Big four facing bonding fees hike

THE big four operators are suffering huge hikes to bond premiums this year due to the market fallout from financial scandals such as the collapse of Enron.

Civil Aviation Authority consumer protection group deputy director David Moesli said the premium levels for the large operators had been increased due to an unstable insurance market, rather than concerns over the state of the travel industry.

“The irony is that the premium increases for the big operators have nothing to with the travel market but are simply because of problems in other industries,” he said.

Companies like US utility firm Enron, which collapsed in January 2002 following an accounting scandal, had affected the large insurers which cover several markets including power and travel, said Moesli.

One insider from a large operator estimated the cost of bonding this year had increased by as much as three or four times previous levels. TUI has already announced plans to take its Britannia Airways seat-only operation out of its bond to soften the impact of rising bond costs.

Smaller operators’ bonds are funded by a different part of the insurance market and are unaffected by the hikes, according to Moesli.

Bonding expert Christopher Photi, of White Hart Associates, suggested the bond market would benefit from more competition and called on the CAA to relax its criteria for obligors.

“The CAA should reduce its obligor financial grading to make it more accessible and more competitive,” he said.

All of the big four operators are to renew their CAA bond by September 30.