What Does Business Interruption Insurance Cover for an FBO or MRO?

Business interruption insurance can help replace lost business income and cover certain continuing or additional expenses when a covered property loss forces an FBO, MRO or other aviation business to reduce or suspend operations.

For an aviation business, repairing the physical damage may be only part of the financial problem.

A fire, storm or other covered event can also interrupt:

Fuel sales
Maintenance operations
Hangar rental income
Parts sales
Aircraft servicing
Customer access to the facility
Other revenue-producing activities

The longer operations are disrupted, the larger the financial effect can become.

That is why business interruption coverage should be considered alongside the property insurance protecting the buildings, equipment and other physical assets of the business.

What is business interruption insurance?

Business interruption insurance, often referred to as business income coverage, is designed to address certain financial losses that result when operations are interrupted by a covered loss.

Depending on the policy, coverage may include items such as:

Lost business income
Continuing operating expenses
Certain payroll expenses
Rent or lease obligations
Extra expenses incurred to resume operations
Temporary relocation costs
Other covered expenses during the restoration period

The exact coverage depends on the policy wording, limits, cause of loss and applicable exclusions.

Business interruption insurance does not mean that every event that slows or stops a business is covered.

Typically, the interruption must result from a cause of loss that is covered by the applicable property policy or business income form.

Why is business interruption coverage important for an FBO?

An FBO can depend heavily on its physical location to generate revenue.

If the facility becomes unusable after a covered loss, income may decline immediately even though many expenses continue.

For example, an FBO may lose revenue from:

Fuel sales
Hangar rentals
Ramp services
Aircraft handling
Maintenance
Ground support services
Other customer services

At the same time, the business may still have payroll, loan payments, lease obligations and other ongoing expenses.

That creates a second exposure beyond the cost of repairing the property itself.

Property insurance may pay to repair covered physical damage.

Business interruption coverage addresses the financial effect of being unable to operate normally while those repairs are being made.

Why is business interruption insurance important for an MRO?

MRO operations can be particularly sensitive to interruptions because revenue depends on the ability to perform work.

A covered loss affecting a hangar, maintenance facility, tooling or other critical property can interrupt:

Scheduled maintenance
Inspections
Repair work
Aircraft modifications
Parts installation
Customer deliveries
New work entering the facility

An interruption can also create scheduling problems that continue after the physical damage has been repaired.

Customers may move work elsewhere.

Aircraft may need to be relocated.

Employees may have limited work available.

The financial exposure therefore may be considerably larger than the cost of the damaged property.

What is extra expense coverage?

Extra expense coverage can help pay certain additional costs incurred to reduce the duration or financial impact of a covered business interruption.

For an aviation business, that might include expenses associated with:

Temporarily operating from another facility
Renting replacement equipment
Expediting replacement parts or equipment
Moving operations to another hangar
Leasing temporary workspace
Taking other reasonable steps to resume operations more quickly

In some situations, spending additional money immediately can reduce a much larger business income loss.

That is the purpose of extra expense coverage.

The specific expenses covered and applicable limits depend on the policy.

How much business interruption insurance does an FBO or MRO need?

There is no single appropriate limit for every aviation business.

A useful starting point is to estimate how much income the company could lose during a realistic interruption and how long it could take to restore normal operations.

Consider:

Annual revenue
Gross earnings or business income as defined by the policy
Continuing operating expenses
Payroll obligations
Seasonality
Growth projections
How long major equipment would take to replace
How long a building or hangar could take to repair
Availability of alternate facilities
Customer retention during an extended interruption

A business income limit based only on last year's numbers may become inadequate if the company has grown significantly.

The length of the restoration period matters just as much as the dollar limit.

How long could an aviation business actually be interrupted?

That question deserves more attention than it often receives.

Repairing a building may take months.

Replacing specialized aviation equipment may take longer.

Permits, construction delays, supply-chain problems or airport requirements can extend the recovery period.

An FBO or MRO should therefore consider more than the best-case repair timeline.

Ask:

How long would it realistically take us to return to the revenue level we had before the loss?

That may be different from the time required simply to repair the physical property.

Does business interruption insurance cover every shutdown?

No.

Business interruption coverage generally depends on the cause of the interruption and the specific policy language.

Examples of circumstances that may require separate analysis include:

Utility service interruptions
Damage to a supplier or customer
Government-mandated access restrictions
Cyber incidents
Pollution events
Equipment breakdown
Flood
Earthquake
Other causes excluded or limited by the underlying property coverage

Some of these exposures may be addressed through endorsements or separate policies.

That is why the business interruption section should not be reviewed in isolation.

The insurance program needs to reflect the events that could realistically prevent the aviation business from operating.

What is contingent business interruption coverage?

An aviation business can suffer financially even when its own property is not damaged.

Contingent business interruption coverage may address certain losses resulting from covered damage to a supplier, customer or other dependent property.

For example, an aviation business may rely heavily on:

A key parts supplier
A specialized overhaul facility
A major customer
A particular airport facility
Another business that provides a critical service

If a covered loss at one of those locations prevents your business from operating normally, the effect can reach your company even though your own building was untouched.

Whether and how that exposure is covered depends on the policy.

When should business interruption limits be reviewed?

FBOs and MROs should review business income coverage when the operation changes.

That may include when the company:

Increases revenue
Expands into another hangar
Adds a location
Adds employees
Takes on a major new customer
Purchases specialized equipment
Adds new maintenance capabilities
Expands fuel operations
Becomes more dependent on a particular supplier or facility

Growth can make an old business interruption limit obsolete without creating any obvious warning.

The physical property limits may still look reasonable while the potential income loss has changed substantially.

Don't insure only the property. Insure the recovery.

A property loss can create two separate financial problems.

First: the building, equipment or other property must be repaired or replaced.

Second: the business must survive financially while that recovery is taking place.

For FBOs, MROs and other aviation businesses, a well-designed insurance program should consider both.

The objective is not simply to rebuild the damaged property.

It is to give the business a realistic opportunity to continue operating and recover after a serious covered loss.

Aeris Insurance Solutions can review your business interruption and extra expense limits as part of a broader Coverage Risk Review to determine whether they still reflect the size, revenue and recovery needs of your aviation operation.

Coverage availability, definitions, limits, waiting periods, restoration periods and exclusions vary by insurer and policy. Review the actual policy to determine how coverage applies to a specific loss.

What Does Business Interruption Insurance Cover for an FBO or MRO?