Asian airlines mull insurance pool


Eighteen Asian airlines are looking for other carriers to join a pool to make up shortfalls as insurers raise premiums

By Alex Frew McMillan CNN Hong Kong

KUALA LUMPUR, Malaysia -- Asia Pacific airlines may set up a pool to cover the higher cost of insurance after the September 11 attacks.

The 18 members of the Association of Asia Pacific Airlines have agreed to look into setting up a fund to cover insurance shortfalls.

The move would be the first coordinated response from airlines as they attempt to deal with tougher business conditions in the post September 11 world.

Surcharge on tickets

Many insurers increased premiums or cancelled hijacking and war-risk coverage after commercial airliners were used to bring down the World Trade Center towers and attack the Pentagon. But most airports and airline-leasing companies still require the insurance.

That has forced some airlines to ground planes. Carrier after carrier has announced job cuts and streamlining as a drop in passengers and higher costs hit home. Belgian national airline Sabena was forced into bankruptcy at the start of this month.

Many airlines have slapped a surcharge on ticket prices to cover the extra cost. Air New Zealand charges NZ$8 ($3.37) per sector, for instance.

Up to $20 million contribution per carrier

The AAPA's members tabled the idea of creating a mutual fund to offer cover insurance shortfalls late last week, at the group's meeting of airline presidents.

Director General Richard Stirland said member airlines would each contribute as much as $20 million, according to the Wall Street Journal.

To expand the pool above $1 billion, the carriers would also contribute letters of credit or bank guarantees.

The pool would then pay out claims to the airlines in the fund.

Governments have stepped in

Stirland said the Kuala Lumpur-based AAPA would also try and recruit nonmember airlines to participate in the pool.

Many governments have stepped in to make up the gap in insurance coverage. Korean Air Lines gets support from South Korea, for instance, but the carrier's chairman, Yang Ho Cho, noted that support could not last for ever.

The Association of Asia Pacific Airlines is comprised of: Air New Zealand, Air Niugini, All Nippon Airways, Asiana Airlines, Cathay Pacific Airways, China Airlines, Dragonair, EVA Airways, Garuda Indonesia, Japan Airlines, Korean Air, Malaysia Airlines, Philippine Airlines, Qantas Airways, Royal Brunei Airlines, Singapore Airlines, Thai Airways International and Vietnam Airlines.