Airlines to be Grounded Over Changes in Insurance Rules?

[The Guvnor]

Perhaps BFU or other insurance PPRuNers could comment? This has serious ramifications for us all.

From today's ATWonline:

Industry faces shutdown over insurance changes
Dateline: Thursday September 20, 2001

ATWOnline has learned that the world's airlines were served with notices from the global insurance industry advising that from Sept. 24, liability for any single accident caused by terrorism or civil unrest will be limited to $50 million relating to third-party damage to buildings and people on the ground.

Senior Qantas executives have confirmed the advice and say that no airline can take the risk and that all airplanes would be grounded unless governments acted quickly. A US Major airline also said it had been informed of the policy change. The insurers of American Airlines and United Airlines already face potential claims well into the billions of dollars from the World Trade Center and Pentagon attacks last week.

Australian Transport Minister and Deputy Prime Minister John Anderson said the situation is extremely serious and that the Australian government is discussing th matter with other governments and airlines. Qantas told ATWOnline that all its flights would come to a standstill Monday unless the government agreed to meet the underwriting difference of any claim. The insurance industry also advised airlines that it will impose a levy on tickets of $1.25 for each sector to meet the $50 million cap.

[Notso Fantastic]

Pray what 'serious ramifications for us all'? You have only an imaginary airline to be a boss of? How many Tristars do you operate then? For someone with nearly 3000 posts, you have an awful lot to preach as if you are an expert. Go get your aeroplanes then come here tell the industry how to do it! http://flytristar.tripod.com/article/art06.html

[The Guvnor]

Notso Fantastic - you have already established yourself as a thoroughly unpleasant individual without an ounce of concern for his colleagues who appears to think that airlines should be run for the benefit of the pilots.

Unlike you, some of us do care about the implications the current crisis has on our colleagues; and this news about insurers limiting their liability to $50m in any single incident will have horrendous ramifications if it goes ahead.

I specifically requested information from people associated with the insurance industry; I did not want, and I am sure no one else here appreciates, your fatuous, small minded sniping at a time like this.

Incidentally, despite my saying that I would be happy to send a copy of the rebuttal I sent to Ryo Yano about that article you keep trying to direct people to I do not seem to have received such a request from you. Nice to see that you're so open minded and unbiased.

[Lazlo]

Guvnor,

Surely this cannot be true. Because, if it is then you are absolutely correct - all airlines will have to cease flying which means that the world's economy will not just collapse but will completely shut down. The world cannot function without airlines. There will, quite simply, be no jobs for anyone in any industry whatsoever. If this is true, all governments must act to force the insurance industry to cover the airlines adequately and responsibly. This is one of the most ridiculous knee-jerk reactions I have heard of yet. People need to calm down and get a grip. It doesn't help when they keep showing airplanes crashing over and over and over again 24 hours a day on the TV but the reality is that it is still more likely that you will be hit by lightning before being in a airplane crash, and the insurance industry knows that. Profiteering from this crisis is criminal.

lazlo

[ 20 September 2001: Message edited by: Lazlo ]

[Biggles Flies Undone]

Notso – bad call there. Whatever anybody thinks about the Guv, he is reporting facts here. My industry is in a state of flux at the moment and none of us are getting that much rest. The situation will become clearer in the next few days but it is clear that things will change substantially. I’ll report back as/when I have time.

[under_exposed]

Guv, how about a few details of this company such as its name, web site or company number so I can make my own mind up about you.

[CR2]

Few bits & pieces I found on the subject.

LONDON, Sept 20 (Reuters) - Airlines, facing big hikes in war risk insurance after the attacks on the United States, could be grounded if they fail to agree new cover with insurance underwriters by Monday, industry experts said on Thursday.
Airlines are required to have insurance covering a whole range of risks, including hijacking and war, and are not permitted to fly without this cover, a spokesman for the UK´s Civil Aviation Authority said.
Aviation insurers are entitled to withdraw cover for war risks, including terrorism, with seven days notice.
Insurers issued notices of cancellation to airlines which take effect on Tuesday after thousands of people were killed last week by hijacked passenger jet attacks in New York and Washington.


Korean airline, shipping war premiums up 500-700 pct
By Park Sung-woo
SEOUL, Sept 20 (Reuters) - South Korean airlines and shipping companies said on Thursday their war risk insurance premiums would jump 500 to 700 percent annually as a result of rising tensions following last week´s deadly U.S. attacks.
The airlines, already wincing from a U.S. safety downgrade and grappling with falling traffic demand and oil price worries, said they may be forced to seek government assistance.
Shipping companies said they expected their insurance premiums to rise nearly 500 percent and they may raise freight rates to cover the costs.
Lloyd´s of London [LOL.UL] notified the airlines on Tuesday war risk premiums for aircraft would be raised up to 700 percent from October 1, spokesmen for Korea´s two carriers said.
Lloyds is also demanding that the airlines pay a new per-passenger surcharge of $1.25 as part of increased insurance cover.
The annual aircraft insurance costs for Korean Air (KAL) <03490.KS>, the nation´s largest carrier, would rise to $4.86 million from the current $560,000, KAL spokesman Lee Chang-wook said.
The new passenger surcharge would cost the airline roughly $27 million annually, Lee said. Korean Air carries an average of 60,000 passengers per day.
Second-ranked Asiana Airlines <20560.KQ> would see annual aircraft premiums rise more than 500 percent to $2.3 million from $300,000 and the new passenger surcharge would be about $16 million a year, Asiana spokesman Kim Haeng-seok said.
The airlines said they would need the government´s support.
"We are reviewing asking the government to extend indirect supports to us instead of direct financial support," KAL´s Lee said.
"We´ll soon formally request (it) once we decide what we need," he said.
Indirect support could include government participation in shouldering the costs of stricter security standards, deregulation or route rescheduling, he said.
But another KAL spokesman said the airline was not reviewing an increase in fares despite the higher insurance costs.
The two airlines saw about 26 billion won ($20.20 million) in losses from flight disruptions on U.S. routes in the wake of the U.S. attacks and they said additional losses should be expected if there was U.S. retaliation for the attacks.

