Airlines will benefit from lower insurance costs after claims declined for a third year running as reduced accident rates and increased competition among insurers keep premiums down, according to a report from insurance broker Aon Risk Solutions.
Claims dropped 20% last year to $924 million as premiums fell 11% to $1.61 billion. “For an industry with remarkably inflexible cost-base, insurers certainly played their part in contributing significant percentage cost savings in 2012,” it said.
“The outlook for airline insurance purchase in 2013 is very positive,” said Simon Knechtli, chairman of Aon’s aviation unit. “It will take a series of losses, or one very large loss in 2013 to create a change in current market trends.”
Crashes for western-built aircraft have declined significantly, says IATA data that notes the accident rate fell to 0.20 accidents per million sectors from 0.37 a year earlier.

A small AN-24 aircraft carrying 45 passengers skidded past the landing strip and overturned in the eastern Ukrainian city of Donetsk on Wednesday. Four people were killed, two were injured and the fate of two others remains unknown.
The aircraft, which had departed from the Black Sea port of Odessa, caught fire on landing but was quickly put out. It is not clear what caused the crash.

Summer 2013 will see talks begin between the EU and the United States on producing a free-trade agreement that would give birth to the largest free trade zone on the planet, significant enough to add 0.5% or €86bn to overall EU GDP and 0.4% or €65bn to the US economy by 2027. This agreement would in effect encompass over one third of global output and trade.

European Commission president Jose Manuel Barroso made the announcement after President Obama backed reducing trade barriers in Tuesday’s State of the Union address. It is hoped that talks, which will need the agreement of all EU member states and the US congress, can reach fruition signed by the end of 2014.

Now the ramifications for the aviation sector in all this are massive, but before we all go running down the bar to get pasted on the thought of relaxed regulations in the years to come, we have to think about two sobering hurdles in the way. The main one is of course the EU common agricultural policy, that wonder of wonders that just keeps on giving for unproductive sponging French farmers and the other is the far more close to home spat between Airbus and Boeing over subsidies.

Now it is likely that any agreement will bring with it strict rules on subsidies and therefore the European airlines that remain to this day “assisted” would have to be let to fail which in turn makes this a good tool for sorting out and levelling the EU airline sector by cutting overcapacity and supported low prices. On the question of Boeing and Airbus – Well these guys are rocket scientists after all, all they need do is get together and within five minutes they would have worked a way around anything that EU and US regulators can throw at them, thus we should all be far more worried about the reclining French farmers.

Willis Group has stated that airline insurance premiums fell by double digits during 2012. The decline accelerated towards the end of the year to Nov-2012’s 16% year on year fall.
Although some $100 million in premiums has been removed from the global markets and Willis expects the downward path to continue, the fact that airlines are buying more aircraft means that many insurers are still in the black and that payouts have been low and few.
Willis says that 2012 was an exceptionally safe year: “The industry loss experience continues to be excellent with 2012 remaining on track to the best ever year in terms of airline losses. There have been USD226 million of hull losses, USD43 million of liability losses and USD412 million of attritional losses. This generates an overall total of just USD681 million after 11 months of the year. There have been just six major losses in excess USD10m and in only one of these were there any fatalities.”
The insurer warns however that US airlines may have to pay higher insurance rates than others as the US airline contract and consolidate.
Willis states that consolidation in the US market has “impacted growth levels” and “brought about an improvement in fleet age” resulting in a “difference in risk profile and experience (which) is in contrast with other areas of the world that are experiencing rapid growth”. Nonetheless, because their fleets are not expanding, US airlines may not qualify for the sort of steep volume discounts that are occurring elsewhere – because that would “involve real premium erosion”.

In Asia, Chinese airlines have become a major market for aviation insurance. Willis estimates that the Chinese aircraft fleet value due for renewal at $74.25 billion. With such growth and the fact that China’s safety record has been among the best in recent years, premiums are likely to fall in unit terms.
Overall, Willis sees premium reduction of 10%, or $195 million, for the year.

