aviation

Stories by Louis Ibah

The temporary suspension of flight operations by Arik Air last week Tuesday over non-renewal of insurance for aircraft on its fleet brought to the fore. The many problems encountered by some of the nation’s domestic airlines in getting their aircraft insured in line with statutory requirements.
Arik Air had made the matter appear so light by stating that it had difficulties getting the necessary insurance documentation across to its underwriters following the two-day muslim public holidays (Ed AL Adha). But stakeholders in the industry could however not be fooled as it is a well known fact that all has not been well between local airline operators and indigenous underwriting firms following the implementation of the local content Act which led to an astronomic hike in the premium paid in-country on Nigerian registered aircraft.

Why insurance
Just like the compulsory third party insurance on cars, Insurance cover is a statutory or mandatory requirement by the Nigerian Civil Aviation Authority (NCAA) for any airline flying into Nigeria either on its domestic or international routes. All airlines are by the law required to take valid insurance and reinsurance covers for their aircraft, passengers and for other third party liabilities. It is envisaged that since flying in itself a very risky venture, it was only through insurance and re-insurance that the airline can indemnify passengers or their families should there be any tragic occurrences like the crash of the aircraft with passenger casualty or even the loss of luggage by passengers. By this law no airline is allowed to fly without showing regulators valid insurance policies. The violation of the law attracts sanctions which could lead to the grounding of the aircraft by the NCCA or even the payment of fines before the aircraft is released. In the case of Arik Air, in order to avoid sanctions, the airline took a precautionary measure by shutting down operations till such a time it was able to get all affected aircraft insurance policies first renewed before announcing the resumption of operations.

Exorbitant premium and claims
Relationship between Nigerian airlines and underwriting firms, in the past two decades, have been quite frosty with numerous cases of unpaid compensation to bereaved families of air accident victims. It is the same sad tales of failure to indemnify local operators on aircraft involved in such accidents. In fact, the inability of five of Nigeria’s domestic carriers involved in air crashed (EAS, Sosoliso, Bellview, ADC and Associated Air) to return to scheduled operations was due largely to the failure of the insurance sector to effectively and timely play their roles by indemnifying the airline and affected passengers. Indeed there are several litigation cases littering Nigerian courts brought by survivors and passengers or families of the bereaved involved in air crashes on the non-payment of indemnity by airlines and their underwriters. Both insurance premium and claims in Nigeria are considered to be so exorbitant by global standards. It was learnt that where the airline was insured in Nigeria by a Nigerian insurance firm, the underwriter usually finds itself unable to pay the huge indemnity fees, even in cases where the airline was faithful in its remittances to the insurance firm.

Insurance indemnity to passengers
In Nigeria, the minimum indemnity paid by the airline and its insurer to each passenger’s family involved in a commercial airline air crash is $100,000 (which is about N42million under the current exchange rate). The NCAA however demands that an initial 30 per cent ($30,000 or about N12.5million) of the $100,000 be paid to the bereaved family within the first one month of the accident, while the balance could be settled thereafter. Daily Sun however learnt that for accidents involving charter and helicopter crashes in the country, the amount set aside for indemnity could be higher than $100,000 and could even go up as much as $200,000 per casualty. The oil firms particularly pay so much premium on its staff engaged in offshore operations, hence the high rate of indemnity by the helicopter firms in situations of a crash.