SHIPPING COMPANIES HIT TOO
Korean shipping companies said they had not been formally notified that their insurance premiums would rise but they were expecting to be informed soon of an increase.
They said they were reviewing an increase in freight rates to cover the higher insurance costs.
Hanjin Shipping <00700.KS>, one of the nation´s leading shipping firms, said its monthly insurance premiums would rise to around $125,000 a month from the current $25,000.
"We are reviewing an increase in our sea freight rates. There´s no other way to cope with the increase," an official at Hanjin told Reuters.
Hyundai Merchant Marine <11200.KS> said its insurance premiums would likely jump to $195,000 per month from $39,000.
Shares of Korean Air rose 90 won to 4,450, while Asiana was fell 70 won to 1,200 on Thursday.
Hanjin shares firmed 25 won to 3,325, while Hyundai Merchant increased 260 won to 2,000.
($1=1287.0 Won)


KAL says cargo jets may bypass Tashkent on war risk
SEOUL, Sept 20 (Reuters) - Korean Air (KAL) <03490.KS>, the world´s second-largest cargo carrier, said on Thursday it was looking for an alternative refuelling stopover, switching from Tashkent in Uzbekistan, because of the risk of war.
Every week, a total of 12 Boeing 747-400 freighters heading for European cities including London, Amsterdam and Frankfurt, stop to refuel in Tashkent, KAL spokesman William Han told Reuters.
"We don´t know clearly as of now whether the region is unsafe, but just in case, we are looking into other places for refuelling," Han said.
"And the most likely alternative is Anchorage, Alaska. We are ready to go for it immediately in case of emergency," he said.
According to the Washington Post earlier this week, Uzbekistan´s foreign minister has said his country is willing to discuss with the United States using its bases and airspace to attack extremist groups in Afghanistan.
KAL has cancelled a passenger flight to Cairo via Dubai scheduled on Thursday to avoid any possible risk of being caught up in U.S. retaliation in the region against those behind last week´s air attacks on U.S. landmarks.
Korean Air operates an Airbus 330-200 with 280 seats to Cairo twice a week, on Mondays and Thursdays, and no decisions were made regarding next week´s flights.
Shares in Korean Air were down 150 won at 4,210 at 0147 GMT on Thursday, while the benchmark stock index <.KS11> was off 2.25 percent at 475.80.


Notso: you're becoming somewhat boring.

[The Guvnor]

under_exposed the article came from ATWonline, the online version of Air Transport World magazine.

The article can be found here (http://www.atwonline.com/indexfull.cfm?newsid=1109).

[MrNosy]

Its true.

As I understand it the 7 days notice of cancellation of the old AV52C expires 2359GMT this Monday (maybe extended by 48 hours in US to allow for recorded delivery of notice of cancellation.) We've already had our notice of cancellation. Incidently this applies to everything, not just airlines but also airports, refuellers, ga and so on, everyone who had AV52. The new AV52C limits third party cover to just US$50million and currently is just available for airlines.

Many many contracts require more than $50m, eg airports conditions of use, so even if the airlines could accept this limit, they may not be able to operate because of other contractural problems. But can we do without air transport? Will the governments give gaurantees for the extra?

[bobtoldmetodoit]

Added to the below, UK Government insurance requirements for Operations Certificates require levels of insurance that are significantly higher than $50M for any aircraft 737 size upwards, so it isn't the financers who are going to be grounding aircraft, but the UK Government.

Airlines voice concern over liability changes
Insurance day 20/9/1, By Stacy Shapiro, London

MAJOR airlines have been talking to governments around the world, voicing their concern about flying without sufficient liability insurance to cover terrorist attacks.

Most of the world’s airlines were sent “notices of cancellation” on Monday by aviation underwriters, which cancelled coverage for liability war risk perils. These notices go into effect within seven days of the time they are received, which would be early next week.

Typically, airlines buy all-risk hull and liability insurance, which excludes liability war risk perils. However, just about all airlines buy back the liability war risk perils under a clause known as AV52. This write-back has typically offered airline liability war risk coverage up to the limits of the all risk policy.

The AV52 clause extends to death and bodily injury to passengers as well as third party property damage and liability. This broad coverage has meant that aviation underwriters may have to pay as much as $6bn for the attacks on the US, including the loss of the World Trade Center and claims arising from the thousands who died or were injured.

Following last week’s attacks and the cancellation of liability war risk perils insurance, the airlines have now been told by their aviation underwriters that:

- Hull war risk coverage will be reviewed on a case-by-case basis to see if premiums need to be increased. Hull war risk underwriters also plan to impose a surcharge of 0.05% of the hull value on top of any increased premiums. Hull war risk is excluded on all-risk hull and liability insurance policies and is placed in a separate market.

- As of October 1, aviation liability insurers will impose a surcharge of $1.25 per passenger on each flight to cover war risk perils. Airlines are not sure whether they can pass this cost on to the passenger.