Willis Group has stated that airline insurance premiums fell by double digits during 2012. The decline accelerated towards the end of the year to Nov-2012’s 16% year on year fall.
Although some $100 million in premiums has been removed from the global markets and Willis expects the downward path to continue, the fact that airlines are buying more aircraft means that many insurers are still in the black and that payouts have been low and few.
Willis says that 2012 was an exceptionally safe year: “The industry loss experience continues to be excellent with 2012 remaining on track to the best ever year in terms of airline losses. There have been USD226 million of hull losses, USD43 million of liability losses and USD412 million of attritional losses. This generates an overall total of just USD681 million after 11 months of the year. There have been just six major losses in excess USD10m and in only one of these were there any fatalities.”
The insurer warns however that US airlines may have to pay higher insurance rates than others as the US airline contract and consolidate.
Willis states that consolidation in the US market has “impacted growth levels” and “brought about an improvement in fleet age” resulting in a “difference in risk profile and experience (which) is in contrast with other areas of the world that are experiencing rapid growth”. Nonetheless, because their fleets are not expanding, US airlines may not qualify for the sort of steep volume discounts that are occurring elsewhere – because that would “involve real premium erosion”.

In Asia, Chinese airlines have become a major market for aviation insurance. Willis estimates that the Chinese aircraft fleet value due for renewal at $74.25 billion. With such growth and the fact that China’s safety record has been among the best in recent years, premiums are likely to fall in unit terms.
Overall, Willis sees premium reduction of 10%, or $195 million, for the year.

A new report from PwC has highlighted the concerns of the aviation industry on how aircraft will be financed in 2013 and beyond. With aircraft orders at a record high,European banks pulling out of the market, Asian investors aggressively looking to expand, and younger aircraft being parted out for better returns, the report, Aviation Financing – Fasten your seatbelts, says the market could be facing one of the most radical transformations in recent history.

As backlogs of aircraft orders reach unprecedented levels, the survey shows lessors and airlines will be battling for the most competitive finance rates in one of the most turbulent economic climates in recent times. As of July 2012 the aircraft order books of Airbus and Boeing had risen to 8,500, and while financing costs on jets are likely to rise, the jury’s out on how this will impact the different parts of the value chain, which includes aircraft manufacturers, airlines and lessors.

One key trend in the report is the shift in financial powerhouses from West to East. European banks are retreating but Chinese, Japanese and US financial institutions are jumping in.

PwC financial services partner, Shamshad Ali, said: “There are a number of headwinds in the aircraft finance market which may make these orders more difficult to finance – and more expensive. With the cloud of economic uncertainty still hovering around Europe, we are seeing banks there retreating from the market and interest from Asian investors is increasing. We are already seeing banks from China and Japan snapping up aviation assets and we think this trend will only accelerate.”

PwC interviewed a mix of the world’s leading banks, lessors, airlines, export credit agencies for the report. It also found that airlines in developing countries are buying more brand new aircraft where historically older aircraft would have gone, which could see more of them ultimately retiring in ‘jet cemeteries’.

Neil Hampson, PwC’s global head of aerospace & defence, added: “The industry is still experiencing unprecedented levels of orders for new aircraft that are more fuel efficient, technologically superior and that can replace ageing fleets. Our research highlights that whilst financing will be available, it will be at a higher price. As competition to secure financing intensifies, the question remains as to who will be picking up the cost.

“As part of our research we discovered more aircraft are being parted out after only 7/8 years service instead of the traditional 25 years, as investors are gaining greater value and returns than if the aircraft remained operational. The flipside of this, however, could be more aircraft retiring to so called ‘jet cemeteries’.”

Although the report does not state anything new that this service and Airline Economics has not covered already, it does agree with our view that the next few years will be crucial for aviation financing and that the need to attract new investors into the space is even more essential for the industry. Last year we initiated a series of investor forums in London, Miami and Hong Kong, with this aim in mind and succeeded in opening up new investor contacts for the industry. The need is even greater this year and we aim to continue these meetings into 2013. To kick off the year, many of our investor contacts will be attending Airline Economics Growth Frontiers Dublin conference on 20-23 January – we hope to see you all there.

