Mumbai: National flag carrier Air India Ltd has insured more than 120 planes for $10.5 billion (around Rs.57,750 crore) with a consortium led by state-run insurer, New India Assurance Co. Ltd. The premium works out to $24 million per annum, making the insurance deal one of the biggest in South and Southeast Asia.
The contract will come into force on 1 October, according to two Air India executives who did not want to be quoted. They added that an announcement of the insurance deal would be made next week.
New India Assurance could not be immediately contacted for a comment.
“The carrier got a better deal, a 7% reduction in the premium amount, as its safety record was good,” said one of the Air India executives on condition of anonymity. “The saving on the premium will also help the carrier in its bid to turn around.”
“The exposure has gone up to $10.5 billion, but we could manage to seal the deal at a lower cost. This is going to have a positive impact on the top line,” said the second executive.
The consortium led by New India Assurance beat another grouping led by ICICI Lombard General Insurance Co. Ltd—a joint venture between ICICI Bank Ltd and Canada’s Fairfax Financial Holdings Ltd—to win the Air India mandate, the two Air India executives said.
Calls to ICICI Lombard went unanswered.
Air India had insured its planes with New India Assurance last year (from 1 October, 2011, till 30 September, 2012) as well.
Chartis Insurance UK Ltd continues to be the reinsurer for the deal.
Air India had debt of Rs.43,777 crore as of 31 December. It has accumulated losses of Rs.27,000 crore in the past five fiscal years. The government in April approved a Rs.30,000 crore package to bail out the loss-making carrier. It included an upfront equity infusion of Rs.6,750 crore and assured equity support of Rs.23,481 crore until 2020-21.
On 22 May, 2010, an Air India Express passenger plane from Dubai crashed outside an airport in Mangalore, killing at least 158 people when it burst into flames after overshooting the runway and ploughing into a forest. In June 2009, an Air France flight fell over the Atlantic killing 228.
These incidents, according to an airline consultant who spoke on condition of anonymity, resulted in a higher premium for the increased cover in the past two to three years. However, since “there were no major accidents (between October 2011 and September 2012), Air India could bring the premium down. This will positively help the beleaguered carrier,” he said. He added Air India could fetch a good deal despite civil aviation regulator Directorate General of Civil Aviation launching a safety audit on Indian carriers, including Air India Express, a unit of Air India.