Flight path to recovery

In light of the increase in the value of grounded aircraft exposures, Russell Group’s Suki Basi explains why realising these figures is beneficial for (re)insurers.

Suki Basi – Russell Group

Analysis carried out by our inhouse team has shown that during the Covid-19 restrictions, there has been a $50bn increase in the value of the grounded aircraft fleet across 10 airports, including Singapore Changi Airport, Doha Airport, Dubai International and Hong Kong International Airport.

Calculating exposure

Our approach has utilised real-time flight tracking data to establish the last-ping location of global airlines’ fleets at continuous times over the course of 2020, and linked this to Russell’s existing global fleet data to devise a time-series event set of airport exposures per operator, from which (re)insurance exposure can be calculated at different times.

We used this to detect that on week 18, day 121, year 2020 (30 April 2020) that aircraft grounding had peaked, when 70 percent of the global feet was grounded. We shall refer to this date when the global fleet was effectively grounded as week-zero.

Week 37, day 254, year 2001 (11 September, 2001) was the last week-zero.

In the ISO week date calendar format, Thursday 30 April 2020 is Week 18 Day 121 Year 2020. The first case of Covid-19 reported to the World Health Organisation (WHO) was on the 31 December week one, day two, year 2020.

The outbreak was declared a Public Health Emergency of International Concern by the WHO on week five, day 30 (30 January 2020). On week seven, day 42 (11 February 2020), the WHO announced a name for the new coronavirus disease: Covid-19.

Ultimately, our approach will enable underwriters to assess their ground and in-service exposures more accurately as the global aviation industry continues its return to flight journey.

”As countries across the world have been unlocking, there is still huge uncertainty about how the aviation industry will recover”

Such calculus will enable (re)insurers to calculate exposure for each airport location for various perils, including airport grounding events; natural perils such as windstorm, earthquake, tornado, hail, tsunami and flood; along with war and terrorism-related events.

This insight will also enable credit leasing exposure and political risk events, like confiscation by governments, to be more accurately determined. Meanwhile, clean, accurate data allows for better understanding of risks inherent in the storage of pre-delivered or grounded aircraft from the leading manufacturers like Boeing, Airbus, Embraer, and Bombardier.

Armed with this information, we will be able to track the ‘return to flight’ journey in ISO week date format and pinpoint when the total number of departures equals that at week one, day three, year 2020, ie, the day after a ‘pneumonia of unknown cause’ was detected in Wuhan, China and was first reported to the WHO country office in China on 31 December 2019.

Return to flight

As countries across the world have been unlocking, there is still huge uncertainty about how the aviation industry will recover and when the return to flight will recover to pre-pandemic levels.

During this period, true forward looking exposure will be needed, to account for actual ground exposure from parked aircraft, in-service flight tracking exposure and that from forward looking scheduled exposure, which can be adjustedas the data changes.

With these forensic data tools at its disposal, the insurance industry will be better able to ensure global aviation embarks on a smooth return to flight.