EU may adopt UK emergency airline deal

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Emergency measures introduced by the UK Government to ensure that British airlines can continue flying may be taken up by other European Union states at a meeting today.

The Government stepped in as an insurer of last resort after commercial insurers decided that they were no longer willing to take on virtually unlimited third party liabilities following the suicide attacks on New York and Washington.

Now EU finance ministers meeting at the Ecofin summit in Liege, Belgium hope to draw up guiding principles for a system under which governments across the Union - and eventually around the world - would underwrite the insurance of aeroplanes against acts of war or terrorism.

Chancellor of the Exchequer Gordon Brown today stressed that the indemnity offered by the Government was not a precursor for more wide-ranging state aid, which would be contrary to EU competition rules.

The measure, coupled with moves to heighten security at airlines and airports, should reassure the public that it is safe to use British airlines, he said.

He told BBC Radio 4's Today programme: "Over the last 20 years, Europe has spent a lot of time eliminating the possibility of state subsidies for airlines.

"This is, and should be, a highly competitive business, but there are specific things where it is clearly the Government's responsibility. There is no generalised subsidy to airlines. That would be impossible anyway under European state aid rules.

"This is quite specific, it is limited, it is the right thing to do. I believe other countries in Europe now will follow what we have agreed with the airlines."

Mr Brown refused to say whether the Government would offer financial aid to help airlines and airports beef up security, but made it clear that he believed the state had a responsibility in this area.

"Of course, as the responsible financier for policing services and security services in this country, it is right that we have an interest in making sure that security is best, and I think the country would expect us to do that as a matter of urgency and that is what we are doing," he said.

"I believe that, with the measures we have taken on insurance and with the reassurance that these discussions and the eventual decisions on security should give people, there is no reason why people should stop using our domestic airlines."

Mr Brown said that Britain and the world were in a better state to withstand the economic shock of the terror attacks than for many years.

He said: "I think we can approach the decisions we have got to take with greater resolution and greater expectations than we might have 10 or 20 years ago.

"Firstly, because inflation is low in Britain and public finances are sound. Secondly, because around Europe and the rest of the world, inflation is generally low and in most countries public finances are sound and therefore we look at the future from that base.

"Thirdly, because we are seeing great co-operation and decisive action internationally on interest rates and on getting the markets moving and on dealings with the oil-producing countries.

"Now we are fighting money-laundering. We are seeing a great deal of co-operation and therefore the world is in a better position than it was a few years ago to deal with many of these undoubtedly severe problems for many sectors of the economy and for the world economy generally."

Earlier this week, insurers gave airlines seven days' notice that they were cancelling war liability cover from midnight on Monday.

While they will continue to insure the aeroplanes themselves and their passengers and crew, they will limit their liability for damage caused on the ground in the case of a crash to $50 million(£36m).

Aeroplane owners, who lease the craft to airlines, normally demand third party insurance cover of around $750 million.

In an arrangement with the London insurance market, from next Monday the Government will provide a further indemnity for third-party war and terrorism liabilities.

The indemnity will be offered free of charge by the Government for 30 days because of the financial difficulties currently being faced by the airline industry.

But following that period, the Government will charge for the service at commercial rates in the same way as the Pool Re system of insuring buildings against terrorist attack introduced in 1993 following a wave of IRA bombings in the City.

A British Air Transport Association spokesman said: "UK airlines welcome this news. We welcome the fact that the Government has stepped in to help the insurance industry provide the necessary insurance cover. This will allow us to continue operations and maintain the vital service for our customers."

British Airways immediately announced that no flights operated by BA would have to be grounded.