As anticipated – And as written here more than once during 2012: The Chinese just could not let ILFC get away and they have made sure that they have got in before momentum gathers behind any IPO talk and suitors line-up. This is a story of over 35% market share, assets of $39.6 billion, 1,000 aircraft with 200 airlines in 80 countries and with over 200 aircraft and options for the same on order. No doubt the OEMs will be sporting wide grins today.

American International Group, Inc. (AIG) and an investor group led by Mr. Weng Xianding, the Chairman of New China Trust Co. Ltd., announced today that they have entered into an agreement under which AIG will sell up to a 90% stake in International Lease Finance Corporation (ILFC), to the investor group in a transaction that values ILFC at approximately US$5.28 billion.

The investor group is comprised of New China Trust Co. Ltd., China Aviation Industrial Fund and P3 Investments Ltd. They have agreed to acquire 80.1% of ILFC for approximately US$4.23 billion, with an option to acquire an additional 9.9% stake. The transaction is expected to close in the second quarter of 2013.

Upon receipt of the required Chinese regulatory approvals the investor group is expected to be expanded to include New China Life Insurance Co. Ltd. and an investment arm of ICBC International as regulatory approval is granted and the option to acquire the additional 9.9% is excercised. The transaction is subject to required regulatory approvals, including all applicable U.S. and Chinese regulatory reviews and approvals, including a submission of the offer for review by the U.S. Committee on Foreign Investment, or CFIUS, which vets foreign deals for security concerns.

This is a great deal for all at AIG, they quickly and cleanly get the divestment they wanted, and at the same time keep a 10% passive stake that is sure to rocket in value, Mr. Weng Xianding, Chairman of New China Trust Co. Ltd moved quickly to assure ILFC key staff that they are safe; “Our group shares a commitment to ILFC’s experienced management team, its operating philosophy, and its presence in the United States. This transaction allows ILFC to continue to serve its worldwide partners in the aviation industry with world-class service while accelerating its growth in important markets, including Asia.”

Indeed it is likely that ILFC will now have to go on a hiring spree in California to cover the AIG supported operations as under this agreement ILFC will retain operational independence and continue to be headquartered in Los Angeles and incorporated in the U.S. following the closing of this transaction and will continue to be registered with the U.S. Securities and Exchange Commission.

Upon closing, a new Board of Directors for ILFC will be appointed. A majority of the new Board will include leading independent U.S. and European aerospace and financial industry experts, including Mr. Benmosche from AIG. The balance of the Board will be comprised of representatives of the investor group. “This is an exciting new chapter for ILFC that will position the company for robust future growth,” stated Henri Courpron, CEO of ILFC. “With existing management remaining in place, the transition will be seamless, allowing ILFC to maintain its focus on delivering the best mix of modern aircraft to meet our customers’ needs around the world. We look forward to working with the investor group to explore new opportunities for our business. Last year, ILFC opened new offices in Beijing and Singapore dedicated to regional customer support as the region’s aviation growth and demand is well established and expected to increase significantly.”

Credit Suisse is acting as financial advisor to the investor group in connection with this transaction, and Simpson Thacher & Bartlett is acting as legal advisor to the investor group.

If you are an investor in airline portfolios or have an interest in fuel prices then this is for you:

Fuel price is the big headache that keeps the airline finance staff awake at night, therefore we thought we would assist them in repairing their sleep patterns and at the same time give investors and others a chance to gain detailed knowledge of fuel prices and hedging strategies. This extra day event will help investors to decide the course for airline investment portfolios over the next 12 months. It may also be of great help to all of our delegates attending Airline Economics Dublin 2013:

AIRLINE ECONOMICS GROWTH FRONTIERS DUBLIN 2013 HAS TEAMED UP WITH BRYANT CAPITAL TRADE MANAGEMENT TO STAGE AN ADDITIONAL FULL DAY OF CONFERENCE ON WEDNESDAY 23RD JANUARY 2013. ALL REGISTERED DELEGATES WILL BE ABLE TO ATTEND THE FUEL STRATEGY CONFERENCE DAY AT NO CHARGE WHATSOEVER.

Ah I hear you say, not another person trying to tell us what we already know and/or sell us something, NO this is different. There will be no sales pitch and there will be no generally known data on show. This is the real deal, data and analysis that usually costs a great deal of money, which will be imparted to all at no charge with new up-to-date strategies for 2013 on show with a trading simulation at the end of the day.