- There will be a liability limit for war risk perils of only $50m to cover property damage and third party liability.

Airlines believe they can almost handle the increase in cost for this kind of coverage, but they are very worried about the reduction in property damage and third party liability for war perils. They are concerned that this reduction in coverage could leave them in default of their aircraft financing contracts.

Those contracts ask for proof of liability insurance. If the cover is believed to be insufficient, then financiers could ground the airlines.

The US and UK governments may have a way of supplying liability war risk coverage to airlines. In the US, Title 13 under the Civil Aviation Act gives the Federal Aviation Administration the ability to raise money to pay war risk premiums, sources say.

In the UK, the government set up Pool Re several years back to cover property damage when UK property underwriters refused to write terrorist coverage following IRA attacks on the City of London and the Docklands.

[ 20 September 2001: Message edited by: bobtoldmetodoit ]

[The Guvnor]

From today's Daily Telegraph

19Sep2001 UK: City - Insurers drive up cost of airlines' war cover British Airways could have to pay $70m more for terrorism risk

By Andrew Cave.
Associate City Editor

INSURERS are terminating airlines' war and terrorism cover and threatening to impose a surcharge of $1.25 per passenger following last week's attacks on New York and Washington.

The surcharges, being discussed in meetings between airline brokers, Lloyd's agencies and London company insurers would add hundreds of millions of pounds to airline costs.

Premiums are expected to incur substantial increases with cover for war, terrorism and "other perils" expected to soar within the next fortnight.

Richard Hextall, finance director at Lloyd's insurer Amlin, said: "Typically you'd be seeing a rise of 200pc, but it could be up to 400pc. Some airlines are just worse risk than others."

Under the suggested surcharge, British Airways, which carries 48m passengers a year, would have to pay an extra $70m each year for terrorism cover. Some analysts already expect the company to lose £200m to £300m this year.
Virgin Atlantic, which is axing 1,200 jobs, carries 4m passengers a year and would have to pay an extra $5m.

War and terrorism are excluded from most airline liability insurance policies. Cover for such atrocities is sold separately but includes a clause allowing insurers to cancel with seven days' notice.

Lloyd's syndicates and insurers on the London companies market are understood to have issued cancellation notices under such clauses and are also reviewing war cover for aircraft.

The review, which began on Monday and runs until Sunday, involves airlines being asked about their route structure, locations outside their home countries, number of aircraft on foreign soil and details of changes they have made to airline security.
Airlines have also beeen asked to detail any threats that have been made against them during the past 12 months.

New rates will be issued next week and airlines will be told to take their business elsewhere if they are unwilling to pay. One broker involved in the airline negotiations said: "They have given notice that they are reviewing the situation. They have not been making money and things have got to change.

"It is bound to be passed on to customers. It will make things very tough for the airlines."

A British Airways spokesman said: "We are working closely with the insurance market to satisfy their requests for information and all the information they require has been given to them, including the details of the extra security currently being implemented by carriers in the UK."

Virgin Atlantic's Paul Moore said: "Almost on a daily basis, one or another of our policies has been varied by quite a lot. Insurance is an increasing cost for us. There is no question about that." Yesterday, credit rating agency Standard & Poor's warning that 55 leading underwriters have a combined $14 billion of insured losses from the collapse of the World Trade Center.

The agency said a "significant number" of companies are not well positioned to absorb expected losses and are likely to suffer downgrades in their credit ratings.

Rival agency Moody's said the cost of the attacks will be "exceptionally severe" for insurers because of the weight of claims, the timing of the attacks and the ripple effects of the lengthy disruption of a key global financial centre.

[160to4DME]

NotSo, you come across like a bitter vindictive ex-lover.
Ooops, is that libellous ?? :D
Whatever your motives, the Guv provides opportunity for debate, humour, and yes, sometimes even ridicule with his often hard-line or fantastic posts.
You, however, come across like an old carp.
This thread is probably one of the most pertinent and relevant to us all posted today.
Why not button it, and let people judge others by their own merits ? :confused:

[GlueBall]

Let the Gov be this site's gatherer of Breaking Aviation News. As to his Celtic/Caledonian Airlines entrepreneurial spirit: Let his imagination continue to entertain us. :cool:

[P22]

Notso is renowned for his often illogical anti-management views on the BA Compuserve forum. The Guv gets off lightly compared to Notsos treatment of his chief pilot.

[Sid's Stars]

Notso, the Guv has run airlines before in Africa which I suspect is more than you ever have my friend. I also suspect that very few people would ever have the guts to do what he's done and set one up. I'll bet my dogs nuts that a lot of those who enjoy giving him grief that they'd be first in line asking for a job when (not if) he does get his next airbourne.

He does have an uncanny knack of putting his finger on the issues that we all ignore at our peril, such as flagging out, security issues and high crew pay. He was right though, wasn't he, even if we slagged him off at the time for saying what we didn't want to hear?

I haven't put my finger on what attracts his cyber stalkers such as yourself and your mate Who? - but I reckon it's jealousy. I can tell you that I haven't met anyone who can tell me that he has done anything bad to them and I know a lot of the same people he does.

If anything, his main failing is that he's too open and honest, but he's obviously learnt to keep quiet about his plans now as I haven't seem him discussing them for a while.

Good luck to the Guv - he's one of the real 'characters' that make PPrune what it is.

