Air Carrier Insurance Regulatory Obligations, Challenges, and Best Practices of Regulation (EC) No 785/2004

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Sofema Online (SOL) www.sofemaonline.com considers the regulatory requirements applicable to EASA Regulation EC 785/2004

Introduction

Regulation (EC) No 785/2004 ensures that air carriers and aircraft operators maintain adequate insurance coverage, protecting passengers, cargo, and third parties. Addressing market fluctuations, compliance verification, and risk assessment challenges through best practices such as standardized procedures, periodic reviews, cross-border cooperation, flexibility in insurance options, and transparency can enhance the regulation's effectiveness and support the overarching goals of consumer protection and a fair aviation market.

  • • Regulation (EC) No 785/2004 sets forth the insurance requirements for air carriers and aircraft operators within the European Union.
  • • The regulation aims to establish a minimum level of insurance to cover liabilities for passengers, baggage, cargo, and third parties, ensuring consumer protection and a harmonized approach across the EU aviation market.

Definitions

‘air carrier' means an air transport undertaking with a valid operating licence;

‘Community air carrier' means an air carrier with a valid operating licence granted by a Member State by Regulation (EEC) No 2407/92;

‘aircraft operator' means the person or entity, not being an air carrier, which has continual effective disposal of the use or operation of the aircraft; the natural or legal person in whose name the aircraft is registered shall be presumed to be the operator unless that person can prove that another person is the operator;

‘flight' means:

  • • аbout passengers and unchecked baggage, the period of transport of the passengers by aircraft, including their boarding and disembarkation,
  • • about cargo and checked baggage, the period of transport of baggage and cargo from the moment the baggage or cargo is handed to the air carrier until the moment of delivery to the entitled recipient,
  • • about third parties, the use of an aircraft from the moment when power is applied to its engines for taxiing or actual take-off until the moment when it is on the surface and its engines have come to a complete stop; additionally, it shall mean the moving of an aircraft by towing and push-back vehicles or by powers which are typical for the drive and the lift of aircraft, particularly air streams;

‘SDR' means a Special Drawing Right as defined by the International Monetary Fund;

‘MTOM' means the Maximum Take Off Mass, which corresponds to a certified amount specific to all aircraft types, as stated in the certificate of airworthiness of the aircraft;

‘passenger' means any person who is on a flight with the consent of the air carrier or the aircraft operator, excluding on-duty members of both the flight crew and the cabin crew;

‘third party' means any legal or natural person, excluding passengers and on-duty members of both the flight crew and the cabin crew;

‘commercial operation' means an operation for remuneration and hire.

Regulatory Obligations

  • • Objective (Article 1)

 - Establish minimum insurance requirements for air carriers and aircraft operators.

 - Cover liability for passengers, baggage, cargo, and third parties.

  • • Scope (Article 2)

 - Applies to all air carriers and aircraft operators flying within, into, out of, or over EU Member States.

 - Exemptions include other types of state aircraft and exceptionally lightweight and non-commercial aircraft.

  • • Insurance Principles (Article 4)

 - Coverage must include aviation-specific liabilities such as acts of war, terrorism, hijacking, and civil commotion.

 - Insurance must be valid for each flight, regardless of aircraft ownership or operational agreements.

  • • Compliance (Article 5)

 - Air carriers and aircraft operators must provide evidence of insurance compliance to the competent authorities of the concerned Member State.

 - Member States may request additional evidence and enforce compliance through sanctions.

  • • Liability Insurance (Articles 6 & 7)

 - Minimum insurance cover for passengers: 250,000 SDRs per passenger (lower for non-commercial operations with smaller aircraft).

 - Minimum insurance cover for baggage: 1,000 SDRs per passenger.

 - Minimum insurance cover for cargo: 17 SDRs per kilogram.

 - Minimum insurance cover for third parties varies by aircraft MTOM, ranging from 0.75 million SDRs for aircraft <500 kg to 700 million SDRs for aircraft ≥500,000 kg.

  • • Enforcement and Sanctions (Article 8)

 - Member States are responsible for ensuring compliance and may impose sanctions, including withdrawal of operating licenses and refusal of landing rights for non-compliant operators.

  • • Committee Procedure (Article 9)

  - A committee assists the Commission in implementing the regulation, with the ability to adopt additional rules and consult on related matters.

  • • Reporting and Cooperation (Article 10)

 - Member States must provide information on the regulation's application upon request.

 Challenges

  • • Availability and cost of insurance coverage can fluctuate, particularly for risks related to war and terrorism.
  • • Ensuring consistent coverage levels in the face of market changes poses a significant challenge for air carriers and regulators.

Compliance Verification

  • • Verifying compliance, especially for non-EU carriers operating in or over EU territories, can be administratively complex and resource-intensive.
  • • Ensuring all operators have adequate and continuous insurance coverage requires diligent monitoring and enforcement.

Risk Assessment and Coverage Adequacy

  • • Accurately assessing the risks and determining adequate insurance coverage levels is challenging, particularly given the potential for large-scale incidents.
  • • They ensure that the minimum coverage levels are sufficient to protect against significant liabilities without imposing excessive financial burdens on air carriers.

Best Practices - Standardized Procedures

  • • Standardized procedures for evidence of insurance submission and verification can streamline compliance and reduce administrative burdens.

Periodic Reviews and Adjustments

  • • Regularly reviewing and adjusting minimum insurance requirements based on market conditions and international treaty amendments ensures that coverage remains adequate and relevant.

Flexibility in Insurance Options

  • • Allowing flexibility in insurance arrangements, such as aggregate coverage for war and terrorism risks, can help carriers manage their insurance obligations more effectively.

Transparency and Communication

Ensuring transparency in regulatory processes and maintaining open communication channels with air carriers and insurers can foster better compliance and mutual understanding.

Next Steps

Sofema Aviation Services (www.sassofia.com) and Sofema Online (www.sofemaonline.com) provide Classroom, Webinar, and Online Training related to Aircraft Lease and Maintenance Reserves. Please see the websites or email [email protected].

Please see the link for the following course - Aircraft Leaseholder & Maintenance Reserve Insurance Considerations – Essentials – 1 Day

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