BackAir India’s $9 billion insurance cover likely to draw aggressive bidding
AI, which floated a global tender for the policy to cover its 126 aircraft, expects to buy the policy at a reasonable discount
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Mumbai: Insurance companies are getting ready to bid aggressively for Air India’s $9 billion cover, coming up for renewal on 1 October.
State-run Air India, which floated a global tender for the policy to cover its 126 aircraft, expects to buy the policy at a reasonable discount, given the rise in the number of underwriters and its safety record, said two Air India executives.
“Air India’s (including its subsidiaries, affiliated companies and joint ventures) aviation insurance policies are due for renewal effective 1 October 2015 for an agreed fleet value of around $9 billion. We invite technical bids in sealed envelopes from Indian insurance companies duly registered with IRDA (Insurance Regulatory and Development Authority of India)," Air India said in its global tender posted on its website.
The deadline for bids is 6 July.
All state-owned and private insurance firms are expected to bid for the business. Some of them have already initiated talks to form joint ventures to bid for the business, one of the Air India executives said.
“Premium rates are softening in the international market as there were no major aircraft accidents barring Germanwings. Also, there are more underwriters flocking to the international market. Therefore, we are expecting a reasonable discount in the premium," the executive quoted above said.
Air India paid $24 million last year for its policy from state-run company New India Assurance Co. Ltd, which offered it in partnership with American International Group Inc.
Insurance premiums had increased for both aviation insurance and reinsurance following the disappearance of a Malaysia Airlines plane in March 2014 and the alleged shooting down of another aircraft of the same airline over Ukraine.
On 24 March 2015, a Germanwings Airbus A320 crashed in the French Alps while flying from Barcelona to Dusseldorf. All 144 passengers and six crew members were killed. Germanwings is a low-fare airline owned by airline company Deutsche Lufthansa AG.
The first quarter 2015 (1 January-31 March) preliminary global jet accident rate (measured in hull losses per 1 million flights) was 0.38, which was the equivalent of one accident for every 2.6 million flights, according to the International Air Transport Association (IATA) commercial aviation safety performance data. The preliminary results are subject to revision based on the determination of IATA’s Accident Classification Task Force.
This figure was an improvement over the five-year rate (2010-2014) of 0.45, IATA said.
“Flying is safe. The industry has become so reliable in its safety record that relatively small variations in performance from year to year can skew the numbers. The safety performance over one quarter is insufficient to come to any conclusions. However, as the data fits within the five-year trend of improvement, it reassures us that the industry strategy is driving us in the right direction," said Tony Tyler, IATA’s director general and chief executive officer.
The second Air India executive cited above said insurance companies are forging joint ventures and passing on 90% of the exposure to international underwriters. He added that Air India is expecting a first-mover advantage in the insurance market.
Air India, the national flag carrier, is surviving on a ₹ 30,000 crore government bailout. The airline, which had a total debt of ₹ 40,000 crore as on 31 March, is expected to turn around only by 2018-19.
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