Airline insurance deal 'not subsidy'

Premiums for airlines leapt after the US attacks

Chancellor Gordon Brown says the deal reached with airlines on insurance is not a precursor of a more wide-ranging state aid package.

It was feared airlines would be forced to ground planes after a massive hike in insurance premiums following the atrocities in the US.

But the government stepped into the breach after insurers gave the airlines seven days' notice that they were cancelling war liability cover from midnight on Monday.

There is no generalised subsidy to airlines - that would be impossible anyway under European state aid rules

Gordon Brown

Now EU finance ministers meeting in Belgium hope to draw up guiding principles for a system under which governments across the union would underwrite the insurance of aeroplanes against acts of war or terrorism.

Insurers will continue insuring the aircraft and their passengers and crew, but limit their liability for damage caused on the ground in the case of a crash to $50m (£34m).

Aeroplane owners, who lease the craft to airlines, normally demand third party insurance cover of around $750m (£515m).

Financial difficulties

In an arrangement with the London insurance market, from next Monday the government will provide a further indemnity for third-party war and terrorism liabilities.

The indemnity will be offered free of charge by the government for 30 days because of the financial difficulties currently being faced by the airline industry.

But following that period, the government will charge for the service at commercial rates in the same way as the "Pool Re" system of insuring buildings against terrorist attack introduced in 1993 following a wave of IRA bombings in the City.

Mr Brown told BBC Radio 4's Today programme there could be no bailout of ailing airlines.

He said: "Over the last 20 years, Europe has spent a lot of time eliminating the possibility of state subsidies for airlines.

European rules

"This is, and should be, a highly competitive business.

"But there are specific things where it is clearly the government's responsibility, and I thought it right, with (Trade Secretary) Stephen Byers, to step in on this issue of insurance.

"There is no generalised subsidy to airlines. That would be impossible anyway under European state aid rules."

Mr Brown refused to say whether airlines and airports could be given grants to improve security, while admitting the state clearly had responsibilities in the area.

The US government's airline rescue package includes $5bn in direct grants and loan guarantees of $10bn.