The European Commission (EC) plans to introduce a mutual insurance fund for airlines to replace government emergency schemes due to expire at the end of March. The fund, financed by passenger payments, would work alongside government guarantees and commercial insurance to cover airlines against risks that have increased since 11 September.

EC transport commissioner Loyola de Palacio told the World Economic Forum in New York earlier this month that "at least in the early years, this fund would also receive underlying guarantee from governments".

She added: "As more commercial insurance becomes available, the fund would raise the excess at which its insurance cover would begin and, as the fund built up, the governments' guarantees would be progressively withdrawn."

The Commission says that the long-term intervention of governments is not desirable, but concedes: "It now seems unlikely that the commercial market will be able to restore war risks cover to airlines up to the levels [$1-2 billion] before the 11 September."

De Palacio is concerned that the commercial market may not be able to restore war cover up to pre-11 September levels in the face of the increased risk. The solution, she says, may be "a system of joint indemnity" - a three-part structure including partial commercial cover, the mutual insurance fund and a government guarantee. Insurance against risks outside Europe would have to be addressed internationally.

De Palacio also called for consolidation in European skies. It is time to "rethink international agreements and to work for a better internationalisation of the sector", said de Palacio, arguing that the key will be an agreement between the two biggest markets - the EU and the USA.

Source: Flight International