[Notso Fantastic]

Love 'im or hate 'im, but over 3000 posts , you will not escape him. I know 160to4 loves him- hoping for a job in an imaginary airline with a Walter Mitty at the head? But really- does he qualify to hit us all with 3000 lengthy posts? Un peu OTT n'est-ce pas? I am a 30 years standing airline pilot and I find this guy is drowning out the forum! Anything anti-pilot/anti-American/doom/drama laden is right up his street. I wish for goodness sake he would start up his own bulletin board! And I love my Chief Pilot too! We just have a love/hate relationship.
BTW, Guvnerd's using a good trick. When I first replied to this message, he deleted the thread and reposted (without my contribution!). Then he seems to have given himself a new identity (Sid's Stars) to eulogise himself! Good one!

[ 20 September 2001: Message edited by: Notso Fantastic ]

[Sid's Stars]

Nosto, who died and made you God? We can do what you should be doing and either read the post or ignore it. You come across as a spoilt brat rather than as a 30 year pilot, and I see you have yet again successfully hijacked the thread away from its true purpose and made it one about the Guv. I hope you have got the message now that your posts about the Guv are NOT WELCOME HERE!!

[Captain Airclues]

BA will be paying the increased premiums. Not sure where the money is coming from, but we will be paying it.

Airclues

[Grandad Flyer]

Its all true. Here is a copy of the "London Insurers Revised Regulations for War and Related Policy Coverage's."
17th September 2001.
"... in respect of Airports and airport based operators, products manufacturers, ground handlers, general aviation operators.
Following the tragic events of 11th September 2001, there have been many meetings between aviation brokers and representatives of the aviation underwriting market. The position of underwriters following these meetings is as follows:-
Seven (7) days notice of cancellation is being given effective 23.59 GMT 17th September 2001 under the ... section of the policies for all aviation operators ie. airlines, airports and airport based operators, products manufacturers, ground handlers, general aviation and any other companies whose policies include (these sections).
It is not clear at this stage whether it will be possible to reinstate this cover for non-airline customers. We are of course pressing for whatever cover is available, if any, to be reinstated on your behalf and we will keep you fully appraised of developments as they occur."

[The Guvnor]

Yes, Notso Fantastic I did indeed delete my original post (with your pathetic response) and I hoped you had got the message. Unfortunately not.

And yes, I admit it. I am Sids Stars. I am also CargoRat2, 160to4DME and P22 along with everyone else that objects to your little games. You claim that you're in your 50s. Sure you don't mean that you're 15? Grow up! :rolleyes: :eek: :rolleyes:

[batty_boy]

Notso im with you.I spent a considerable time (10+) years in Guvs part of africa and i'd never heard of him. I did know, or know of, any one worth knowing about and as he used to keep name dropping some very close colleagus of mine i find it a little odd.
Still i suppose he could have been involved in mountain airlines or some such company over there, if so i have a few people who could do with being paid.
still i keep an open mind and wait and see.
i will have a snif around next month in nairobi tho. keep up the good work.
:rolleyes:

[Intruder]

The limitations on 3rd-party liability coverage may be a real concern, but the rest seems way overblown.

The $1.25 per passenger surcharge is a no-brainer -- the airline simply increases ticket prices by $2.00 each! Anyone who thinks the public will refuse to fly solely because of a $10 ticket price increase to cover the increased security costs is, IMO, unable to see the forest for the trees.

War-risk insurance is also simply a matter of passing along the increases to the customers. We have had airport tax surcharges and fuel surcharges and electricity surcharges ad nauseum in the past (and currently), and the public still continues to fly and ship their goods. Since the seagoing shippers also appear to be subject to an insurance cost increase, the probability of a customer choosing to change the mode of shipping solely because of an insurance surcharge is relatively low.

[northern boy]

Isn't it time someone pointed out to these insurance companies that they are in the risk business?. They are more than happy to take the premiums in the good times then as soon as they are faced with a claim they duck,dive and weave and out comes the book of loopholes and excuses. :mad: :mad:

The news this evening contained a hint that the UK govt may meet the extra cost of insurance for carriers.When all this is over an investigation into the sharp practices of the insurance industry would be a good idea.

[exeng]

Not so Fantastic my friend,

I applaud your efforts to rid these boards of this irritating person, but it seems he will not go. He will inevitably overstep the mark with some of his views and perhaps then the moderators will strike.

Perhaps it is best in the meantime to ignore the C.E.O of the worlds most profitable airline. He is not worth your efforts.

Come on mate, we have got better things to do!


Regards
Exeng

[crackerjack]

Blah, Blah, Blah

The insurance issue IS an issue, for what it's worth I happen to think it is a red herring (dead herring?) floated by the insurance companies to blackmail the government for money - i.e. OUR money.

The Guvnor has a point, if you choose not to agree with it, do so with a little wit and logic. Personally, I don't give a rat's AR*E what he did or didn't do in Africa - is that relevant to this issue? No, I don't think so. What is relevant is that we might not be flying aeroplanes in a weeks time.

Boomshanka

[SunSeaSandfly]

notso
So far Guvnors posts in the last few weeks have been spot on. I do not like what they say (because I'm a "greedy pilot" and he's a "cheapo beancounter" - with scottish blood), but I have to admit the are quite accurate.

The outfit I work for has had 61 years of operation without a passenger fatality, and I find it is OUTRAGEOUS that we have just been hit with a 500% increase in premiums, and now this.

The most galling irony is that half a dozen amateur pilots have brought the world travel industry to it's present state of disarray.

