Air India might not get payout from insurer on Boeing loss

Last Updated: Wed, Jan 23, 2013 20:10 hrs

Air India might have to rely solely on Boeing for compensation for the loss caused due to its 787 Dreamliners being grounded, as the insurance cover it has taken does not cover financial losses due to glitches occurring on account of technical and other factors.

"In this case, Air India will not be awarded any compensation as the planes have been grounded for other reasons and not due to fire, accident or blast. Only such damages are covered by the policy," said a senior official from New India Assurance, which had bagged a contract to insure the entire fleet of Air India.

In traditional fleet insurance policies, only damages caused by major accidents and natural catastrophe are covered. Hence, if an airline's fleet if grounded due to regulatory issues, the insurance company is not liable to pay.

Air India had grounded all six planes in its Dreamliner fleet after the US Federal Aviation Administration issued a global advisory to airlines that used the 50-odd Dreamliner aircraft around the world. Air India would resume Dreamliner services only when the Directorate General of Civil Aviation clears this.

But certain policies do offer a discount in premiums, if a flight is grounded for a long period. Private general insurer ICICI Lombard General Insurance for example, under its aviation hull insurance policy has a provision for concession in premium if the aircraft is grounded. The underwriters usually charge 35 per cent of the full flight risk rate for the period the aircraft is grounded. "It has been noted that some airlines have had their fleet grounded due to financial and regulatory issues. But, since the present policies do not offer compensation for these, genuine airlines are at a loss," said the CEO of a broking firm specialising in commercial insurance.

The executive added that insurers were also not in a position to offer high payouts in these cases, as these conditions were risky and would push their books into the red.

Air India, in the meanwhile, is hoping that the situation gets resolved quickly. A senior Air India official confirmed that that the fleet insurance policy does not cover revenue loss due to grounding. "We hope that it is a temporary issue. The Boeing 787 is fuel efficient and we have 15 per cent saving in fuel cost and our Delhi-Frankfurt route had turned cash positive for us," he added.

In a recent interview with Business Standard, Civil Aviation Minister Ajit Singh had said, "We expect if an aircraft causes a commercial problem, Boeing would have to compensate. At this point, we are not clear about how serious the problem is, what the commercial implications are and how long it would take. If we say anything now, it would be speculation."

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