Thu, Mar 13, 2003
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."
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