Airlines urged to drop insurance fund in favour of US alternative

Date: 14/03/02

By Laurence Frost

EUROPEAN airlines are considering an offer from their US counterparts to set up a joint mutual fund to insure themselves against terrorist atrocities such as the 11 September attacks.

Carriers on both sides of the Atlantic have begun work on separate self-administered schemes after major increases in premiums by insurance companies.

But EU airlines are now being urged to drop the European scheme advocated by Transport Commissioner Loyola de Palacio and sign up to the US-led Equitime fund instead.

Joining the larger American scheme would lower the cost to airlines of providing their own insurance cover - as well as reducing top-up guarantees needed from governments while the plan gets going.

But the offer made to the Association of European Airlines (AEA), with apparent backing from Washington, could raise political sensitivities over US influence on the transatlantic aviation market.

'We haven't reached any decision yet,' said Rene Fennes, the AEA's general manager, who added that talks were still at an informal stage.

The offer came last week from Carol Hallett, head of the Air Transport Association of America (ATA), after months of talks with KLM boss Leo van Wijk, who chairs the AEA.

Under both plans, airlines would make per-passenger contributions to a fund covering liabilities arising from any future terrorist attacks, with gradually declining levels of government support.

But European airlines are concerned the US scheme could be incompatible with longer-term efforts to set up an international fund under the International Civil Aviation Organisation (ICAO), which stalled last week in the face of US and British-led opposition.

The EU must decide soon on whether to renew government insurance guarantees to its airlines, which have only been cleared by the Commission until 31 March.

Divisions are opening up between EU governments over the issue, with Sweden, Germany and the UK eager to wean carriers off government support and encourage them to negotiate a reduction of the 3.50-per-passenger premium currently offered by insurers.

'We have to acknowledge there's an increase in insurance costs but we do think there's a genuine market out there,' said one EU diplomat. 'We still expect the market to be able to provide insurance services to the airline industry at competitive prices.'

Governments seeking to limit their own financial commitments will be wary of a transatlantic initiative that could take some of the decision-making out of their hands, even while reducing those commitments.

De Palacio's spokesman Gilles Gantelet said the Commission was not yet aware of the US carriers' offer.

But sources close to the Commissioner, who is seeking a negotiating mandate from member states to create an EU-US aviation area, suggest a joint insurance scheme could suit her agenda.

'She's very much in favour of closer relations and real competition between American and European carriers on both sides of the Atlantic,' said one official. 'The details of this offer will have to be looked at seriously.'

Future insurance arrangements for EU carriers will be discussed by member states experts today (14 March) at the ad-hoc insurance committee, in preparation for a decision by transport ministers on 26 March on whether to extend the state guarantees.

European airlines are considering an offer from their US counterparts to set up a joint mutual fund to insure themselves against terrorist atrocities such as the attacks of 11 September 2001.