The US government is to provide war-risk insurance to US carriers until at least 31 August 2003, as part of new security legislation passed by Congress last week.
The bill is meant to give US airlines a year to work out a long-term plan for obtaining affordable war-risk insurance.
Premiums rocketed after 11 September: Southwest Airlines, for instance, saw annual premiums increase six-fold.
Carriers turned to the US Department of Transportation (DoT), which began providing war-risk insurance on a temporary basis. The government has been extending coverage in two-month blocks. The new legislation permits the DoT to provide a longer-term solution with war-risk insurance provided until 31 August 2003, after which it can further extend coverage until 31 December 2003. The bill also caps an airline's third-party liability at $100 million.
The US Air Transport Association (ATA) welcomes the provision. "We are satisfied that Congress is recognising the devastating impact of unsustainable insurance costs and dwindling coverage," says the ATA.
ATA president Carol Hallett says the bill gives industry time to work out alternatives, such as an airline-backed mutual insurance scheme.
Across the Atlantic the situation is different. At the end of last month the European Commission ordered European carriers to return to the commercial market. "There is a commercial market there, but will the airlines accept [the rates]?" asks Paul Leslie of Standard Bank. In particular, without plenty of cash flow, airlines could find it difficult to make annual premium payments, and would have to make cumulatively larger quarterly payments. Financing to help spread this load is common in the USA but not elsewhere, Leslie says.
Source: Flight International
