WINTER 2006

Lightning? Is a strike covered?
This is a very common event and is a covered item under your aircraft physical damage coverage, depending on your particular situation a deductible will apply. For instance, if you experience a strike in flight your in motion deductible will apply. If you notice the damage after a preflight where the aircraft has been outside your not in motion deductible will apply. A thorough pre-flight and post-flight inspection is a good practice in determining the origin of such an event.

Damage from lightning is insidious with its invisible damaging effects to airframe, engine and gear box as well as your avionics. If you experience a strike, notify your broker immediately and set the aircraft up for a Lightning Inspection with an approved shop. Typically the engine and gear box will have to be removed and checked for damage as well as demagnetizing all components. This should be done through the factory, accept nothing less. In many cases of in flight strikes, I have seen the prop tips eroded beyond limits requiring replacement, the hub usually is unaffected. As for the airframe, damage is usually to flying control surfaces and static wicks, exit points producing the most damage. Avionics damage may show up at later, so it is advisable to have all of your equipment benched during this post event inspection. Cost for these repairs generally run in excess of $100K and sometimes over $200K if control surfaces need replacing or repaired. Mandatory service bulletins complied with during an inspection are not covered items, so you may have some additional expenses outside of your claim settlement proceeds to contend with.

Just this past summer one of our PC12 clients experienced a strike in climb out and returned to their base. After transferring their passengers and bags to another of their fleet aircraft a Premier Jet they proceeded on the original trip only to encounter another strike on let down!!! So there you have it lightning can strike twice. I plan on having this crew buy me some lottery tickets….

My 100 hour inspection revealed FOD damage to my engine is this covered?
This seems to be one of the most consistent questions ask by PC12 owners and yes FOD is a covered item. I have addressed this situation in the past, so by popular demand here you go…

There are two types of ingestion losses, domestic and foreign. Foreign ingestion losses usually result from birds, ice, sand or gravel or other foreign objects such as nuts and bolts sucked in on take off or landing in reverse with the inertial separator off. These types of losses are usually discovered during a hot section inspection or at overhaul. Turbine blade impact damage can be ascertained as to what caused the loss through metallurgical analysis; every ingested object has a peculiar signature. Erosion is typically considered normal wear and tear and would not be paid as a FOD claim. Domestic FOD is not a covered item and is easy to ascertain, usually this occurs when an engine component such as a turbine blade fails in the first stages of the turbine then travels downstream and damages other components such a s hot section turbine blades, housing, burner cans, liners and vanes. Usually this type of damage is picked up the engine manufacturer. Also consider that any airframe component that is ingested such as baffling screws would be considered foreign not domestic damage.

One must for any new PC12 owner considering a used unit is a boroscope inspection. This will give you a base line for your insuror to establish when the FOD damage occurred.

My local FBO is demanding that I obtain a Waiver of Subrogation and Additional Insured status in order to Hangar with them. Should I sign this?
Absolutely not until your insurance broker has advised you.

Many FBO are now looking to waive as much liability as possible. In some cases this understandable, but in most it is unacceptable. Typically those FBOs that ask for the moon in terms of waivers and hold harmless agreements have shaved money off of their annual insurance Tab by agreeing to a very large deductible or self insured retention. This is a business decision for the FBO manager but should no trickle down to you as a PC12 owner when a substantial hangar keeper’s loss occurs. Further you might find that they are trying to waive everything including products and completed operations which would affect the outcome of a misfueling or latent maintenance defect that they are responsible for.

Example, you arrive at your local FBO where your PC-12 has just been pulled out and the line attendant drags your winglet underneath another PC-12 and severs your winglet. This happened recently. With a waiver and hold harmless signed you are out of luck to recover, however had you not signed the waiver you would could require the FBO to take care of your travel plans with a substitute aircraft or charter, repair the damage and discuss diminution of value. Option 2 you could look to your insurance carrier to take care of the damaged winglet expense, and on some polices provide extra expense coverage, then file a separate diminution claim as your primary hull coverage does not address diminution.

In most cases the FBO will step in with their insurance and take care of things properly, just be reasonable with the settlement and think about the 24/7 365 services most good FBOs provide us, bearing in mind their deductible and how the loss might affect their annual bottom line and your future hangar rent rates. Caveat!! Most insurers require notice of any contractual agreement that you might enter into and approval, signing such a contract can prejudice coverage.

