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Government asks A-I, IA to get war insurance from market

The government will not extend a guarantee for third-party war risk cover for state-run Air-India and Indian Airlines beyond October 31, a government official said on Wednesday.

The government has asked the two airlines to get the insurance cover from the market after the guarantee expires at the end of this month, the official, who did not want to be identified, told Reuters.

"We have asked Air-India and Indian Airlines to pay to get the insurance from the market. It is available from insurers," the official said. "We will not extend the guarantee."

Global insurers capped third-party war risk cover at $50 million after the September 11 skyjackings, leaving airlines without much of their former insurance cover and prompting many governments to offer help to keep them airborne.

Air-India, covered for $1.5 billion for a single incident of damage from war or terrorism on the ground before insurers capped the cover, has been asked to raise a $1 billion cover from the market.

"For the remaining $500 million, it will get a government indemnity for November," the official said.

Indian Airlines, which had a $500 million cover per incident before the cap, will have to raise the entire amount from the market.

Privately-owned Jet Airways, the country's No 2 domestic airline, has already arranged for war cover from the commercial insurance market after failing to get a government guarantee.

PASSENGERS TO PAY

An Air-India spokesman said the long-haul flag carrier would have "little option but to pass on the higher insurance costs to passengers" if it raised cover from the market.

"So far, Air-India has not passed on any costs to passengers unlike other international airlines. But we will have to take a look at ticket prices with the added war risk cover," said spokesman Jitender Bhargava.

Insurance companies have hiked insurance premiums for airlines besides capping war risk insurance after last month's attacks on the United States.

Indian Airlines, which flies mostly on domestic routes, slapped an insurance surcharge on passenger tickets at the start of this month.

Both Air-India and Indian Airlines posted a net loss in the year to March 31.

New Delhi's plans to partially sell the two airlines have not met with success.

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