Public Liability Risks Taken Out on Free Market

Following the expiry at end-November 2002 of the state-underwritten public liability guarantees against damage arising from war and terrorism risks, the Austrian Airlines Group has insured itself against such risks on the free market. This insurance claim, which has become increasingly important since the tragic events of 11 September 2001, covers possible damage caused by aircraft to third parties (persons and property on the ground) as a consequence of war or terrorist activities.

Since 1 December 2002, the Austrian Airlines Group has been insured against this risk within the so-called KSAF pool, one of the largest aviation pools in the world. This has involved Austrian Airlines working together with SAS Scandinavian Airlines, KLM and Finnair to spread the costs of such insurance cover. The total aviation risks of the airlines in the KSAF pool are covered by insurance and reinsurance companies including AIG, ACE, Allianz, Francona, Swiss Re, La Reunion Arienne and others. The Wr. Städtische and UNIQA companies are also participating, though at a lower percentage.

Coverage against public liability due to terrorism runs to a total of US$ 750 million per claim. After 11 September 2001, the Austrian Airlines Group had already taken out insurance of up to US$ 150 million on the free market; until end-November 2002, liability for the difference between the two sums was accepted by the Austrian state against payment of a premium. In total, the insurance cover now agreed on the free market is less expensive than the previous combination.

Mr. Thomas Kleibl, Chief Financial Officer of the Austrian Airlines Group, said the following about the current insurance situation in the aviation industry: “Although insurance and reinsurance companies worldwide are now raising their premiums in an effort to recoup their high damage payouts following 11 September and a number of natural disasters, our new insurance combination puts us in a position to reduce our overall insurance expenses slightly, from around EUR 30 million in 2002. Even taking this reduction into account, however, the fact remains that our insurance payments have more than tripled within the space of two years.” (The insurance expenditure of the Austrian Airlines Group per annum prior to 11 September 2001 totalled around EUR 8 million.)