What I already know, is who is going to be asked to help pay for the recovery.Right Guv?
:rolleyes: :D

[aviatter]

Let's be rational here folks,

Insurance is on the way up, but its not like we won't be flying airplanes next week. Someone will pay the prices, most likely the government, since they would be one of the biggest losers if we weren't flying.

The issue isn't that big of a deal and it involves more than the airline industry. On this side of the atlantic we've been warned that all of our insurance premiums (auto, home, etc) will be affected by this incident.

Life goes on, if not then terrorism wins. :rolleyes:

[Airbubba]

From the Financial Times:


Airlines face more chaos as insurance risks rocket

By Our International Staff

Published: September 20 2001 21:33 | Last Updated: September 21 2001 03:57



The airline industry warned on Thursday of severe disruption to services from early next week as a result of changes to insurance cover in the wake of last week's terrorist attacks in the US.

Airlines around the world said underwriters had given notice they would cancel cover for war liabilities from midnight on Monday. It means airlines and insurance companies will have to renegotiate the terms of cover in the light of the possibility of US military action in response to the terrorist attacks.

Ray Neidl, an analyst with ING Barings, said new premiums being discussed were "ridiculously high" and potentially sufficient to tip several weakened carriers over the brink. Airlines were lobbying Congress to exempt them from liability for damage on the ground, he added.

"There is zero posturing in this," said Peter Walsh, an airline consultant with Mercer Management Consulting. "Every airline around the world has been notified that coverage will be reinstated [only] for a [higher] fee."

The insurance problems are the latest blow to an industry already pushed to the wall by cancelled business, lack of demand and a complete loss of revenues from the US ban on flights last week.

"This is having a very wide-ranging impact," said Graham Nichols, chairman of the Aviation Insurance Office's Association, which represents aviation insurers trading in the London insurance market.

"At least in the Gulf war only certain airlines were affected, whereas now the potential risk of terrorism affects every airline."

Leading British airlines warned they could be forced to ground their aircraft unless the government offered help with covering insurance risks. To keep flights going, ministers are examining emergency measures, including a scheme that would see the government underwriting commercial airlines' insurance.

In a letter to Stephen Byers, the transport secretary, the airlines warn that reductions in insurance cover for injuries to third parties, such as people on the ground, could cause airlines to breach contracts with the companies from which they lease aircraft.

The letter, seen by the Financial Times, says insurers are offering third-party insurance of only $50m (E54m) - way below the $750m typically demanded by aircraft lessors.

"We are not confident aircraft owners and lessors will allow airlines to fly them with such reduction of cover," the letter says. "If our pessimism were to be borne out in practice, airlines would cease to be able to mount any form of coherent service beyond Monday 24th September."

Andrew Smith, chief secretary to the Treasury, and Sir Andrew Turnbull, permanent secretary, spent Thursday afternoon working with industry executives to devise a plan that would see cover restored.

One model being studied is Pool Re, the mutual insurer owned by the insurance industry but backed by the government, which has guaranteed commercial buildings against terrorist attacks since the IRA attacks on the City in the early 1990s.

Representatives from Europe's leading airlines met Loyola de Palacio, EU transport commissioner, in Brussels on Thursday to plead for special help. Ms de Palacio said she would raise the issue with EU finance ministers, who meet in the Belgian city of Liege on Friday and on Saturday.

Airlines in south-east Asia and Australasia announced they would be introducing surcharges of $1.25 per passenger to cover the shortfall in third-party insurance cover.

[Lazlo]

I saw on Sky News last night that the government has agreed to be the "insurer of last resort" for airlines. Haven't seen any news of that this morning though.

Lazlo

[CR2]

And I'm secrectly "The Guv". Really. Believe me. :D
I reckon Notso is the latest re-incarnation of Who?/Freeboot etc ad nauseum.

Edit: Just picked this up from today's Telegraph.

Insurance threat to airlines as BA cuts back 7,000 jobs
By Paul Marston, Transport Correspondent
(Filed: 21/09/2001)


AIRLINES have been threatened with the indefinite grounding of their fleets from next Tuesday because insurers are unwilling to continue providing war cover following last week's terrorist attacks on the United States.

With military action by America and its allies expected imminently, companies around the world are pressing governments to pay special surcharges of up to 400 per cent to allow them to continue flying.

Similar arrangements were made during the Gulf War in 1991, but insurers regard the risk to planes as more serious this time and have warned carriers that existing war cover will cease at midnight on Monday if the increased premiums are not met.

An emergency meeting between officials of the Treasury, the Department of Transport and the Lord Chancellor's Department yesterday examined an alternative option for the Government to underwrite war risk itself.

Stephen Byers, the Transport Secretary, said the Government was considering "targeted support" for airlines specifically to help them with the extra insurance and security costs that had arisen since last week's atrocities.

This assistance would have to extend to all airlines, including budget and charter carriers, not just transatlantic operators which are viewed as the highest risk group.

Airline executives said the issue would be discussed further at a meeting with Transport Department officials today, but they were optimistic that a deal would be struck.

The developments deepened the sense of foreboding in the aviation industry as British Airways announced plans to shed 7,000 jobs, an eighth of its workforce, in its efforts to survive the slump in transatlantic traffic.

The company, which is normally dependent on routes to North America for its overall profit, is also alarmed about possible fuel price rises following the US atrocities.

The aviation crisis claimed its first corporate victim yesterday when Newcastle-based Gill Airways ceased operations after the Bank of Scotland said it could no longer support the airline. About 250 jobs will be lost.

