Air New Zealand Faces Changes to its War and Terrorist Activity Risk Insurance

Air New Zealand, like all international carriers, was recently issued with a seven day Notice of Cancellation of war risks insurance cover effective from 25 September 2001, by its aviation war risk insurance underwriters. Insurers are renewing cover on new terms to provide limited war risk cover only to airlines considered a good risk - Air New Zealand is in this category.

Air New Zealand has been advised that its new cover in respect of liability to third parties for injury and property damage on the ground arising from war / terrorist activity will be subject to a limit of US$50 million for any one event; reduced from the previous limit of US$2 billion.

This reduction ( from US $2 billion to US$50 million ) in relation to ground injury or property damage means that should the company's aircraft be involved in such a disaster, there would be substantial uninsurable risk. Air New Zealand would also be legally prevented from operating leased aircraft and from operating services at all to some countries (including the European Union) which impose legal minimum levels of war risks insurance.

In addition, Air New Zealand, along with all airlines around the world, will be required to collect a War Liability passenger surcharge of US$1.25 per passenger, per flight. The International Air Transport Association (IATA) is currently reviewing the method for all airlines to implement collection of the surcharge which applies to flights on and from 1 October 2001.

To avoid an otherwise necessary grounding of the national carrier, Air New Zealand will be indemnified by the New Zealand Government against losses from war and terrorist activity, as announced by the Minister of Finance, the Hon. Michael Cullen today. This is similar to responses by other governments around the world and Air New Zealand welcomes the Government's commitment to provide the indemnity.

Air New Zealand Acting Chairman, Dr Jim Farmer expressed his appreciation of the efforts of the Government over the weekend to provide this helpful and prompt response.

This commitment by the New Zealand Government is not related to other ownership and capital raising issues.