Commission support moves airline mutual fund a step closer to reality

Date: 04/07/02

By Laurence Frost

THE European Commission has backed efforts to set up an international mutual fund to insure airlines against future terrorist attacks.

The move came as the executive approved a further four-month extension of the state guarantees given to carriers in the wake of the 11 September attacks - when insurers slashed their third-party war risk cover and hiked premiums.

In a policy document released this week, EU transport chief Loyola de Palacio called on member states to take a 'favourable attitude' to plans for a mutual fund under the UN's International Civil Aviation Organisation (ICAO).

The communication also rejects calls from member states such as the UK, Denmark, Sweden and Luxembourg for an end to government guarantees and a return to commercial insurance markets.

'It is clear that a return to the situation pre-11 September is highly unlikely,' it states, with short-notice cancellation clauses, such as those invoked by insurers last autumn, still posing a 'threat of instability'.

The document is the clearest sign yet of the Commission's support for the ICAO scheme, one of the two proposed funds that would cover European airlines.

De Palacio earlier this year called for the establishment of 'Eurotime' - an EU response to the 'Equitime' mutual fund being drawn up by the US to cover its own carriers.

Under either Eurotime or the embryonic ICAO scheme, carriers would pay premiums into a fund covering any liabilities above €50 million - the amount still offered as 'primary cover' by commercial insurers - up to €1.5 billion.

The funds would both be backed by guarantees from participating governments, at least during their initial start-up periods.

But whereas Eurotime would apply only to European planes, the ICAO scheme would cover airlines from other states, whose planes frequently enter European airspace.

The Association of European Airlines (AEA) believes concern about non-EU planes has overcome policy-makers' initial scepticism.

'There's growing support for the ICAO proposal, in particular because of this third country aspect,' said Rene Fennes, AEA general manager.

'It would really be a level playing field.'

EU member states are currently unable to check that a foreign carrier using its airports has an insurer capable of meeting even the €50 million minimum cover required in most of the bloc.

With a global scheme in place, governments could deny access to airlines from non-participating countries.

The Commission is set to table more concrete proposals for the future of aviation insurance before the latest extension to guarantees expires on 31 October.

With the launch of the ICAO mutual years away - and dependent on support from major aviation states such as Japan, Australia, Canada and the US - de Palacio is likely to recommend the Eurotime fund as an interim measure.

The European Commission has backed efforts to set up an international mutual fund to insure airlines against future terrorist attacks.