The won’t have any financial impact on the Tatas which own the airline as the aircraft is insured and people who perished in the crash will get suitable compensation from insurance companies.
As per the Montreal Convention treaty, the Air India will have to pay a compensation of around Rs 1.5 crore each to the kin of victims of the plane crash. Air India will get adequate compensation for the lost aircraft from insurance companies. While interim compensation may be announced by the airline, final compensation for passengers will be determined under the Montreal Convention of 1999, to which India became a signatory in 2009. Compensation is calculated using Special Drawing Rights (SDRs), which stood at 128,821 SDRs (approximately USD 1.33 per SDR) as of October 2024. The actual payout will depend on the coverage purchased by Air India.
Relatives of people who died in the crash will get around Rs 360 crore. “The nationality of the passengers on board will define the minimum liability that is applicable to the operator as per Montreal Convention. Since the aircraft crashed into a residential apartment, there is 3rd party property damage liability on the operator,” said Hitesh Girotra, Vice President – Aviation & Specialty Lines, Prudent Insurance Brokers.
In fact, group insurance company will shell out the amount along with its foreign partner AIG of the US. Air India had renewed its mega $20 billion (Rs 171,000 crore) insurance policy with multinational AIG as the lead reinsurer on April 1. The primary insurers for the Air India policy are: Tata AIG General Insurance (lead insurer with over 40 per cent share), ICICI Lombard General Insurance, New India Assurance and other PSU general insurers. The final bill will be taken by the reinsurers.
The airline had paid a premium of $30 million (Rs 257 crore), same as last year, for insuring over 300 aircraft.
Aircraft damage would be covered under the aviation hull all-risk section, which insures the current valuation of the aircraft, including spares and equipment. “For a Dreamliner, depending on its configuration, age, and other factors, this value can range between $211 million and $280 million. The aircraft involved (VT-ABN) was a 2013 model and, based on available information, was insured for approximately $115 million in 2021. Whether the damage is partial or total, the loss would be covered based on the value declared by the airline,” said Amit Agarwal, CEO and MD, Howden India.
“Understanding the age and the make of the aircraft, the hull agreed value of the aircraft would be roughly around $75-80 million which will be covered under the hull all risk part of the insurance,” Girotra said.
This means Air India will get around Rs 680-980 crore as insurance amount for the lost aircraft.
Almost 95 per cent of the Air India policy has been reinsured with a clutch of reinsurers led by AIG, Axa and Allianz. Public sector GIC Re also has a share in the policy including 4 per cent obligatory. The reinsurers will have to pay for 95 per cent of the claims, which will be accrued out of damaged aircraft, dead and injured passengers and third-party liabilities. Some people in the building, where the aircraft crashed, also died. There were 242 people on board.
Insurance compensation for people perished in the crash will take its own time.
The Boeing 787-8 Dreamliner has a list price of approximately $248.3 million. However, airlines usually secure substantial discounts, with actual sale prices typically falling between $150 million and $200 million.
The liability section—likely the most significant component of the loss in the Ahmedabad incident—could amount to millions of dollars. “This section covers the airline’s legal liability to passengers and third parties, including medical expenses, cargo, and baggage losses. Early reports suggest the aircraft crashed into a civilian compound, which could result in substantial third-party claims,” Agarwal said.
While interim compensation may be announced by the airline, final compensation for passengers will be determined under the Montreal Convention of 1999, to which India became a signatory in 2009. Compensation is calculated using Special Drawing Rights (SDRs), which stood at 128,821 SDRs (approximately $1.33 per SDR) as of October 2024. The actual payout will depend on the coverage purchased by Air India.
“Once coverage, ownership and financial interest in an aircraft is confirmed, the AIG Claims Promise works to provide immediate working funds of 50 per cent of AIG’s share of the agreed amounts within 7 days,” AIG says in its website.
On the industry impact, experts said this is a significant incident that could result in losses amounting to several hundred crores. The general aviation insurance premium market in India is estimated at around Rs 1,000 crore. “While most large losses are reinsured, this event is expected to influence aviation insurance rates going forward,” Agarwal said.
