Treasury rejects airline plan to avert crisis over terror cover

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The Independent Online

The Treasury last night rejected proposals by the airline industry to avert a looming crisis when government-funded insurance cover against acts of terrorism runs out for UK carriers next week.

The Treasury last night rejected proposals by the airline industry to avert a looming crisis when government-funded insurance cover against acts of terrorism runs out for UK carriers next week.

The scheme, put forward by a body representing European airlines including British Airways, would require governments to back a new not-profit making scheme to provide carriers with cover against third party liability in the event of terrorist acts.

But a Treasury spokesman said the policy of the Government was unchanged and that third party cover for UK airlines would be withdrawn on 20 March. Most European governments plan to end cover on 31 March. Under the emergency cover introduced in the wake of the 11 September attacks, airlines buy the first $50m of third party cover themselves and governments provide further cover up to limit of $1.5bn.

The new scheme, put forward by the insurance brokers Aon Marsh and Willis and the International Civil Aviation Organisation, would provide similar cover. The airlines would pay premiums themselves but the governments would continue to act as insurers of last resort until there were sufficient funds in the scheme for them to withdraw in two to three years. The Association of Insurance and Risk Managers weighed in saying the UK Government should at least extend the deadline for withdrawing cover to 31 March.

But a Treasury spokeswoman said it believed airlines could buy all the cover they needed commercially in the insurance market from next Wednesday without needing the safety net of government support.

Airlines are required to have £1.05bn of third party liability in order to be able to fly. They say they are not able to buy this increased sum in the market at viable rates.

Jonathan Palmer-Brown, of Aon and the architect of the scheme, argues the cost of insurance should come down for airlines. "It is six months since 11 September and there have been no further losses from attacks as was feared at the time and airlines have become much more security conscious," he said.

Mr Palmer-Brown also attacked the surcharge saying that there was growing legal arguments that airlines may not end up having to pay for third party liability on the attacks on the twin towers and Pentagon. This is because terrorists who boarded the planes were not carrying weapons that were not allowed on to aircraft at the time and because it was not staff of United Airlines or American Airlines who ploughed the aircraft into the buildings. "The airlines are collecting $2bn a year from the surcharge but if it is established that airlines do not have to pay out will the insurers give back the money?" he said.

The US government is expected later this week to extend its help to airlines when its own agreement to underwrite third-party liability runs out at the end of March.

In a separate move, the European Union is today expected to unveil plans which would force US and other non-EU airlines to pay duties if they use government subsidies to cut ticket prices. An EU spokesman denied, however, that the proposals were retaliation for the tariffs imposed on steel imports by the Bush administration last week.

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