The European Commission's (EC) proposal that Europe's governments drop state-backed insurance for air transport from the end of October has focused attention on ICAO's Globaltime aviation war risk insurance scheme.

The proposal has also drawn heavy criticism from airlines, airports and the insurance industry, who feel it is particularly badly timed with the possibility of further conflict in the Gulf looming.

The EC wants to withdraw permission for states to continue with the temporary national aid schemes put in place following 11 September. It believes that the commercial insurance market has now sufficiently recovered and that airlines and airports can buy insurance on the market at "affordable conditions". This view also means that the future of Eurotime, the proposed independent insurance company designed to cover war risk insurance, is under threat.

Airlines and airports dispute the EC's view that insurance is now affordable. The war risk insurance they can buy today is not only expensive but limited, they say. For example, pre-11 September airports could buy $1 billion worth of third-party war risk cover per airport, but can now only obtain $50-150 million, says ACI Europe, the lobby group for the region's airports. In addition, insurers worldwide can, at seven days notice, simultaneously withdraw insurance cover for third-party risks of acts of war and terrorism.

"It is not a good decision," says Jonathan Palmer-Brown, chairman of London Market Brokers Committee for Aviation, which has been central to putting together Globaltime on behalf of insurance brokers, of the EC's move. "It is not supportive of an industry that needs supporting," he adds.

According to Palmer-Brown: "It is extraordinarily illogical to be in a situation where there is a potential war pending and where notices [of withdrawal of insurance] could be given." The current cover available is "very limited and short-term", he says, and if there were losses to aircraft or airports due to war or terrorist action insurance would be withdrawn and the industry would have to return to states for their cover anyway.

The EC's timing also seems poor in the light of US proposals to extend the war risk insurance for airlines by another nine months to allow its own solution - Equitime - to come to fruition, says Palmer-Brown. "The USA is going to extraordinary lengths to support its industry," he says.

Although Europe's airlines and airports will lobby the EC in coming weeks to explain the precarious insurance situation, the concensus is that the European scheme Eurotime is close to collapse. Moreover, the reluctance of European governments to support their own regional scheme sends a signal to other states that there is little incentive to press ahead with Globaltime.

This scheme requires a number of ICAO contracting states representing 51% of the organisation's annual budget to go ahead. With the USA, which represents 38% of ICAO's budget, already leaning towards setting up its own scheme, the inclusion of European Union (EU) states is essential.

The most logical approach Europe could have taken would have been to extend state cover until Globaltime is in place, believes Palmer-Brown. EU ministers are set to make a decision on Globaltime during October. Although this solution will take more time to establish than regional schemes, it is described as having a "fighting chance" of succeeding by one observer.

Source: Airline Business