Industry risk report: transportation

Risk & Insurance, Oct 1, 2004

Prices may have eased in some parts of the transportation sector, but management isn't about to turn the corner onto "Easy Street." Transportation by air, land and sea pose unique and far-reaching challenges to risk executives. Add to that, the extra regulatory complications of an industry that faces risks "30,000 leagues under the sea" and 30,000 feet up, and it's easy to see how risk management is a delicate balancing act. Find out what keeps risk executives like Delta Airlines' Chris Duncan up at night--and what strategies they use to keep the "wheels of commerce" humming so that goods and services flow smoothly from suppliers to consumers.

AMR Fort Worth, Texas

AMR is the parent company of American Airlines and American Eagle Airlines. American Airlines is the world's largest carrier. American, American Eagle and the American Connection regional carriers serve more than 250 cities in more than 40 countries and territories with approximately 3,900 daily flights. The combined network fleet numbers more than 1,000 aircraft.

CHIEF RISK EXECUTIVE Geraldine Fisher, corporate insurance and risk management

CEO Gerard J. Arpey

CFO James A Beer

BOARD AUDIT CHAIR John W Bachmann

NET REVENUE $17,440 million

NET INCOME ($1,228 million)

NUMBER OF EMPLOYEES 96,400

PRIMARY BROKER Aon

CAPTIVE Avion Assurance Ltd. (Bermuda)

RISK EXPOSURES Changes in international, national, regional and local economic, business and financial conditions; inflation, war, terrorist attacks, political instability (or the threat thereof); consumer preferences and spending patterns; disruptions to the air traffic control system; consumer perceptions of airline safety; costs of safety, security and environmental measures, and the weather.

RISK STRATEGIES The company carries insurance for public liability, passenger liability, property damage and all-risk coverage for damage to its aircraft. The U.S. government has agreed to provide commercial war-risk insurance for U.S. based airlines until August 31, 2004 covering losses to employees, passengers, third parties and aircraft. In addition, the secretary of transportation may extend the policy until December 31, 2004, at his discretion.

UAL Elk Grove Township, III.

UAL Corporation is the holding company for United Airlines, the second largest air carrier in the world. With hubs in Chicago, Denver, Los Angeles, San Francisco and Washington, D.C., and key international gateways in Tokyo, London, Frankfurt, Miami and Toronto, United flies to 109 destinations in 23 countries. United's 65,000-plus employees worldwide bring people together safely, conveniently and efficiently more than 1,800 times a day.

CHIEF RISK EXECUTIVE John Smolk, Manager, Workers' Compensation

CEO Glenn F. Tilton

CFO Frederic F. Brace

BOARD AUDIT CHAIR Paul E, Tierney, Jr.

NET REVENUE $15,724 million

NET INCOME ($2,808 million)

NUMBER OF EMPLOYEES 63,000

PRIMARY BROKER Aon

CAPTIVE Four Star insurance Co Ltd (Bermuda)

RISK EXPOSURES Market risk associated with fluctuating interest rates; the ability to overcome recent bankruptcy filings and continue growing: ability to gain federal loan guarantee from ATSB; potential for adverse consequences of Chapter 11 cases on liquidity or results of operations; effects of hostilities, acts of war or terrorism; the costs and availability of aircraft insurance.

RISK STRATEGIES UAL carries hull and liability insurance covering passenger liability, public liability, damage to aircrafts and other physical property (increased premiums since 9/11); also purchased other kinds of insurance such as property & casualty, directors & officers, cargo and automobile.

DELTA AIR LINES Atlanta, Ga.

Delta Air Lines Inc. provides air transportation for passengers and freight throughout the United States and around the world. As of June 1, 2004, Delta (including its wholly owned subsidiaries, Atlantic Southeast Airlines Inc. and Comair Inc.) served 209 domestic cities in 46 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, as well as 48 international cities in 32 countries. Delta mainline, domestic and international service, Song, Delta Shuttle, Delta Connection, Delta SkyTeam, and Worldwide Partners operate 7,800 flights each day to over 494 cities in 86 countries.

CHIEF RISK EXECUTIVE Christopher Duncan, VP and Chief Risk Officer

CEO Gerald Grinstein

CFO Michael J Palumbo

BOARD AUDIT CHAIR Edward H. Budd

NET REVENUE $13.303 million

NET INCOME ($773 million)

NUMBER OF EMPLOYEES 70,600

PRIMARY BROKER Aon

CAPTIVE Aero Assurance Ltd (Vermont); New Sky Insurance Ltd. (Bermuda)

RISK STRATEGIES Bankruptcies and other restructuring efforts by competitors have put the company at a competitive disadvantage; credit ratings; the airline industry is subject to extensive government regulation, and new regulations may increase operating costs; insurance costs have increased substantially as a result of the September 11 terrorist attacks; risk of losses and adverse publicity stemming from any accident involving Delta aircraft.

RISK EXPOSURES The company self-insures a portion of its losses from claims related to workers' compensation, environmental issues, property damage, medical insurance for employees and general liability. A portion of projected workers' compensation liability is secured with restricted cash collateral.