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AIRCRAFT ENGINEINSURANCE
BARRY MOSSAVOCET
ABOUT US
AVOCET provides specialist advisory, compliance and risk management services to the Airfinance industry:
Aviation insurance
Aviation EU ETS – AVOCETS
AGENDA
1. Overview - types of aviation insurance
2. Differences between engine and aircraft insurance
3. What insurance risks are peculiar to engines?
4. How does AVN67B relate to aircraft engines
5. Other specific insurances for engine owners & lessors
6. Summary & Key Take Away Points
HullSparesHull/Spares War RisksHull DeductibleLiability (third party, passenger, products etc.)
OVERVIEW - TYPES OF AVIATION INSURANCE
WHAT ARE THE DIFFERENCESBETWEEN ENGINE & AIRCRAFT INSURANCES?
WHAT ARE THE DIFFERENCES?
Nothing much – provided an engine is attached to the aircraft
Considerable – if an engine is detached from the aircraft
Let’s explore some of the issues. . .
This may depend on whether the engine is the original engine or a replacement engine
If the original engine – it will usually be insured as part of the ‘Hull’ and within the ‘Agreed Value’ of the aircraft
If a replacement engine – the aircraft ‘Agreed Value’ should be increased by the value of the replacement engine
WHEN IS AN ENGINE NOT AN ENGINE?
The original ESN(s) may or may not be identified on the insurance certificate
If ‘on wing’ the ‘deductible’ will be the same market deductible as for the aircraft it is attached to:
CFM56 –B737/A320 - USD750,000A340 - USD1,000,000
IF IT IS THE ORIGINAL FINANCED ENGINE. . .
WHAT INSURANCE RISKS ARE PECULIAR TO AIRCRAFT ENGINES?
Then it will probably be insured as a spare engine and not within the ‘Agreed Value’ of the aircraft
The deductible will usually reduce to $10,000 except when the engine is being tested
If the engine is being tested then the full market deductible for the aircraft will apply
IF AN ENGINE IS DETACHED FROM AN AIRCRAFT. . .
Whilst in the care, custody and control of the aircraft operator . . .
The engine must be located at a secure facility
It must be kept in good condition and in accordance with OEMs storage directives
An aggregate ‘fleet’ spares limit will usually apply (for any one location/sending etc.)
STORAGE
Whilst in the care, custody and control of the aircraft operator . . .
An aggregate ‘spares’ war risk limit will usually apply which may include a sub-limit for confiscation by Government of registry
‘Excess war risk liability’ cover (Extended Coverage Endorsement Aviation Liabilities -AVN52E) up to fleet liability limits (usually excess of USD150,000,000)
‘Spare’ engines only insured whilst in transit by air or sea – not whilst on the ground
WAR RISKS
Reduces the deductible to a more acceptable limit (i.e. from USD750,000 to USD250,000)
Usually applies to the aircraft rather than the engines
May or may not apply whilst an engine is removed for testing
DEDUCTIBLE INSURANCE
Minimum air carrier liability limits within Europe under Council Regulation (EC) No 2027/97 & Regulation (EC) No 889/2002
Elsewhere is usually benchmarked against similar carriers operating similar services with similar equipment
The same ‘third party’ liability limits will usually apply whether an engine is attached or detached from an aircraft
‘Products’ liability subject to an annual aggregate
LIABILITY INSURANCE
An engine financier/lessor should be named as a ‘Contract Party’ on the aircraft operator’s insurance and/or reinsurance certificate
The ‘Contract’ should also be identified on the aircraft operator’s insurance and/or reinsurance certificate
The engine financier/lessor should be included in the list of contacts
AVN67B - AIRLINE FINANCE/LEASE CONTRACT ENDORSEMENT
Aviation insurance is often subject to local laws and regulations - often subject to minimum local insurance retentions
Reinsurance should be placed into the London and established international markets
A ‘cut through’ provision should be obtained where permissible
REINSURANCE
SPECIFIC INSURANCES FOR AIRCRAFT OWNERS AND LESSORS
Can be expensive if insured within the aviation market
The marine cargo market can be much cheaper
Check whether the engine is covered by the haulier or shipping company
If applicable, check that the storage facility has ‘hangarkeepers’ & products liability coverage
‘OFF LEASE’ STORAGE & TRANSPORTATION
What it is
What it is not
Do you need it?
Need to price it into transaction
Insurance risks still need to be effectively managed
‘CONTINGENT’ HULL & LIABILITY INSURANCE
Aircraft/engine non-repossession insurance = Confiscation, Expropriation Nationalisation & Detention (CEND)
Inability to repossess financed equipment
Currency inconvertibility
Is it a political or commercial risk?
Cape Town Convention?
POLITICAL RISK
SUMMARYAND KEY TAKE AWAY POINTS
SUMMARY & KEY TAKE AWAY POINTS
Ensure that insurance clauses within engine lease/finance contracts are sufficient and comply with current market practice?
SUMMARY & KEY TAKE AWAY POINTS
Obtain current certificates of insurance/reinsurance and letters of undertaking
SUMMARY & KEY TAKE AWAY POINTS
Ensure that the engine lessor/financier is named as a ‘Contract Party’ and an ‘Additional Insured’ in accordance with AVN67B
SUMMARY & KEY TAKE AWAY POINTS
Risk manage insurances – don’t file and forget
SUMMARY & KEY TAKE AWAY POINTS
Seek independent aviation insurance advice and written opinion from the outset
ANY QUESTIONS? BARRY [email protected]
www.avocet.eu