Garuda seeks aid to avoid grounding

By Tantri Yuliandini

JAKARTA (JP): National flag carrier PT Garuda Indonesia has sent a letter to the government requesting financial support against possible grounding at overseas destinations due to insufficient insurance coverage, a senior executive said.

The plea came in response to the global aviation insurers' decision to limit liability coverage for injury and damage to people and property on the ground from terrorism, hijacking, and other war risks.

Garuda's vice president for corporate communications Pujobroto said on Wednesday that the airline had sent a letter to the Ministry of Finance on Tuesday and would follow it up with a series of meetings with the government.

"Reflecting on the seriousness of recent developments in the industry, I think it logical that Garuda should also ask the government for a guarantee," he told The Jakarta Post.

Pujobroto said that the state-owned airline had not presented the government with any figures and that it would discuss the details with related ministries, including the state ministry for state enterprises.

Airlines around the world have been turning to their respective governments for help after insurance companies decided to cap third party war and terrorism insurance at US$50 million from the previous $2 billion maximum.

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

Without adequate insurance coverage, the airlines face the likelihood of being grounded, as the U.S. and some other countries plan to restrict the flights of airliners that do not have sufficient insurance.

Separately, Garuda's director of finance Emirsyah Satar was reported by Dow Jones newswire as saying that at the moment the airline was operating normally as airports around the world had yet to refuse access to carriers with insufficient coverage.

He said that Garuda had taken out a policy that provided coverage of up to $150 million with an insurer in London, and was currently negotiating for an additional policy that would extend the coverage to $750 million.

The Indonesian Air Carriers Association (Inaca) said that Indonesian airlines had been given notice from insurers that as of Oct. 1 they would increase their premium fees.

Inaca chairman Wahyu Hidayat said that the insurance premium fees were to increase by 0.05 percent of the total coverage from the previous 0.01 percent a year, and an additional increase of $1.25 for each passenger. In the meantime the liability coverage was reduced to only $50 million from the previous $500 million, he said.

Wahyu told the Post that the association had yet to decide on petitioning the government for support, and that it would hold extensive talks with its members before moving to do so.

He said that the association would like the government to subsidize the premium for higher liability coverage, but "We realize that it will be difficult for the government to grant a guarantee, if it (the government) has no money.

"You know yourself how the government had to beg to obtain a mere $400 million from the IMF," Wahyu remarked.

Earlier an executive of the association said that privately owned domestic airline PT Mandala Airline had asked Inaca to petition for a government subsidy.

Wahyu admitted that the $50 million coverage would not be enough to cover the risks taken by airlines, but that Indonesian airlines could not afford to cease operations altogether.

And the risk of having insufficient insurance coverage "was better than being grounded and not making any money at all," Wahyu said.

The director of finance of PT Merpati Nusantara Airlines, another state-owned airline, Budiman Rafioedin said that as a result of the premium increase a price increase for tickets was unavoidable.

"Maybe not immediately in October, but in one or two months time," he said, adding that there would likely be an increase of about Rp 15,000 ($1.60) a ticket.