Virgin Atlantic has already declared its intention to lay off 1,200 people and Britain's third scheduled transatlantic operator, BMI British Midland, is expected to unveil a rationalisation programme next month.

A third of the BA staff cuts, which include 1,800 announced two weeks ago, involve cabin crew. The airline also wants to reduce pilot numbers by 400, engineers by 450, ground staff by 850, and marketing and administration personnel by 3,000.

Ten Boeing 747s will be grounded from the long-haul fleet, plus six 767s and four narrow-bodied aircraft used for European and domestic services. BA will cut its route network by 10 per cent, though details of the destinations axed and the frequencies reduced have not been finalised.

The company said it hoped to achieve the head count reduction in a variety of ways.

This included finding volunteers for unpaid leave, converting some full-time posts to part-time, cutting overtime and terminating arrangements with agency and short-term contract employees.

The price of BA shares fell by 13 per cent yesterday and City analysts predict that the company would face record losses this year and may not return to profit before 2003.

[ 21 September 2001: Message edited by: CargoRat2 ]

[radeng]

Could someone explain, please? If the insurers refuse to insure and require airlines who don't like it to go elsewhere, then the airlines won't be paying them premiums, right? So how long will the insurers be in business then?

Or have they got so much income from elsewhere they can afford to shut down a major part of their business?

Where's my reasoning gone wrong?

[VTOL]

This is from the BBC

Friday, 21 September, 2001, 07:06 GMT 08:06 UK

Airlines 'threaten to stop flying'

EU finance ministers will discuss subsidies for airlines
Leading UK airlines have reportedly warned Trade Secretary Stephen Byers they might be forced to ground their planes from Tuesday unless the government insures them for terrorist acts.
Airlines around the world said on Thursday that underwriters had given notice they would cancel cover for war liabilities from midnight Monday, the Financial Times newspaper said.
Ten airlines including British Airways, Virgin Atlantic warned in a letter to Mr Byers that reductions in insurance cover for third party injury could put them in breach of contracts with the companies from which they lease aircraft and stop them flying, it said.
The government is to hold crisis talks with airline and insurance company bosses on Friday.
It is also examining emergency measures, including a scheme that would see the government underwriting commercial airlines' insurance, to keep the airlines flying.
The news comes as the US Congress and the White House agreed a $15bn plan to bail out the airline industry in the aftermath of last week's terrorist attacks.
Emergency measures
The letter says insurers are offering third party insurance of just £34m, much less than the £515m typically demanded by aircraft leasing companies.
A spokeswoman for British Airways told BBC News Online: "We are talking to the insurance companies about the situation. We are aware of their concerns."
She refused to comment on the FT report that the airlines had threatened to stop flying.
Meanwhile, European Union finance ministers will hold an informal meeting on Friday to discuss the economic impact of the attacks on the US and the possible easing of rules on state subsidies for airlines.
In the US, President Bush has asked Congress to amend legislation on war risk insurance provided by the Department of Transport to cover domestic US flights, eliminating the risk of carriers being unable to find insurance and offsetting rate increases, his spokesman Ari Fleischer said on Thursday.
Security improvements
Insurance experts say that in some instances premiums have increased tenfold since last week's attack.

David Worsfold, editor of insurance industry journal Post, said cover for planes was still available but airlines were having difficulty securing liability insurance, to cover the risk of terrorist attack or war.
He said airlines could normally expect up to £1.5bn of liability, but this had now been reduced to £50m at best, which was not enough.
But, he added, insurance companies wanted to see a dramatic improvement in airline security before premiums would come down.
"Their (the airlines) attempts to improve security at airports could be described as inconsistent and haphazard at best," he told BBC Breakfast.
"You cannot expect insurance companies to be sympathetic to the airlines, if they cannot get that right," he added.
Overstating the case
Some industry figures believe the airlines are overstating the case for state aid.
Michael O'Leary, chief executive of low cost airline Ryanair told BBC Radio 4's Today programme: "There were going to be large job losses on the way already.
"Companies were losing money before last week.
"Last week's events have brought it forward."
Mr O'Leary said that rather than "begging" money from European governments, airlines should slash fares.
"We continue to take the same number of bookings per week as we did before the tragic events in the US last week," he added.
US rescue package
The US government's airline rescue package includes $5bn in direct grants to the airlines.
The US government will also provide the airlines with loan guarantees of $10bn.
US Transport Minister Norman Mineta said there was also an agreement that the federal government would spend $3bn to upgrade security in airplanes and airports.
That sum would come out of the $40bn in emergency spending that Congress approved last week for recovery and victim relief efforts.

It is not looking good out there...

VTOL

[under_exposed]

Guv, I think you miss-understood. I am not loking for the attack on you, I was after details of your company so I can decide for myself as there is a lot of insulting from both sides but no information.

[euroboy]

See BBC2 Ceefax page 202.
Re Airline Insurance.

[The Guvnor]

Some of the larger airlines could quite easily self-insure their hulls, if they either own them or have a structure in place that would be acceptable to their financiers. In fact, it's something that has been quietly going on for many years.

Hull liability, though, is not the problem. It's third party liabilith claims arising under War Risks cover: Insurers will provide limited war risk coverage to carriers considered good risks; however, coverage for death or injury to third parties and property on the ground has been limited to $50 million for any one event and in aggregate.

