Chancellor Gordon Brown has reached an agreement with the airline industry and its insurers over third party cover, the Treasury said today.
The deal comes after a day of negotiations and a spokesman said the move meant "British airlines will be able to fly as planned next week."
Earlier this week insurers gave airlines seven days notice that they were cancelling war liability cover from midnight on Monday.
Without adequate cover airlines may have been forced to ground their fleets for fear of being in breach of contract with aeroplane leasers.
Mr Brown is expected to make an announcement tonight after he outlines the details to his EU colleagues, a Treasury statement said.
Following last Tuesday's terrorist atrocities in the US, insurers issued a seven-day warning to airlines of cancellation for war liabilities.
New terms would limit insurer liability for collateral damage on the ground and increase premiums considerably.
Airline executives had warned that a change in insurance cover might force them to stop flying entirely as the new terms for reduced cover for injuries to third parties would mean they were in breach of contract with the aeroplane lease firms.
They said third party cover was amounting to just 50 million dollars which was well below the 750 million dollars typically demanded by aircraft lessors.
A Treasury statement said: "Over the past 24 hours we have been in discussion with representatives of the airline and insurance industries regarding the provision of third party insurance.
"These talks have been very constructive and the Chancellor will inform his EU colleagues of the nature of the agreement that has been reached this afternoon."
The US Congress is widely predicted to pass a £10 billion relief package aimed
at helping the US airline industry with losses.
Earlier today budget carrier RyanAir said airlines were using the US terror attacks as an excuse to ask for state aid.
Michael O'Leary, a spokesman for the Irish airline, said it was "not very battered at all" by the aftermath of the attacks.
"We continue to take the same number of bookings per week as we did before the tragic events in the US last week," he told BBC Radio 4's Today programme.
"I think the industry is more reflecting what would have happened anyway," he added.Reuse content