Our policy provides Extra Expense, why do we have this coverage, what is the cost?
Extra Expense coverage is typically included at no additional charge on some carriers (company) extended coverage physical damage broad form and is usually only offered to Industrial Aid account (professionally flown not for hire). Typical extra expense coverage wording provides reimbursement for additional operating expenses when a scheduled aircraft sustains covered physical damage, the insurer may reimburse a Named Insured for expenses arisingout of:

1. A temporary substitute aircraft, except any:

• expense incurred after completion of repairs to the scheduled aircraft which sustained physical damage or after such repairs could have been completed but for work being done which is not necessary to the repair; or,
• expense incurred more than five (5) days after the company has tendered payment for a total loss or in any event more than sixty (60) days after physical damage was sustained.

rental of temporary replacement component part(s), provided

• the component part(s) which sustained physical damage is repairable, and
• the temporary replacement component part(s) is not the subject of an existing aircraft component lease or exchange agreement of in the Named Insured’s possession as a spare engine or spare part.

trip interruption excess for food, travel and lodging of crew members and passengers, but only those reasonable expenses required to continue ob from the place where physical damage to the scheduled aircraft was sustained to either the intended destination of the original point of departure.

2. Expenses incurred as a result of physical damage sustained during the policy period shall be deemed to have been incurred during the policy period. The Company’s obligation to reimburse the Named Insured is limited to the lesser of:

• that portion of the necessary and reasonable expenses incurred by the Named Insured which exceed those which the Named Insured would have insured had there been no physical damage to the scheduled aircraft; or,
• the Extra Expense Payment Limits set for in Item 3 of the Declarations.

The actual reimbursement for aircraft expense is the difference between direct operating cost and the substitute aircraft cost. You will note in the wording an absence of coverage dollar amounts; it is your broker’s job to negotiate levels that would suite your particular needs.

We have had a call for St. Nicholas to fly our PC-12 on Dec 24 and 25 for two days, how do I get him covered?
Based on numerous request of this nature I regret to advise you that he will have to submit a complete pilot history and evidence of simulator training. Noting a colorful MVR report and several moving incidents involving live stock and libations, I doubt that he will be approved until he at least considers a 3 in 24 training cycle and dries out.

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Fall 2006

I keep hearing about 3 in 24, what is it and how does it affect me or does it?
3 in 24 was a concept developed by Lance Toland Associates to answer the calls of POPA members who wanted alternatives to training recognized by the underwriting community. At the time there was no PC-12 alternative training other than Simcom by most underwriters. USAIG and AIG Aviation had imposed a 6 months training requirement on some insureds without any premium concession, and there was no provision for dual training to offset the simulator requirement.

In another lifetime I had to adhere to a 6-month check ride as a 135 Captain. This was a royal pain. I always thought that the real answer was every 8 months which obviously did not come so often, but also meshed into the 24 month bi-annual Part 91 requirements, and only deleted one check ride period in 24 months for 135 ops, without diluting proficiency.

In 2001, I shared the concept with the POPA Board who saw its’ merits. We then took the concept to AIG senior management in Atlanta. They, after a long debate, agreed that they would recognize a rotation consisting of one Sim session, followed by an in aircraft or LOFT session in 8 months. This would then be followed by a Sim session in 8 months, completing a 24-month cycle. The concepts exceed the underwriter’s annual requirements for training. As a bonus, they (AIG Aviation) offered a 5% premium reduction and further extended a 5% reduction for POPA membership. Currently only AIG Aviation, Phoenix Aviation and US Specialty are endorsing 3 in 24.

In addition to the premium savings, 3 in 24 yields POPA members the added benefit of training on their own equipment in their normal environment as a further enhancement. I know that our PC-12 serial number 370 was ordered new with non-standard avionics, including a GNX XLS FMS. None of the Sims have this avionics availability. So cross training on the standard equipment is of little use for CRM. Plus 3 in 24 gives us the added advantage of using and demonstrating proficiency on our equipment during training.

War Risk - Do I really need it?
War Risk coverage covers more than most clients realize. War Risk cover is generally excluded in both physical damage and liability policies and written back through endorsement. Most aviation lenders now require War Risk coverage, and in some cases only on physical damage for their collateral.

