Desi Carriers' Insurance Costs Rise 20% On Global Crashes

NEW DELHI: The spate of serious aviation mishaps globally is all set to impact the financials of already struggling Indian airlines. A leading unlisted Indian airline will have to renew its aircraft insurance in coming days. To its horror, it found that insurance premia charged by foreign companies (Indian insurers do not provide cover for aircraft to airlines) have shot by 15-20%.

"Our insurance covers have to be renewed shortly. The initial talks we had with insurers in past few days showed that premia are up by 15-20%. May be when we actually strike a deal, the hike is softened a bit but general insurers feel that their underwriting risk is up and they are going to charge more," said the CEO of this airline.

Another airline also confirmed that insurance premia are up. "We are trying to minimize this blow as any additional cost has to be passed on to the flyer. In India, however, irrational pricing by some airlines means that we are unable to recover our costs. For airlines in black, it means lower profits. And, for loss-making carriers, it means more red ink on the balance sheet," said a senior official of the airline.

Centre for Asia Pacific Aviation (CAPA) India head Kapil Kaul said he did not see insurance costs going up sharply except for airlines in "war or conflict" areas. "Premiums have been at their lowest for quite some time and increases, if any, will be marginal," he said.

However, for Indian carriers battling high costs any rise in cost is a bad news. Of all desi airlines, only low-cost IndiGo claims to be consistently profitable. GoAir has started reporting profits since last two fiscals. All others are deep in the red, with one airline facing a serious question mark on its survival prospects due to a severe funding crunch.

"Indian carriers cannot survive in the existing cost structure. The government should provide relief on jet fuel price front else there will be some more Kingfisher-like fold ups," said an airline official. According to CAPA, collective losses of Indian airlines in past seven years till March 2014 are $10.6 billion and their combined debt is $15.8 billion. Airlines are expected to collectively lose $1.8 billion in FY 2013-14 and $1.4 billion in FY-15.