U.S.- EU To Help Airlines Cover War, Terrorist Risks

September 24, 2001

The governments of the U.S., the U.K. and the European Union rode to the rescue of the airline industry over the weekend when they announced separate decisions to help carriers cope with increases in premiums covering war risks and terrorist exposures, thus averting a global grounding of most flights, that could have begun at midnight tonight.

The London insurance market, which insures a large proportion of the world’s commercial aviation, gave seven days notice of its intention to cancel coverage, but stated that replacement policies could be obtained – at drastically higher rates (See IJ Website Set. 20). The rest of the world’s aviation insurers announced similar plans.

The airline industry, already in shock from the repercussions following the terrorist attacks of September 11 in the U.S., in which four airliners were hijacked and three deliberately crashed into buildings, warned that it could not afford to reacquire coverage at the rates indicated. For example Air France calculated that the new rates would raise its insurance costs tenfold. Without coverage many airlines warned they would cancel all flights.

In addition to the primary risk posed by having no insurance, m

any commercial planes are leased, and a condition of those leases is an engagement to keep such coverage in force.

The industry faced wholesale threats of lease cancellations if it violated these clauses and flew without coverage.

Late Friday the federal government reached agreement with Congressional leaders for a $15 billion package to help the U.S. airline industry weather the crisis. $5 billion is expected to be made available to cover airlines immediate costs. Another $10 billion would be provided in the form of loan guarantees. In addition quick approval is expected of pending legislation to limit airline liability from the terrorist attacks to victims on board the planes, and to exclude liability for the ensuing damages on the ground.

President Bush has also asked for amendments to provide government war risk insurance coverage to domestic airline flights, as well as international ones.

In Europe the U.K. adopted a series of measures on Saturday, guaranteeing that it would foot the bill for 30 days for the increased premiums relating to war and terrorism coverage. All 15 EU members subsequently agreed on a Europe-wide plan to offer government coverage “at a reasonable fee.” France and the Netherlands also extended offers to their respective State carriers, KLM and Air France, that they would subsidize increased premium costs ” for a limited period of time.”

The EU has ruled out making a wholesale subsidy available to the airline industry, as the U.S. has. Reuters News Agency quoted a joint declaration by EU Ministers stating that state aids to unprofitable companies should be excluded from any assistance, and that the measures they’ve taken were “the best way to solve the temporary problems of the airline sector.”|”u.s.-, eu, help, airlines, cover, war,, terrorist, risks

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