Centre extends $500m indemnity to Air-India till Nov 30

Our Corporate Bureau

New Delhi, Oct 31: The government has extended a $500-million indemnity to Air-India (A-I) till November 30, while declining the same for Indian Airlines (IA). The third party insurance cover was available to the two national carriers till October 31.

A-I has been able to manage an insurance cover of $1 billion, while the shortfall of $500 million has been made up by the government, sources said, adding that it is now armed with an insurance cover of $1.5 billion per occurrence.IA has a cover of $500 million and is also imposing a surcharge to make up for the additional costs incurred due to increase in insurance premia.

In October, the government had issued letters of comfort to the two national carriers covering third party war risks to the extent of $1.5 billion per occurrence in the case of A-I and $500 million for IA for 15 days.

Thereafter, it was extended for another 15 days for both the carriers, which lapsed on October 31.

IA and Alliance Air announced an increase in insurance surcharge payable on domestic and international sectors with effect from November 1.

On the domestic sectors, the surcharge has been revised upwards from Rs 100 to Rs 250 per sector of travel.

On the international sectors, the surcharge has been increased from $2 to $5 per sector.

The government guarantee became essential as the lessors were demanding that the airlines obtain a full-fledged insurance cover before the aircraft were operated.

The guarantees in the form of letter of comfort were issued to the companies that have leased out aircraft to both IA and A-I.

Following the September 11 terrorist attacks in the US, insurers have given notice of cancellation of certain clauses relating to liability arising from terrorist attack and hijacking.

The insurance companies have also revised the ceiling available for third party liability coverage per occurrence and fixed it at $50 million.

This effectively means the coverage comes down to $50 million from $500 million for IA and $1.5 billion for A-I for each occurrence. This forced the owners of the aircraft, who had leased them to the two carriers to seek indemnification to the limits originally covered.