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.