Insuring a single plane could cost Ukraine one tenth of its budget
In the wake of a decision by major international insurance companies taken after the terrorists attacks on the US to reduce their liabilities for aviation risks to $50 million, Ukrainian airlines are faced with a ban on their international flights, Ukrainian Transport Minister Valery Pustovoitenko declared on October 9, addressing the ministry board session that considered the situation in the aviation sector.
The crux of the matter is that together with the moves taken by the insurance companies, the owners of aircraft reacted momentarily to the flare up in the international conflict, inflating the amounts of insurance guarantees payable for air shipments done by Ukrainian airlines to a staggering $750 million. President of the Aviation Insurance Bureau Anatoly Lopata told The Day that this astronomical sum is due to the fact that Ukraine’s leading airlines — Air Ukraine, Air Ukraine International, and Aerosvit — are leasing Israeli-owned Boeings for their international routes. If Ukrainian-made aircraft were used for international shipments, Mr. Lopata noted, insurance guarantees would not exceed $200 million. However, abiding by TIAC’s latest guidelines, major international airports deny navigation services to Ukrainian-made planes.
Meanwhile, top executives in many countries have quickly reacted to the worsened business environment. For instance, the governments of the United States (by tapping its reserve fund) and Russia (by increasing its domestic debt) have already decided to provide additional guarantees to cover the difference in insurance payments. In the United Kingdom, the Queen herself has undertaken the appropriate commitments, with the Polish finance minister acting similarly.
“Ukraine has found itself totally unprepared in the face of sky- rocketing insurance payments and aviation carriers guarantees,” Mr. Lopata maintained. “Our insurance companies cannot cover such insurance obligations, and I doubt it very much that any Ukrainian insurance company will be able to shoulder a $700 million commitment.” On the other hand, Ukrainian airlines cannot afford to use the services of those few leading Western insurance companies (Lloyd’s or Marsh) that raised the cost of their comprehensive yearly air shipments insurance almost tenfold to $100,000.
Air Ukraine, Air Ukraine International, and Aerosvit are faced with monthly losses of $1.6 million, $4 million, and $5.4 million respectively, with any delays likely to spell death sentences for them if their international flights are banned. In this context, Ukraine’s Transport Ministry has come up with an offer to guarantee Ukrainian carriers. “We must move quickly in this situation to prevent losing the Ukrainian segment of the passenger market,” Pustovoitenko declared on October 9, assuring his listeners that his ministry can meet such financial commitments.
However, in line with our standing procedures, the government must first have its own rapid responses to shoulder such serious commitments mandated by lawmakers. The Day’s correspondent was told by a Transport Ministry press center representatives that the bill On Additional Measures To Ensure Aviation Shipments has already been submitted to Verkhovna Rada for approval. “The Transport Ministry is authorized to act as guarantor for civilian aircraft registered in the state roster to cover the liabilities toward third parties against risks, including military risks and those emerging from terrorist attacks, within the range of between $50 to $750 million,” the document states. The insurance money is to be obtained from a special state fund for financing government expenditure on aviation activities and membership of Ukraine in international aviation organizations, as well as from transit fees for using Ukrainian airspace and the receipts of our international aviation carriers.
We have to tip our hats to the Transport Ministry’s noble gesture (also approved by the Ministries of the Economy and Finance) to save the country’s airlines. Still, one question remains unanswered: What would happen if, God forbid, the thirteen planes of the three airlines flying international routes had accidents? In this case, to meet its insurance commitments, the Transport Ministry would need the entire 2002 budget revenue of UAH 43.61 billion, with the insurance money due for each lost plane reaching UAH 4 billion. A safer measure might perhaps be to extend medium-term credits to our airlines to buy the appropriate insurance policies.
