Insurance companies take Rs 500 crore hit on flood ravaged corporate jets

Eight corporate jets which were submerged under flood water at Chennai airport in December are being written off as the damage is beyond repairs.

Insurance companies say that the aircraft parts will be sold for scrap to recover part of the costs. “The damages to the jets and its parts are severe and cannot be restored. Hence, we will have to dismantle and sell parts as scrap, though we will only be able to recover 20-30 per cent of the costs,” said chairperson and managing director of a large public sector general insurer which had exposure to these jets.

The eight jets belonging to TVS Motor, Sun TV, Kalyan Jewellers, Joy Alukkas group and others have a combined insured value of around Rs 500 crore and the entire claim value will have to be borne by the insurance companies.

Chennai-based United India Insurance, among other insurance companies, has been involved in the process of assessing the claims through insurance surveyors and loss assessors. Others like Oriental Insurance and some private insurers were also involved in the insurance of the jets and took a hit due to the floods. But share of public insurers was much higher in the claim.

In addition to the damaged corporate jets in Chennai, insurers will also have to bear loss claims of four helicopters and claim for damage to a SpiceJet aircraft in an animal collision incident in Jabalpur making 2015 one of the worst years in terms of aviation losses in India, according to Global Insurance Brokers, one of the leading brokers in India.

The corporate jets were submerged for a prolonged period under water and there was a water ingress in the entire aircraft including avionics, auxiliary power units and engines.

Routine repairs to aircraft are carried out as per the structural repair manual but since damage to corporate jets in Chennai was substantial, aircraft manufacturers including Hawker, Embraer and Bombardier were called for evaluation.

“The manufacturers carried out a damage assessment and ruled that the aircraft are beyond economical repair and hence the planes are being written off,” said Sakeer Sheik, managing director of Titan Aviation which manages aircraft belonging to V M Aviation, Garuda Jet and Kalyan Jewellers. Jets of these three companies were amongst those damaged during deluge.

The aircraft are being written off as the cost of repair would be higher than their current fair value, sources said.

Amongst the damaged jets, Sun TV's Bombardier Global Express carries the most insured value (about Rs 260 crore) while other seven jets which include Phenom 100, Embraer 500, Piaggio Avanti, Hawker 900XP, Learjet 60XR, Gulfstream G200 and Hawker Beechcraft Premier valued between Rs 18-60 crore.

Sun TV did not comment while TVS Motor declined comment.

Insurance sector officials said that while compared to global aviation market, the Chennai flood losses were not very high since no third party liability was involved, from an Indian perspective the insurers had not faced losses of such a high quantum.

“Globally, Chennai floods may not be considered as a big loss incident in aviation sector. However, we have never faced this big a hit in this segment which will directly hit our books. Some part of it was reflected in the third quarter and some of it will be visible in the fourth quarter,” said the general manager at one of the public general insurance company.

Insurers also anticipate a rise in premiums in aviation insurance as there have been some indications of hike in reinsurance premium in this space.