft for Haj operations also fell through because the lessee went back on the MoU.
According to airline sources, the sale of the three 747s could fetch less than $ 20 million as there are surplus aircraft in the market. The board also approved the proposal to pull out of Rome, Frankfurt and Manchester stations andre-deploy the aircraft in the Gulf sector.
The Secretary of Civil Aviation, P V Jaykrishnan, who is also presently the chairman of the airline, later held a four hour meeting with representatives of seven unions on measures to revive the airline.
On the other hand, the airline's insurance cost has gone up by 27 per cent from $ 4.43 million to $ 5.6 million during the current fiscal to cover 26 aircraft ($ 2,130 million). In rupee terms, the international carrier has to shell out an additional Rs 50 crore than the previous year.
This marks a reversal in the trend as the country's international carrier has been getting a substantial reduction in its insurance premium each year which culminated in a 50 per cent slash in premium in 1998-99.
"But for the Swiss Air crash, Air India's insurance cost would have gone down this year as there was no major claim from the international carrier during the previous year," said General Insurance Corporation chairman D Sengupta.
The sudden hike in the insurance costwill affect all the domestic airlines, including Indian Airlines, Jet Airways and Sahara Airlines which will renew their cover during the course of the year.
A top team, headed by Sengupta, had to be flown to London twice over the last fortnight to place the reinsurance deal of Air India with the Ariel Syndicate at a higher cost. Sengupta singled out the Swiss Air crash as the sole reason for the hardening of the reinsurance rate.
While the total international reinsurance premium has been calculated at $700-800 million, the single claim out of the Swiss Air crash is pegged at $1.6 billion.
"We had to bargain a lot to bring down the rise in the insurance cost from 50 per cent to 30 per cent," said the GIC chairman, adding that the situation might soften next year.
However, Ariel Syndicate has agreed to pay back 11.25 per cent of the premium if Air India does not have any claim at the end of the year.
Considering the amount of premium paid by the other airlines, including the US-based South WestAirline and Iran Airline which were seeking cover around the same time, Air India has got the best deal, claimed Sengupta.
Besides, the new flights to the US have pushed up the insurance cost of Air India as the US government's risk coverage requirement is much larger than other countries. The average age of the Air India fleet is also on the higher side.
On the basis of the international financiers' condition, GIC is required to pass on 95 per cent of the Air India' risk to the international reinsurers so that any claim payment against the carrier can be guaranteed.
In September last year, GIC had managed a hefty reduction of around 47 per cent while placing the reinsurance deal of the state-owned Indian Airlines for 1998-99.
The corporation, which handles the exclusive insurance business of Indian Airlines and Air India, had placed the deal at $8.26 million against $14.80 million during 1997-98 with Ariel Syndicate at Lloyds. The deal covered a fleet of 52 aircraft of the Indian Airlines amountingto $1.61 billion.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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