Insurers or brokers?
Daily Sun learnt that in recent months, the Nigerian insurance firms, responding to the Federal Government directives mandating them to take full advantage of its local content law in the oil, gas, and marine sectors to boost their financial and technical capacities, have gone a step further to spread the application of the law to cover the aviation sector by establishing contacts with foreign insurance and re-insurance firms and forbidding them from engaging in any direct underwriting deals with Nigerian licenced aircraft, except through Nigerian insurance or broking firms.
Most analysts agree that while the motive of indigenous insurance firms might have been right, the timing was however wrong, given the poor capitalisation of Nigeria’s insurance firms and the absence of the requisite expertise that could enable them to solely underwrite aviation sector risks.
A quick cover-up of that financial and manpower inefficiency, especially in the short-term, has seen local underwriters entering into flawed brokerage alliances with notable global firms like Lloyds and AIG where they also act as commissioned agents to the foreign firms.
To also take a pie out of the cake, indigenous brokers are also approaching local airlines to deal on their behalf by re-insuring airline liabilities  and passengers,  and  third party liabilities with major underwriters, such as Allianz Aviation Insurance, Aerospace Insurance and Lloyds of London.
The result is what has led to the hike in premium charges paid by local airlines on individual aircraft from one per cent to an estimated eight per cent. But then there was this snag; that there are also fears or speculation of some aircraft flying without insurance cover owing to the high cost of premium in the country. Nogie Meggison, chairman of Airline Operators of Nigeria (AON) told Daily Sun what was going on in the domestic insurance market was a “scam” as underwriting firms had turned the local content law upside down and were profiteering from commission from the high premium collected from local airlines when the actual insurance was still being domiciled abroad.
“To me, the insurance market in Nigeria is almost like a scam,” Meggison said.
“The average insurance round the world on an aircraft is about one percent of the full value of the aircraft. Nigeria is the only country that I know around the world that is not even in the war situation and we are paying eight per cent on the average on insurance. Even our neighbours like Ghana and South Africa they are all paying below one percent,” he added. Most operators would therefore appreciate if the Federal Government would step into the issues and assist domestic airlines sort out their insurance payment crisis so that the rate of premium is brought to be at par with what is obtainable in other climes.
“The Nigerian Content Act in the oil and gas sector cannot really be applied for now in the aviation sector because in aviation accidents, the risk is really so huge and it is even more highly technical and capital intensive for Nigerians to handle for now,” said a chairman/CEO of an insurance broking firm.
“To be honest, I don’t know of any Nigerian insurance company that can come out today and say it can underwrite risks in the aviation sector. The present capital of most of them is so low, some just N5billion and as such grossly insufficient to indemnify risks such as an air crash where it will have to settle bereaved families, or indemnify the airline with another aircraft,” the CEO told Daily Sun in an interview where he pleaded to remain anonymous.
Already, airlines plying Nigeria’s domestic routes are crying out that they may be heading towards an all- time-low profit for the financial year ending 2016, when the new cost of insurance is added up to other existing operations cost like high cost of fuel, multiple taxes, staff remuneration, and the recent fall in the value of the naira against the dollar and with the attendant high cost on maintenance of aircraft.

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He said: “What is happening today is great. Air Peace has been doing very well. Its coming to Benin,which I come every week, has given me an opportunity to experience efficient service.”Mrs. Elizabeth Ohonba, an Edo indigene based in Manchester, could not conceal her satisfaction. She said her experience on Air Peace Lagos-Benin flight erased her fear of flying locally.
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The aircraft is just like a private jet. I will help advertise Air Peace once my experience is good,” she pledged.When the aircraft eventually made a safe, smooth landing at 8.44 a.m., Mrs. Ohonba, who flew with her son, Michael, said she was pleased with the in-flight services of the airline, promising to continue patronising the airline.  Similarly, Mr. Ikechukwu Ibe, said he was trilled at the entry of Air Peace into the Benin route.
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Arik Air lifts embargo on unionism  

In what appears to be a major shift in the airline’s management anti-union hard stance over the years, three unions were inaugurated over the weekend in Arik Air.
The ceremony, which took place at the airline’s headquarters at the Murtala Muhammed Airport (MMA), Lagos  saw hundreds of the airline’s staff joining either the National Association of Aircraft Pilots and Engineers (NAAPE), Air Traffic Services Senior Staff Association of Nigeria (ATSSSAN), and National Union of Air Transport Employees, (NUATE).
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Ajagbe further disclosed that plans have reached an advanced stage to equally inaugurate members in Dana Air, Air Peace, First Nation, Med-View and other organisations in the industry.