Garuda must fend for itself in insurance shortfall

Garuda must fend for itself in insurance shortfall

Tantri Yuliandini, The Jakarta Post, Jakarta

The government will not underwrite shortfalls in national flag
carrier Garuda Indonesia's third party war and terrorism
insurance coverage, the Minister of Finance Boediono said on
Tuesday.

"The government will not give a guarantee, Garuda must fend
for itself in covering the lack of insurance coverage," Boediono
said before a hearing of the House of Representatives' (DPR)
Commission IX for financial and development planning affairs.

The government could not afford to put any further burden on
the state budget, he said.

Garuda last week appealed to the government to provide a
guarantee on its third party war and terrorism insurance
following a decision by international insurance agencies to cap
coverage at only US$50 million, down from the previous maximum of
$1.75 billion.

Aviation analysts said the minimum coverage should be $750
million.

Soon after the terrorist attacks on the United States on Sept.
11, global insurers decided to limit liability coverage for
injury and damages to people and property on the ground from
terrorism, hijackings, and other war risks.

Airlines around the world have been turning to their
respective governments for help as airlines without adequate
insurance coverage could be banned from flying both by the lessor
of the aircraft and their respective governments.

Along with the limitation on liability coverage, the insurers
also increased their third party premium to $1.25 per passenger
and the premium on its hull coverage to 0.05 percent of the price
of the aircraft from the previous 0.01 percent.

Boediono said that, although the government would not give a
guarantee, it was important for Garuda to be able to meet its
coverage requirements through an increase in its ticket prices.

"Therefore we ask the DPR to grant leniency to the airline to
determine a price that would cover its increased costs," he said,
adding that a price increase was unavoidable as the government
could not subsidize airline passengers.

"The situation is urgent, therefore passengers have to pay
more. We can't subsidize airplane passengers as according to our
criteria they (airplane passengers) are not poor people,"
Boediono explained.

Separately, the ministry's Director for Insurance Financial
Institutions Firdaus Djaelani dismissed allegations that the
government had left Garuda "high and dry".

He said the decision came after seeing that the insurance
market was no longer as tight as it had been immediately
following the Sept. 11 incident.

"At that time, no insurer was willing to provide coverage
above the $50 million, which was a very small amount considering
the risks," Firdaus said, adding that several insurers had now
started to loosen their coverage limitations.

"So it's now up to Garuda to negotiate a new insurance
scheme," he said on the sidelines of the hearing.

Garuda's insurance is covered by Indonesia's PT Asuransi Jasa
Indonesia (Jasindo) and international insurance companies
brokered by EON London.

Firdaus said that to receive liability coverage equal to the
previous amounts at between $1 billion and $1.75 billion, Garuda
would need to increase ticket prices by at least Rp 30,000 a
passenger.

"And what is a Rp 30,000 surcharge to an airplane passenger?"
Firdaus said.