Both War Risk components generally write back for additional premium the following:

• (a) War, invasion, acts of foreign enemies, hostilities (whether war be declared or not), civil war, rebellion, revolution, insurrection, martial law, military or usurped power or attempts at usurpation of power.
• (b) Strikes, riots, civil commotions or labor disturbances.
• (c) Any act of one or more persons, whether or not agents of a sovereign power, for political or terrorist purposes and whether the loss or damage resulting there from is accidental or intentional.
• (d) Any malicious act or act of sabotage.
• (e) Confiscation, nationalization, seizure, restraint, detention, appropriation, requisition for title or use by or under the order of any government (whether civil, military or de facto) or public or local authority.
• (f) Hi-jacking or any unlawful seizure or wrongful exercise of control of the aircraft or crew (including any attempt at such seizure or control) made by any person or persons on board the aircraft acting without your consent.

As you can see there are many perils other than war to take into consideration when deciding not to incorporate this cover.

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Summer 2006

How many underwriters are presenting offering terms to US Based PC-12 owners?
At present there are six players underwriting PC-12 insurance domestically, American International Group (AIG Aviation), Global Aerospace, Phoenix Aviation Insurance Managers, US Specialty, USAIG, and W. Brown. Four of these underwriters maintain offices in the Atlanta metro area making for easy access if you are in the area. These markets each have their own underwriting philosophy towards the PC-12 and the various mission profile the aircraft fulfills. Further, each market has varying limits they will extend to these operations. An illustration of estimated market share reveals a relatively balanced market participating in the $1.4 billion dollar market.

In the last 60 days, there have been some interesting developments within several of these markets. This is great news for the aviation insurance consumer. At AIG Aviation, a number of their top executives have departed and are forming a competitive underwriting team backed by C.V. Starr to be based in Atlanta. At USAIG, their president just departed with a member of senior management following, and a similar scheme to underwrite general aviation exposures with an office rumored to be in Atlanta. This means additional capacity to the market which at best will stabilize rates and add competitive pressures to those underwriters looking to maintain market share as well as grow. As in the past, vigorously lobbying of the PC-12 with these new underwriters will be crucial in the early days of their respective start ups. Rest assured, I will have our PC-12 S/N #370, N78PG within their reach to better understand our favored mount.

How does the Cape Town Convention affect my PC-12 from insurance prospective?
The Cape Town Convention (CTC) has created new international laws governing transactions involving subject aircraft and engines that change or supersedes conflicting laws within a country governed by the Treaty (also referred to as a “Contracting State”). The Treaty addresses transaction issues including perfection of ownership, security interests/liens and possessory rights such as leases, default, remedies and insolvency.

Aircraft and engines subject to the Treaty include: (1) Aircraft that are type certificated for at least eight (8) persons including crew; or goods in excess of 2750 kilograms (6,062 pounds); (2) Helicopters that are type certificated for at least five (5) persons including crew; or goods in excess of 450 kilograms (990 pounds); and (3) Aircraft engines having at least 1750 lbs. of thrust or at least 550 rated take-off shaft horsepower. The Treaty does not contain any provisions for registering propellers. International interests under the Treaty include aircraft sales, aircraft security agreements, aircraft lease agreements, aircraft conditional sales agreements, aircraft liens, assignments, subordinations, etc.

CTC established an International Registry that allows registration of international interests in aircraft and equipment that are subject to the Treaty. The International Registry is located in Ireland, but registration is performed through its website: www.aviareto.aero. The computer driven system is available 24 hours per day, 7 days per week. Unfortunately title searches have now become more expensive for aircraft/engines subject to the Treaty. Not only must the FAA Registry be searched to confirm aircraft/engine registration and status of pre-Treaty liens etc., but the International Registry will also need to be searched. Additionally, it is also taking a longer time to receive the results of a title search because the International Registry is not processing such requests as quickly and efficiently as one would expect. Hopefully this delay is simply the result of the International Registry’s infancy and will be reduced as the International Registry becomes more adept at processing such requests. Each party to an aircraft transaction will need to register as a transactional user entity (“TUE”). The one-time fee for this registration is $200. If a party anticipates more than two subject aircraft transactions within the next five years, it will be more cost-efficient to register for the five-year period and pay the $500 fee. Each party will need to use a single computer for the registration because the International Registry assigns a digital security certificate for the transaction that the TUE must download. The same computer must then be used to complete the transaction. Registration approval should occur within 48 hours. However, the initial volume of TUE registrations has resulted in a delay of several days for receipt of a TUE registration approval. Once registered, a TUE may also appoint a professional user entity (“PUE”) to assist with transmitting information to the International Registry. PUE’s include title companies, attorneys, aircraft tax consultants, title and escrow agents, etc.

