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Published On: Wed, Dec 21st, 2016

Lloyd’s threat: Anxiety as AON struggles to save Nigerian airlines

There is unease among domestic airlines in Nigeria following a threat by Lloyd’s of London, the world’s leading insurance market, to blacklist them over irregular payment of premiums.

This is another unfortunate consequence of a biting economic recession Nigeria is currently undergoing which has among other things thrown the nation into acute shortage of foreign exchange.

Chairman of Airline Operators of Nigeria, AON, Capt. Nogie Meggison, who disclosed this last week said the representatives of Lloyd’s of London market who were in Nigeria recently noted that the Nigerian market is a high risk market yet the volume of business from the country is “quite modestly small” and airline brokers are not paying their premium.

Meggison also recalled that they (Lloyd’s representatives) cautioned that in view of the fact that airline brokers in Nigeria have in recent times failed to pay their premiums the Lloyd’s market might have no other choice than to blacklist the country which might have far-reaching consequences for the aviation industry and the country to a large extent.

According to him, Nigeria airlines operators say they have Naira; but that they can’t pay the premiums due to forex constraints. He revealed further that “Lloyd’s market accounts for about 92% of reinsurance of airlines globally, 5% by Russian market, Cyprus and others, while a mere 2% is retained locally worldwide”

“The Nigerian market is grossly unable to effectively underwrite risks in aviation because of the high exposure of an average $500million for just one airplane to cover hull, war and third party liability.

“When this figure is multiplied by the number of aircraft operating in the country it becomes clear that Nigerian insurance companies can’t cope considering the enormous volume of resources needed to cover all those aircraft of which the total coverage value will be in excess of $6bn”.

“Virtually 100% of the aircraft being operated in Nigeria are re-insured in the Lloyd’s market. Hence, Nigeria can’t afford to be blacklisted as a nation because this will have very grave and deleterious consequences, as the entire domestic airlines will shut down since airplanes can’t be operated without being insured . It will take some days at best to switch to the secondary market of Russia and China, whose premiums will also have sky-rocketed if we are blacklisted by Lloyd’s.”

“A blacklist will certainly have a negative impact on the Nigerian economy arising from inability to acquire aircraft from Lessors with no insurance, total suspension of operations by airline charter and oil support helicopters, job losses, and other sectors being reinsured by Lloyds market such as oil rigs, vessels, high rise buildings, airports and terminal buildings etc. Similarly, a downgrade or outright blacklist will mean very high premiums due to high risk levels.”

The AON chairman also cautioned that if Nigeria is blacklisted from Lloyd’s market operators might still have a difficult time getting their aircraft insured because the alternative is the Chinese or Russian markets “which might find it hard to absorb them due to the fact that Lloyds has blacklisted us.”

He said, for instance, “if Nigeria is blacklisted the premiums will rise by 300% due to the high risk, adding that even the national carrier of Russia, Aeroflot Airlines has 98% of its risks underwritten by Lloyds of London market while 2% is retained locally in Russia; so is Air China.

“We are not keeping to payment dates. Domestic carriers have a 4-months backlog on payment.  It will be funny to wait until there is an incident before the airline tries to pay its premium,” Meggison warned.

“We therefore use this medium to call on the Minister of State Aviation, Senator Hadi Sirika to as a matter of urgency come to the aid of domestic airlines operating in the country by forging a joint working group with the Federal Ministry of Finance and the Central Bank of Nigeria to brainstorm and cross-fertilize ideas on how the nation can take exigent steps to forestall a potential backlash on the Nigerian economy and totally avoid the blacklist in the interest of safety and economic prosperity of the country.”

Business Hallmark  recalled that Arik Air, the largest domestic carrier, had on September 13 temporarily shut down operations when its insurers withdrew services over inability to meet some financial obligations.

This is why the domestic carriers are afraid that such fate might befall them unless government urgently comes to their rescue by conceding some dollars to them to regularise their insurance premiums.

An airline operator said, “What is happening is not different from the foreign exchange constraint we have been experiencing all this while. We also pay our premium in dollars which we are not being able to meet considering the non-availability of forex.

“So now that Lloyds is threatening to downgrade and blacklist us, it means more woes for the operators. The whole domestic network may just collapse and we all know the implication of that.”

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