EU's stricken airlines to get aid package

European governments are preparing to rescue the stricken airline industry with compensation deals worth hundreds of millions of pounds.

On Wednesday the European Commission will respond to the international collapse in business by allowing member states to prop up carriers such as BA, Air France and Lufthansa with financial aid.

Nearly a month after the US terrorist attacks, passengers are still reluctant to fly. Many thousands of jobs have been lost, and some airlines are heading for collapse; Swissair and Belgium's Sabena have already filed for protection from creditors.

So far, the commission has resisted pressure from the industry and stuck to its policy of preventing state handouts. But it is understood that, on Wednesday, the competition commissioner, Mario Monti, and the transport commissioner, Loyola de Palacio, will relax the rules and allow EU countries to pay for lost business and extra security costs caused by the terrorist attacks.

Airlines would be in line for financial support covering, for example, training, cockpit protection and extra luggage checks. A commission spokesperson said the total extra security costs could be more than 100m euros (£62m). The commissioners are also expected to say that airlines can claim compensation for lost business in the four days of turmoil after the atrocities. This could total hundreds of millions of pounds. The airlines may also get a new deal on insurance cover for acts of terrorism, potentially relying on EU funds.

This is a radical move for the commission, although the amounts pale in comparison with the aid that US airlines will receive from their government: $5bn (£3.37bn) in cash and $10bn in loan guarantees.

The international airline industry has shed more than 160,000 jobs in the past fortnight. Last week BA said it had lost £48m-worth of revenue in the week of the attack, leaving a £40m hole in its accounts. The company had already been expected to post a financial loss this year. It is planning to cut 5,200 jobs.

British Midland, too, has axed services and has shed 600 staff. Virgin Atlantic has announced 1,200 job losses, and more are expected. KLM, the Dutch airline which operates some flights from Britain, has cut 2,500 jobs and said it will reduce salaries and put 12,000 staff on short-time working.

The crisis has forced traditional airlines to slash fares for half-empty flights – but they are selling the tickets stealthily to avoid depressing revenues further. The carriers are desperate to ensure that the few passengers prepared to pay full fare still do, while cutting prices for "discretionary" travellers.

Through the "name-your-own-price" service Priceline, BA has been selling economy returns across the Atlantic for as little as £182, including all taxes. BA's premium cabins are on sale through the so-called IT mechanism, where a ticket in club world or world traveller plus is bundled together with hotel accommodation and sold for far less than the official fare.

Echoes of the 1991 Gulf War are to be found in the travel trade press. Ten years ago, BA sold return flights to Australia to travel agents and others with only tenuous connections to the travel industry for £175. This week flights on BA and Virgin Atlantic to the Caribbean are being sold through ads in the trade press for as little as £149, while Air Canada is selling seats on any of its routes for £125.

Overall the number of flights out of Britain will be reduced by around one-fifth when the winter schedules begin at the end of this month.

John Edmonds, general secretary of the GMB general union accused the airlines of exploiting the US attacks to make unnecessary cuts. He said they had panicked in the crisis, behaving like Dad's Army's Corporal Jones.