Parties to a PC-12 transaction will still need to file transaction documents with the FAA Registry. In addition to such documents as a bill of sale, application for registration, security agreement, lease, etc., FAA Form 8050-135 will also need to be filed in order for the FAA to provide the parties with an authorization number to complete the transaction with the International Registry. If a prospective interest has been filed, the transaction documents must be recorded with the FAA Registry within 60 days of the filing of the prospective interest with the FAA Registry.

Once the authorization number is received from the FAA Registry, a party must log onto the International Registry’s website and complete an electronic form asserting an international interest against the subject aircraft/engine. The International Registry will then send an e-mail message to the second party in the transaction seeking consent to the filing. If the second party consents to the filing, a permanent record of the registration will be created at the International Registry and perfection is then completed. This record can be searched and will appear as an interest in the subject aircraft/engine(s). If the second party does not consent or does not respond to the International Registry’s e-mail message within 36 hours, then no interest is created or perfected.

CTC has definitely added costs to transactions involving PC-12s. In addition to the costs of registering as a TUE, the International Registry charges registration and search fees for a subject aircraft ranging from $35 to $100. This does not include the increased attorney and title fees a party will incur to comply with the Treaty’s requirements. Insurance claims involving a total loss could be delayed until fillings with the International Registry are complied with for the PC-12 owner further delaying the claims handling process for those who are non-compliant.

Now the law of the land, CTC must be complied with if a party wants a properly perfected and enforceable interest in a PC-12 subject to the Treaty. The avalanche of TUE registrations following the March 1, 2006 inception have resulted in delays, a number of general aviation trade groups have suggested that the US Congress increase the seating configuration and weight requirements in order to exempt the many twin-engine and jet aircraft that are currently subject to the Treaty. However, such a change will most likely not occur anytime soon, if at all. Current and prospective PC-12 owners who are entering into a transaction involving any aircraft/engine(s) subject to the Treaty should consult with an aviation attorney familiar with the Treaty to make sure that the transaction is documented appropriately and properly recorded with both the FAA Registry and the International Registry. This action will help you avoid delays in claim handling in the event of a total loss of your PC-12.

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SPRING 2006

Where should I set my liability limits?
There is not scientific business equation for setting up your limits of legal liability, but you should consider the following as a guideline to that decision, your load factor; what the average load is and what the composition of passengers onboard is. If the majority of passengers is family you can consider lower limits, if you carry many of your employees then you have worker’s compensation to consider as a final remedy for loss, then there are guest, who are they and what is their net worth should be considered, conversely you may need more liability coverage. Also take into account the possibility of an off airport excursion, this could produce bodily injury to persons out side the aircraft as well as property damage to automobiles, other aircraft, buildings, etc.

Additionally do not be lured into a false sense of security by operating as a holding company. The Corporate veil has been pierced to many times by clever attorneys seeking out the deep pocket, YOURS to satisfy their client’s action against you. Buy as much cover as you can reasonably afford. If your agent has not offered higher limits ask for alternates to see what is available.

Is the adequate hull insurance on my PC12?
Your insurance agent should have numerous resources available to determine the replacement of your PC12. Tools such as Aircraft Price Digest, Jet Net and Trade a Plane offer reasonable measures, but the real measure is the actual dealer network, having close ties here will ensure that your PC12’s value is set at the proper replacement value. Since most aviation insurance policies are written on an agreed value basis, always consider that over insuring your hull cost you additional premium dollars and will come to bite you in the event of a partial loss, major repairs are weighed against insured value. Under insuring may appear to save you money but will set you up to loose your equity in the event of a total loss, since a total would be determined by a percentage of damage repair of the agreed hull value. In either case you are paid on agreed value and the company has the right to the salvage.

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