UK airlines 'will continue flying'

EU finance ministers will discuss subsidies for airlines

Insurers have reached agreement with government chiefs on a deal that will keep British aircraft flying next week.

British airlines will be able to fly as planned next week

UK Treasury

"We have introduced a new set of measures for third-party insurance for war and terrorism, in relation to the airline industry," said the UK's chancellor of the exchequer Gordon Brown.

"This is a 30-day cover for third-party war and terrorism, the premium for which we will waive for 30 days."

His plans could be adopted over the weekend by European Union finance ministers, he said.

Major carriers had warned that they might be forced to stop flying from Tuesday unless the government insured them against terrorist acts.

Airlines including British Airways and Virgin Atlantic threatened to ground their fleets after insurers massively increased war liability cover in the light of escalating world tensions.

"British airlines will be able to fly as planned next week," said a government spokesman.

EU to ease subsidy rules?

Ahead of the weekend, the airlines claimed that insurers were offering third party aircraft insurance of just £30m, much less than the £500m typically demanded by the leasing companies that rent planes to carriers.

European Union finance ministers are this weekend holding an informal meeting to discuss the economic impact of the attacks on the US and the possible easing of rules on state subsidies for airlines.

The news of the agreement between the UK government and the airlines came as the US Congress and the White House agreed a $15bn plan to bail out the airline industry in the aftermath of last week's terrorist attacks.

President George W Bush has also asked Congress to amend legislation on war risk insurance provided by the Department of Transport to cover domestic US flights, eliminating the risk of carriers being unable to find insurance and offsetting rate increases, his spokesman Ari Fleischer said.

Worst case scenario

The terror attacks on the US represented the worst case scenario for the insurance industry, industry experts said.

Their (the airlines) attempts to improve security at airports could be described as inconsistent and haphazard at best

David Worsfold, editor, Post magazine

One analyst, who did not want to be named, said: "I do not think anyone was insuring thinking someone would use aircraft as missiles."

However, some airlines said that insurers should show more flexibility.

Toby Nichols, of budget carrier EasyJet, said: "The insurance industry is being very hard-nosed about it.

"The airlines met with them (the insurers) on Tuesday evening and said 'if you don't do this, we are not flying'."

"They [the insurers] said 'yes, we know and we are very sorry'."

Security improvements

David Worsfold, editor of insurance industry journal Post, said that insurance companies wanted to see a dramatic improvement in airline security before they would reduce premiums.

Airlines attempts to improve security at airports "could be described as inconsistent and haphazard at best", he told BBC Breakfast.

"You cannot expect insurance companies to be sympathetic to the airlines, if they cannot get that right," he added.

The US government's airline rescue package includes $5bn in direct grants.

The US government will also provide the airlines with loan guarantees of $10bn.