DALLAS - The Little Rock Airport Commission agreed Wednesday to drop its general liability insurance coverage for Little Rock National Airport as of Jan. 1, saying that in a climate of rising premiums and declining coverage, they simply can't afford to keep such an insurance policy in place.
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Instead, the airport is invoking a claim of sovereign immunity from lawsuits. Under Arkansas law, as an arm of the Little Rock city government, the airport can claim such immunity from litigation. ACE USA is the airport's insurance provider.
And the Little Rock airport is not the only one in the state looking at this cost-saving measure. Officials from Northwest Arkansas Regional Airport in Highfill are also considering dropping liability coverage because their insurance carrier told them coverage for that airport would be substantially higher next year. The Highfill airport's policies come up for renewal in June.
"The airports in Arkansas are not alone in experiencing a general increase in all of their insurance costs," said Kurt Forsgren, a director with Standard & Poor's. "A lot of airports around the country are finding that as their premiums are going up, their coverage levels are coming down."
Forsgren said that historically most airports have carried liability insurance because the cost was fairly low. However, Little Rock officials say their insurance coverage costs increased significantly after Sept. 11's terrorist attacks and that they can't justify the added expense of a liability policy, especially with revenues coming in lower than 2000 levels.
Following Sept. 11, Little Rock airport's general liability carrier informed officials it would cease coverage on acts of terrorism. That coverage was provided in the airport's $50 million general liability policy, which carried an annual premium of $63,000.
However, a $50 million general liability insurance policy now would cost $98,600, with terrorism coverage alone costing an additional $91,000.
Although November flight traffic numbers for Little Rock National Airport have not yet been released, traffic in October was down from the same period a year ago.
Delta Air Lines was hardest hit, making 91 fewer Little Rock landings over the course of the year through October than during the same time last year. That translates to about 9,125 fewer passengers, according to a report released by airport officials. Despite five additional landings through October, Trans World Airlines officials reported that passenger traffic to Little Rock was down by 4,900 passengers.
Southwest Airlines was also hit by slower-than-normal traffic, with 3,755 fewer passengers than for the same period last year.
"This is an environment in which most airports around the country are financially challenged," Forsgren said. "We have not seen that some airports are electing not to carry insurance -- but what we've seen is airports avoiding buying the war or terrorism portion of their insurance. I haven't yet heard of an airport opting not to carry general liability coverage."
Forsgren said that while dropping liability coverage could open up the Little Rock airport to potential litigation, that factor alone would not necessarily hurt the airport's credit, which his agency rates A-minus. Moody's Investors Service rates the airport's debt A2. Fitch rates the airport debt A-minus.
"Always when dealing with insurance, you have to weigh the costs of insurance against potential losses," he said. "If an airport has a fair amount of cash socked away, they may decide to self-insure and, if it came down to it, could go forward with their claim of sovereignty.
"Not having insurance is a consideration in deciding credit quality -- but not necessarily an overriding one," he said.