We have the team from Bryant Capital Trade Management running the day at the Shelbourne hotel with lunch and drinks provided to all. Bryant Capital has formed relationships with all the top names including Goldman Sachs, JP Morgan, Credit Agricole, Jefferies Bache, Deutsche Bank Securities, operating within the Traded Brokerage & Clearing space offering premium counterparty credit ratings, complete transparency with daily mark-to-market of all contracts, the freedom to continue using existing FCM dealer relationships, transaction anonymity and proprietary trade analysis. The Bryant hedging solutions portfolio includes a full spectrum of competitively priced energy products and premium energy hedge structures.

All you have to do is let me know if you would like to attend the additional day and we will have a nice warm seat ready for you. We hope that this extra service helps the industry.

Happy holidays to all Americans.

UN aviation body ICAO will recommend creating a cyber security task force at a meeting next week in Canada. A task force is needed due to an increasing reliance on interconnected IT systems with operating systems such as Microsoft Windows and Linux, and protocols such as IPv6 and Avionics Full Duplex Switched Ethernet (AFDX). A recent paper from the ICAO noted that the current pace and extent of new information technologies is notably increasing the risk from cyber attacks.
The real worry is in ADS-B (automatic dependent surveillance broadcast), the next-generation protocol used by air traffic control systems to track aircraft positions, which has been adopted in Australia and in the US. It allows for more precise aircraft tracking, which allows more planes to fly closer together.
The problem is that it is possible, with US$1,500.00 of equipment to tamper with the ADS-B tracking data for planes in the sky and also make planes that aren’t flying appear to be in the sky to air traffic controllers. The equipment needed for such an attack costs as little as US$1,500. The weaknesses in ADS-B have been known for years and the cost for deleting these weaknesses will be both huge and time consuming. A cyber attack tomorrow could shutdown vast tracts of airspace and cause a situation very similar to that seen during the Icelandic volcano incident of April/May 2010 which could sink airlines into the red and cause untold economic damage.
Everything is at risk from deletion of maintenance records to the jamming of GPS signals around airports. In one example from the ICAO: Three software engineers were accused of sabotaging code in June 2011 at a new airport terminal, allegedly because they didn’t get a pay increase from a subcontractor. Three days later, check-in services failed at the terminal, with 50 flights delayed.
A disgruntled airline passenger sitting at home with $1.5k of kit through to a knowledgeable and well-financed terrorist, when it comes to cyber attacks the distinction can be limited at most. Airlines will need to spend further to protect information and systems, and air traffic control and airfield owners right through to parts suppliers will have to become more militarist in their thinking to ward off the inevitable attacks.
Please check out The Risk Universe magazine (www.riskuniverse.com) and look to Aviation Risk magazine in 2013 (media kit available) for regular updates and commentary from the top specialists in the risk sphere, of which only this company can boast experienced and active risk specialist editors and aviation editors – No other aviation publishing company has the expertise to launch such a publication existing in-house, thus only we can offer independent information on the matter of the expansive risk sphere with full knowledge of and distribution to the airline sector. Look out for this high-end journal – The content applies to you all no matter what your business is.

