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AFIC

  • Introduction

  • Insurance Policy          

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Introduction

Marsh recently announced the rolling out of Aircraft Finance Insurance Consortium (AFIC), a non-payment insurance product to facilitate banks and capital market investors in funding new aircraft purchases from Boeing. Korean Air availed of the product to refinance a new 747-8i in April, which wrapped a 10-year €143mn loan from ING.

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The AFIC provides an innovative aircraft finance insurance product and is currently underwritten by four global insurance companies, Allianz, AXIS Capital, Sompo International (formerly Endurance), and Fidelis.

AFIC offers insurance to cover the lender’s exposure to default during the currency of the loan.  According to Marsh, the insurance policy can be “tailored according to the individual purchase agreements made between Boeing, the airline, and its financiers”. Lenders advance monies to aircraft purchasers in reliance on the insurance terms offered by the consortium of insurers.

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The Insurance Policy

The insurers undertake to cover the risk of default in respect of scheduled payments of principal and interest.  Where a missed payment occurs, this triggers the obligation of the insurers to cover the missed payment and the interest due.

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From the moment of default, a presumption operates that the purchaser will continue to default; therefore, the insurers agree to advance scheduled payments as they fall due. The payments are required to continue for a specified period or until the sale of aircraft, whichever is the earlier to occur. In the latter case, the insurers will pay the balance of the outstanding principal along with the interest accrued in a single, final payment.

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