I've seen reports that the claims from last week's attacks could rise as high as US$100 billion. Those sorts of numbers could never be covered by any airline - or even consortium of airlines; and with the exception of two or three of the world's largest insurers (AIG, which owns ILFC springs to mind) I doubt that even they could carry more than a percentage. Cover effected through Lloyds of London is paid out by 'Names' - high net worth individuals who have unlimited liability. The number of Names has decreased over the last decade or so due to various problems, not least that many felt they were being ripped off by underwriters and a long-standing suit against Lloyds resulted.

The fact is that all sectors of the insurance market are there to make money - the general concept being that they build up vast amounts to cover any possible losses; and anything over and above that amount - as determined by actuaries - is deemed to be distributable profit. With a situation such as we have seen, these reserves are insufficient to withstand another such incident (and in the cases of some insurers may well be insufficient to withstand existing liabilities) - and therefore they have to increase premiums to cover this exposure.

Do I think that a 500% premium increase for a carrier that has no history of losses is fair? Hell, no. But that's the sort of deficiency in the premium pool that the insurers are facing.

In a situation such as this, there is another option - government cover. Following the City bombings, the government set up its own underwriter - Pool Re, as I recall - to write cover for businesses in the City when the markets refused to. If governments around the world agree to act as Insurer of Last Recourse, then this may well solve the problem. In effect though, the only governments at risk will be the US, UK and other Coalition member countries and of course any countries which face the wrath of the Coalition forces.

My knowledge of the insurance business is fairly limited, so if I have made any errors in the above analysis please accept my apologies - and hopefully someone in the know such as BFU could correct them?

[ 21 September 2001: Message edited by: The Guvnor ]

[Biggles Flies Undone]

There has been mention of airline insurers ‘taking the money in the good times’ and ‘running in the bad times’. Just to put this into perspective, for the three years starting 1 January 1998 total worldwide airline insurance premiums (excluding hull war risks) were around US$3.2 billion and losses for the same period were in excess of US$5.3 billion. The terrorist attack in Sri Lanka took away ten years worth of hull war premiums.

This year the insurance market was seeing sustained premium increases for airlines – not enough to return the market to profitability in a year of ‘average’ claims, but certainly in the right direction.

Can anyone honestly argue that nothing should be done in the aftermath of the attack? I hate knee-jerk reactions and the restriction in third party liability coverage is a big concern – but it will do nobody any good if there are no insurers left to carry the risk after the dust has finally settled.

Airline insurers have to cover massive exposures ($200m for a hull and $2bn for liability) off an incredibly narrow premium base. I read somewhere a few years ago that worldwide airline premiums were less than one percent of the U.S. plate glass insurance premiums. How many plate glass policies have a potential exposure in excess of two billion dollars?

[flugpants]

The UK charter airlines and most of the European charter airlines are passing the $1.25 per pax per sector charges on to the Tour Operators / Sole Use Charterers....so either they absorb it or pass it on to their clients - either way....they aint gonna be paying it! Will be interesting to see what extra airport security charges are gonna be charged.......and guess who`s gonna pay for them!! :eek:

[Pengineer]

Notso, if its your mission in life to monitor these boards for any posts by Guv, then jump in without reading them (preferred)and launch a personal and vitriolic attack on him, then I have to say 'mission accoplished, come on home'.
All the Guv does is scan the internet for important information, brings them to our attention so we can debate them (like adults). These aren't his opinions, these are verifiable facts.
Perhaps now you could monitor these boards and if you see one by the Guv don't read it!
Therefore you won't get upset and you won't divert or hijack the original direction of the thread.
Your sort of behaviour is entirely unbecoming in an airline captain (thats my opinion so you can attack that if you like).
http://www.stopstart.fsnet.co.uk/Gif/Itchscratch.gif
Pengineer
(No I'm not the Guv)

[Base leg]

Following from what Lazlo posted on page 2- today's copy of the Times has an article which gives rise for some cheer amongst the doom & gloom;

Wartime laws return to help airlines (http://www.thetimes.co.uk/article/0,,2001320011-2001326060,00.html)

[ 21 September 2001: Message edited by: Base leg ]

[160to4DME]

Notso,

I love the Guv eh ? Really old chap, you should put more water in your tipple. He's really not my type :D

If you spent a moment to read some of my old posts, you will find I have argued against the Guv's opinion on more than one occassion.

My point is that we are all adults, and quite capable of judging a fellow PPruner without repeated references to a rather old web page.

I find it particularly sad that at a time when there are real crisis issues affecting us all, a thread's impact is reduced to petty arguing, character assasination and point scoring.

The Guv posted what is now clearly THE top story for the industry yesterday, to which you could do nothing more than post the same, repetetive and frankly BORING regurgitated clap trap (whether it's true or not is irrelevant).

Get out more old chap; monumental things are happening beyond the limits of your PC screen at the moment.

[wallup]

Radio 5 Live just announced that HMG has agreed to meet the third party liability for airline insurance. Not sure if this is a complete solution, don't ahve the details through yet.

[gaunty]

Geez what a bunch of girls.

The Guv, love him or hate him, brings, what is a fairly vexed situation to your attention and all the most of you can do is bitch and moan about Guvs real or imagined shortcomings, meanwhile the rest of Rome burns.

BFU thank you for that, the US Plate glass premium income v airlines sorta puts the whole argument in perspective.

Who'd want to be a name.

[CR2]

Read Guv's 210905
Hit's the nail on the head. Commercial aviation faces grounding effective week 40. Govt. intervention required to keep the big pax airlines afloat.

