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Government indemnity assures resumption of SriLankan flights

by Ravi Ladduwahetty

The national carrier SriLankan Airlines resumed its flights yesterday afternoon following the Government offering US$ 1.45 billion as indemnity.

This indemnity required by the financiers will cover the airline's eight aircraft which comprises one A-320 aircraft, three A-340 aircraft and four A330 aircraft.

SriLankan Airlines was compelled to ground some of its outbound flights yesterday morning because the airline's consortium of insurers led by global giant Lloyd's of London decided over the weekend to reduce the war risk cover from US$ 1.5 billion to US$ 50 million with effect from last night, a senior airline spokesman said.

The shortfall of the US 1.45 billion has been met following the airline successfully negotiating with the Government for this indemnity, the spokesman said.

From Tuesday, insurance companies cut the maximum insurance payouts for third parties -- such as building owners or victims on the ground -- to 50 million dollars from two billion dollars in aviation incidents caused by terrorism or war.

Meanwhile, the Treasury said last night that the Government is not required to provide a collateral backed guarantee but instead is required to issue an indemnity which will only be called upon in the event of there being a successful claim against a financier or a lessor in respect of third party bodily injury or property damage resulting only from a war or allied perils related incident which includes terrorist attacks, in excess of US$ 50 million.

The Treasury said that this indemnity was provided to cushion the serious impact that it would have on the national economy and also recognising that it was a global requirement.

This would mean that the Government would honour the war risk insurance cover as in accordance with the requirement of lessors of these aircraft. They are not personally worried about who indemnifies the aircraft, he said.

Sources assert that this indemnity offered by the Governments is in accordance with the norms of the international aviation industry where Governments offer to indemnify their national carriers. Most Governments have bailed out their airlines as the airlines cannot afford these kinds of funds. Emirates has been offered a US$ 2 billion war risk guarantee from the Dubai Government. A Dubai datelined Reuter report said that the Dubai Government which owns Emirates, placed the US 2 billion guarantee in place on Monday night.

The United States has also offered US$ 5 billion indemnity for American Airlines and United Airlines. The British Government was also expected to provide a similar arrangement.

According to an AFP report, Japan's top three airlines met with government representatives to ask for financial aid including insurance cover in the wake of the terrorist attacks in the US, officials said.

The presidents of Japan Airlines Co. Ltd. (JAL), All Nippon Airways Co. Ltd. (ANA), and a Japan Air System Co. Ltd. (JAS) executive met the Civil Aviation Bureau's director general Kenichi Fukaya, said a bureau official.

The airlines want financial assistance because of a downturn in demand and increased costs, including sharply higher insurance premiums and reduced third party cover, said JAL spokesman Geoffrey Tudor.

"Obviously, we hope we'll get an answer (from the government) soon," said Tudor.

The South Korean government on Tuesday decided to guarantee three billion dollars for the country's two national flag carriers Korean Air Lines Co. and Asiana Airlines Co. to help cover them for potential third party damages, officials said.

Hong Kong-based Cathay Pacific Airways and Dragonair on Tuesday averted the danger of grounding their planes from early Tuesday by clinching a deal with a private insurer.

They said they had struck a deal with the private insurance company for war-risk coverage although they refused to identify the name of the insurer or how much coverage had been agreed upon.

The Philippines government said it would draw up a plan to allow it to provide Philippine air carriers with third party cover for a limited period.

"The government of the republic will immediately take steps to support the Philippine aviation industry," the departments of finance and transportation said in a joint statement without elaborating.

Taiwan airlines have asked the authorities to help cover payments for third party liabilities and will raise fares on both domestic and international passenger services and cargo flights from October 1 to cover higher insurance costs, aviation officials said Tuesday.

On Monday, the Singapore government said it would provide extra insurance cover for Singapore Airlines Ltd. and its subsidiaries, but Trade Minister George Yeo, said Tuesday Asia's most profitable airline had not sought a bailout package from the government.

Thailand's cabinet agreed Tuesday to provide extra insurance cover of up to 1.5 billion dollars for national carrier Thai Airways International, to protect it from third party losses caused by war or terrorism over the next two months, officials said.

Malaysia also followed suit late Tuesday, saying it had agreed to "reinstate the previous level of insurance coverage that has been drastically reduced by the aviation insurance market".

The Australian government earlier threw a five billion US dollar lifeline to its beleaguered aviation industry to provide insurance cover.

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