The aviation industry’s most significant exposure is not any single emerging risk, but the cumulative impact of operational, economic and geopolitical pressures. Tom Murphy, Senior Underwriter, Aviation at AXA XL, explains how organizations can manage these interconnected risks and strengthen operational resilience.
According to Federal Aviation Administration (FAA) data, the US commercial airline industry remains “volatile, grappling with the lingering effects of the pandemic alongside new challenges that emerged this year.”
Those challenges extend across the aviation sector. Shortages of qualified mechanics and critical parts are increasing repair costs and aircraft downtime, while pilot availability, inflation and geopolitical volatility are adding further operational complexity. The greatest exposure arises when these pressures converge, weakening operational resilience, increasing the severity of disruption and leaving organizations with fewer options when problems occur.
Maintenance and supply chain issues
There is currently a shortage of A&P (Airframe and Powerplant) mechanics. Aviation companies are competing for a limited pool of qualified professionals who have completed the FAA-required 18 to 24 months of training. Unlike automotive mechanics, A&P mechanics must maintain recent experience and complete both general and aircraft-specific training. They also sign logbooks confirming that an aircraft is airworthy, yet this added responsibility does not necessarily attract additional pay, making recruitment difficult.
Parts availability remains another challenge. Pandemic-era supply-chain disruption continues to affect older aircraft, for which inventories may be limited, as well as manufacturers seeking to bring new aircraft to market.
These constraints have significant insurance implications. Shortages of parts and qualified mechanics can increase repair costs, extend aircraft downtime and add replacement aircraft rental expenses. While aviation losses are relatively infrequent, they can be severe, and inflation and supply constraints are making both major and smaller claims more expensive.
While aviation losses are relatively infrequent, they can be severe, and inflation and supply constraints are making both major and smaller claims more expensive.
Pilot availability and training
Pressure is also coming from the cockpit. Pilot shortages continue, but more concerning is the level of training that is being accepted. Pilots are required to complete training every 12 months. That has long been part of every aviation insurance policy. Recently, we have been receiving more requests for pilots to be granted a 15- or 16-month extension or to alternate their training between different aircraft makes and models. Some have requested a 24-month extension or a different type of simulator-based training provider. Such extensions can increase exposure where pilots have limited recent experience on a specific aircraft make and model.
Differences among aircraft models covered by the same FAA type rating are also a safety risk. There are can be five to six different types of aircraft that fall under the same type rating. Yet each aircraft can vary widely in how they are configured from the avionics to flight characteristics of the wings to what it takes to fly that plane. When a pilot is flying in a higher stress situation, if an issue should arise, the type of training and experience they have for that aircraft matters.
Where FAA regulations may require the minimum amount of training and experience, aviation insurers look for make and model specific, annual training so pilots can operate safely both when things are perfect, but more importantly, when things are not. We advocate for more frequent, regular training and familiarity with aircraft operations.
Geopolitical exposures
Where an aircraft is flown is of critical importance, as well. Current global political pressures are causing aviation insurers to reevaluate coverage of aircraft flying into areas of conflict or instability. Wars and unrest in areas such as Israel, Lebanon, Saudi Arabia, United Arab Emirates, and Yemen as well as tensions in Iran, Iraq and the Strait of Hormuz have limited flights or rerouted aircraft to less volatile locations.
Insurers are revising policies to exclude coverage in places of unrest. The risks to aircraft include restricted landing options, airport disruption, fuel shortages, limited departure clearance, and targeting by fighting factions. In regions where tensions are high, insurers are charging additional premiums or excluding coverage altogether, advising clients to reevaluate their flight plans.
Finding clarity
In this environment, be it a geopolitical exposure, a workforce shortage, or a supply chain challenge, organizations should be planning in advance with a solid mitigation strategy. While insurance can go a long way toward restitution in the event of a loss, reducing the likelihood of loss is essential to the health of the flight department, parent organization, and aviation as a whole.
Against this backdrop, organizations should focus on several practical measures to strengthen operational resilience:
- Educate and train
Make sure pilots and A&P mechanics are trained and qualified to do the kind of work they are expected to perform. Pilots should receive regular training on the specific aircraft they operate to keep their skills current. Pilots should complete simulator-based training to ensure they have current, relevant experience in the aircraft they will be operating.
Mechanics should be trained in the specific aircraft they are working on, and they should understand how each aircraft they are repairing operates. Along with training, organizations should maintain a spare parts inventory where possible. Having the part on hand can save countless days or weeks searching for or waiting for parts.
- Evaluate flight routes
In a volatile geopolitical environment, organizations need to monitor developments in the regions where their aircraft operate—not only conditions on the day of travel. Scenario planning should consider potential airspace restrictions, airport disruption, fuel availability and the risk of aircraft or personnel becoming stranded. Risk managers should review contingency plans regularly and consult their brokers and insurers to understand how changing conditions may affect coverage.
- Strengthen collaboration
Operational, economic and geopolitical pressures cannot be managed in isolation. Regular dialogue among flight departments, risk managers, brokers and insurers can help organizations identify emerging exposures, test mitigation measures and address potential coverage implications before a disruption occurs.
As operational, economic and geopolitical pressures become increasingly interconnected, resilience will depend on preparation rather than reaction. Organizations that invest in aircraft-specific training, supply-chain contingency planning and informed route assessment will be better positioned to protect their people, aircraft and operations.