[The Guvnor]

From today's Sunday Times:

EU deal to cover airline risks
David Smith and Michael Prescott


EUROPEAN finance ministers meeting in Liège, Belgium, yesterday, stepped in to head off the immediate crisis in the airline industry.

After Friday's announcement by Gordon Brown that the government would act as guarantor to provide British airlines with insurance cover against third party risk - damage to property and people on the ground - other European Union members agreed on similar measures.

There had been fears that without such cover, initially for 30 days, many airlines would have been grounded this week.

The EU ministers also agreed to speed up ratification of a United Nations resolution calling for a freezing of all Taliban
assets.

In an effort to show that the world economy is operating normally in the wake of Wall Street's worst week since 1933, the Liège meeting announced that the Group of Seven would meet in Washington on October 6. Interest rates in Britain and America are set to fall further before then. The meeting had been scheduled for next weekend but was cancelled.

George W Bush, in his weekly address to the American people, also tried to offer reassurance. "Our economy has had a shock," he said, noting many workers had lost their jobs last week, especially in the airline and tourism businesses. "Yet, for all these challenges, the American economy is fundamentally strong."

The chancellor hinted yesterday that governments were ready to pay for better security at airports and on planes. The British Airline Pilots' Association said extra security was urgent.

"The focus must be on stopping terrorists and preventing disruptive passengers from boarding our aircraft in the first place," said Captain Ian Hibberd, a spokesman. Pilots believe a computer system to check the names and profiles of passengers would be more effective than strengthened cockpit doors or guards.

Airline ticket computers would be linked to a central database on which the names of terrorist suspects could be entered, as well as profiles of "unusual" passengers. El Al, the Israeli airline, uses passenger profiling to identify potential troublemakers before they board flights.

[palmtree]

What about airlines that dont have the backing of their Governments for war risk insurance - how will thay fly after 23.59 tomorrow?

[LRdriver]

Yep,
It seems us small biz-jet AOC holders are also about to be grounded due the insurance thing..
Can somebody non-airline please confirm if this is true.

[The Guvnor]

Palmtree - my understanding is that anyone that does not have the requisite third party liability cover will be grounded. This cover is required by lessors as well as by airports and aviation authorities as part of their AOC approvals - and the new insurance industry limit of US$50m per incident falls well below the required levels.

[ 23 September 2001: Message edited by: The Guvnor ]

[411A]

You can now expect an increase in company-owned and time-share exec jets (for those companies that can afford same, in the US anyway) as a way around security concerns as these aircraft are not required to carry the very high third party insurance cover required of Bizjet charter AOC operators. Here in the USA, the insurance problem appears to have been solved, at least in the short term. Longer term it will have a profound effect on the bottom line of ALL airlines and bizjet charter operators. Suspect that a few airlines will not survive to have a bottom line at all, ala Midway-style.
Those that do not have an understanding of the insurance business had best keep it that way, least they have many sleepless nights.

[Icarus]

I understand that GF have until 1700 (BAH) tomorrow (24-9-01) to get the additional underwriting in place or the airline will be grounded. :(

[411A]

Not the least bit surprised...after the GF072 fiasco, I am astonished to find that they are able to obtain insurance cover at all, at what would be considered by others to be a reasonable cost. And with EK cleaning their clock in the traffic department, the end may well be near.

[CaptA320]

411A you seem to have a responce on every single subject. When exactly did you get appointed on the AIB of GF072 and you have formulated an oppinion of it being a fiasco?
Have you nothing better to do than constantly expose your vitriolic character?

[411A]

Well there CaptA320, I seem to have struck a nerve. Don't know about the AIB and the report it should have published by now, but the whole GF072 accident was a complete fiasco, complete with the swan dive into the Arabian Gulf.
Why has the final report not been published?
:confused:

[simmy]

The destruction of the WTC and the damage at the Pentagon, as well as the killings and injuries sustained, and the aircraft destroyed, was an act of war. The cost of war is carried by the nation at war and when it is over, hopefully by reparations from the vanquished.
What is wrong with having the cost of the attacks in the USA being met by the USA government through taxation? This will let the insurance industry off the hook in this case and allow them to continue making their business at less swingeing rates. Part of the costs from any action like this in the future ( which I pray may never happen )should be attributed to the government of the country where the terrorists embarked. (This would provide an incentive to ensure proper security measures at airports.)
There is no doubt that our world has changed since September 11th. We must not let this horrendous event cause hardship and pain further than it has done.Let's get on with our normal lives. That is the best contribution we can all make to defeat terrorism. Are those who have stopped flying due to the perceived threat to danger in the air now going to stop breathing as the chance of a biological attack is promoted in the media? I despair.

[The Guvnor]

Simmy, if what you say is correct, why would airlines need War Risks and Associated Perils cover? :confused: :eek: :confused:

[MrNosy]

The UK Government has introduced a short term scheme to provide indemnity for third part (war and terrorism) liabilities above US$50m. Apparently available to all holders of Type A or B air operator's licences (UK AOL holders) and aviation 'service providers' eg airports, ground handlers etc Maximum scheme limit is US$2billion. Premium rates are US$0.25 per pax carried for up to US$750m or US$0.50 per pax above US$750m. Premium for 'service providers' is 25% of gross premioums payable under their existing insurance.

An insurance company (Troika Insurance Co Ltd) has been established for the sole purpose of writing this cover. It is capitalised by HM Treasury who will also indemnify Troika against 100% of all liability and costs incurred.

[wayward]

A Commercial operator not covered by the UK Gov is Manx Airlines, which had its` five aircraft grounded today.