UN aviation body ICAO will recommend creating a cyber security task force at a meeting next week in Canada. A task force is needed due to an increasing reliance on interconnected IT systems with operating systems such as Microsoft Windows and Linux, and protocols such as IPv6 and Avionics Full Duplex Switched Ethernet (AFDX). A recent paper from the ICAO noted that the current pace and extent of new information technologies is notably increasing the risk from cyber attacks.
The real worry is in ADS-B (automatic dependent surveillance broadcast), the next-generation protocol used by air traffic control systems to track aircraft positions, which has been adopted in Australia and in the US. It allows for more precise aircraft tracking, which allows more planes to fly closer together.
The problem is that it is possible, with US$1,500.00 of equipment to tamper with the ADS-B tracking data for planes in the sky and also make planes that aren’t flying appear to be in the sky to air traffic controllers. The equipment needed for such an attack costs as little as US$1,500. The weaknesses in ADS-B have been known for years and the cost for deleting these weaknesses will be both huge and time consuming. A cyber attack tomorrow could shutdown vast tracts of airspace and cause a situation very similar to that seen during the Icelandic volcano incident of April/May 2010 which could sink airlines into the red and cause untold economic damage.
Everything is at risk from deletion of maintenance records to the jamming of GPS signals around airports. In one example from the ICAO: Three software engineers were accused of sabotaging code in June 2011 at a new airport terminal, allegedly because they didn’t get a pay increase from a subcontractor. Three days later, check-in services failed at the terminal, with 50 flights delayed.
A disgruntled airline passenger sitting at home with $1.5k of kit through to a knowledgeable and well-financed terrorist, when it comes to cyber attacks the distinction can be limited at most. Airlines will need to spend further to protect information and systems, and air traffic control and airfield owners right through to parts suppliers will have to become more militarist in their thinking to ward off the inevitable attacks.
Please check out The Risk Universe magazine (www.riskuniverse.com) and look to Aviation Risk magazine in 2013 (media kit available) for regular updates and commentary from the top specialists in the risk sphere, of which only this company can boast experienced and active risk specialist editors and aviation editors – No other aviation publishing company has the expertise to launch such a publication existing in-house, thus only we can offer independent information on the matter of the expansive risk sphere with full knowledge of and distribution to the airline sector. Look out for this high-end journal – The content applies to you all no matter what your business is.
Hainan Airlines Group looks for further European access
Hainan Airlines Group board chairman Chen Feng said Friday that the group has plans for more overseas acquisitions and is just at the beginning of its internationalization process, Chen told reporters at a news conference on the sidelines of the 18th National Congress of the Communist Party of China. “There are a lot of Chinese people visiting Europe, and Paris is a big transportation hub there,” Chen said. “We want to enter the market and the only way is through mergers.”
HNA Group announced last month it had acquired a 48% stake in French airline Aigle Azur, the only airlines in Europe still open to all offers are CSA and LOT, neither would give high quality CDG route access.
Right now HNA remains in negotiation with Airbus over that Hong Kong Airlines A380 order cancellation.
The HNA Group is on course for close to $16bn of revenues for this fiscal and is targeting 6 to 10 times that amount over the next decade.
HNA Group continues to target aviation expansion due to the collapse of the shipping industry which is, in Chen’s words: “upside down and too miserable to look at”.
Vijay distances Kingfisher Airlines from United Spirits sale
“Each individual company is a public entity. Kingfisher Airlines’ issues will be resolved by Kingfisher Airlines and UB Holdings. It would be unfortunate if you try to link this transaction with the airline. Let’s not cross contaminate everything and interrelate everything.” That was how Vijay Mallya made it clear that the money was not destined to airline creditors after announcing the deal to sell his United Spirits stake to Diageo. This, just three days after SBI had said the Kingfisher Airlines would have to get capital by the end of this month.
Diageo has agreed to buy a majority stake in United Spirits Ltd, for $2.1bn / Rs 11,000 crore in a cash and debt deal that will see it end up with 53.4% of United Spirits. Diageo, in the end, was willing to pay a heavy price for United Spirits – But given the condition of Vijay’s empire the question for many is why pay this premium – Some 7% on the close last week? That is not a question for this site, intriguing though it is.
Most reading this would have thought that the deal would pay off USL debts and inject funds into Kingfisher Airlines, we here thought Vijay would walk away from his crumbling empire with what cash he could and so this seems to be coming to pass.
Vijay Mallya will stay on as chairman of United Spirits while Diageo will name the top executive team. UBHL will keep 14.9 percent of the company.
Diageo will acquire 27.4% of United Spirits from its founders and a packet of new shares for 1,440 rupees – a premium of around 7% to Thursday’s close.
Diageo will then launch a mandatory offer for another 26% on the open market. If it fails to buy outright control, UBHL would vote with Diageo on decisions for four years. UBHL has an option to sell its remaining shares to Diageo from the end of the first full year of control for seven years.
Diageo said it had also agreed to a request from Vijay Mallya to form a joint venture to run a sorghum beer business in South Africa which it said would help it build its presence in another market with a growing drinking class.