De Palacio floats mutual fund to protect airlines

Date: 11/10/01

By Laurence Frost

GOVERNMENTS could be asked to contribute to a new EU mutual fund to cover the extra cost of insuring airlines against terrorist attack, according to the European Commission.

The idea was floated by transport chief Loyola de Palacio yesterday (10 October) alongside an expected package of measures unblocking limited government aid to the troubled industry.

Her spokesman Gilles Gantelet said member states would be asked for their reactions to the plan, which could take the form of an actual fund or a system of government-backed guarantees. "Everything's possible," he said. "The US is doing it, so why can't we?" The Commission has been under pressure to intervene in the insurance crisis confronting aviation since the 11 September atrocity. Airlines and airports want it to investigate possible collusion between insurers, who terminated war liability policies just days after the attacks. "An important industry like insurance shouldn't just be a fair-weather friend," said Philippe Hamon, director general of airports' body ACI Europe, referring to the hiked premiums and slashed cover now on offer.

The competition department last month announced it was examining information supplied by airlines, but stopped short of announcing a formal probe. Amelia Torres, spokeswoman for EU competition chief Mario Monti, said it was too early to predict whether there would be a full investigation.

However, it is understood that officials reviewing the case are set to broaden their enquiries by demanding key data from insurance companies. In yesterday's announcement, de Palacio gave the go-ahead for governments to offer emergency insurance guarantees to airlines until the end of the year, extending the 30-day approval for state indemnities agreed by finance ministers last month.

But airlines have warned they see no progress towards a satisfactory deal with insurers. "We don't have a strong negotiating position," said Rene Fennes of the Association of European Airlines, dismissing the latest offer from insurance companies to reinstate 1 billion [€1.09 billion] in war liability cover - the minimum required by most airports - for a premium of 3.25 [3.54 euro] per passenger. Compared to the earlier premium of 0.50 [0.54 euro], he said, that figure was still "unbearably high".

But insurers warn there is no return to normality on the horizon. "The companies fear that attacks of this kind could continue," said a spokesman for CEA, the European insurers' federation. "If terrorists are going to use planes as bombs on a regular basis, then it's simply not insurance any more. The risks are too high."

The latest developments came as De Palacio and Monti declared that airlines will be allowed to cooperate on flight scheduling as they cut services. The commissioners announced that "agreements designed to maintain a regular service on less frequented routes" or at off-peak times could be justified under EU anti-trust rules during the current "exceptional circumstances". The Commission also tabled long-stalled 'single sky' proposals to create a unified air traffic control system for the EU and unveiled plans to set tough new harmonised security standards for airports backed up by inspections.

Airlines operating significantly below capacity will keep their valuable take-off and landing rights at airports, after the EU executive suspended the 'use-it-or-lose-it' rule which normally forces carriers to give up some of the slots they are not operating.

De Palacio said governments would be allowed to compensate airlines for the extra costs of heightened security, and for lost business due to the four-day shutdown of US airspace following the attacks. "But we're still saying no to all other types of aid," she stressed.

Belgian national carrier Sabena could be the first test of that resolve, after German carrier Lufthansa became the second rival to file a formal complaint to the Commission over €125 million in emergency government aid given to Sabena by the Belgian government last week.

Governments could be asked to contribute to a new EU mutual fund to cover the extra cost of insuring airlines against terrorist attack, according to the European Commission.