Suddenly, War Risk Insurance is Necessary... or Even a Right?

Sally Leible, co-chair of the National Air Transportation Association's Airline Services Council and president of Airport Terminal Services, today testified that airline service companies face "significant challenges" given the critical financial condition of the airlines. Leible testified before the U.S. House of Representatives Subcommittee on Aviation, which was holding hearings on reauthorizing the Federal Aviation Administration.

War risk insurance was one of several items on which Leible touched. "Congress should consider expanding the FAA's war risk program to provide coverage for airline service vendors," stated Leible. "A low level of coverage is commercially available, approximately $50 million per year aggregate, but the premiums are prohibitively expensive. One company was quoted a $5 million annual premium for $50 million in coverage. Given the potential significant losses from an event, this level of coverage is of little value. As a result, we find ourselves in much the same position as when all coverage was cancelled in September 2001."

Although Congress recognized the significance of this issue when it included language in the Homeland Security Act requiring the FAA to report on war risk coverage for airline services vendors, the report is still under review by the federal government.

"Given the critical nature of war risk insurance to our continued ability to operate -- not to mention the carriers themselves -- we respectfully request that Congress consider expanding the FAA's war risk program to provide coverage for airline service vendors," stated Leible.

Airline bankruptcies was another point raised by Leible in her testimony. "While a company may still receive payments for ongoing operations following a bankruptcy filing, they could see up to 90 days of revenue frozen with little chance of recovery," stated Leible. "Too often, these companies are expected to continue providing services to airlines that have no way to fulfill their contractual responsibilities. Eventually, they are forced to settle for pennies on the dollar."

While Leible admitted that bankruptcies are a risk of doing business, "We often find that we are the lowest priority when it comes time to pay pre-bankruptcy debts. While reform of the bankruptcy process is outside of the scope of these hearings, we would urge the Congress to keep in mind these challenges for our businesses."

FMI: www.nata-online.org