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BA, Lufthansa to fly under government arrangements

British Airways Plc, Deutsche Lufthansa AG and other UK and German airlines will fly next week after their governments reached agreements to help insure them against terrorist acts like last week's attack on New York's World Trade Center.

The UK government said will it set up a new insurance plan and waive premiums for 30 days. It said the model will likely be copied by other EU countries. Airlines said they'd be forced to ground planes when insurers scrap existing policies at midnight Monday and impose a US$50 million-per-plane cap on damage caused by aircraft brought down by acts of war.

With only US$50 million of cover against damage to buildings and people on the ground, carriers would fall foul of requirements set by government regulators and the banks that own most aircraft, bringing services to a standstill, airlines said.

"British airlines will continue to fly after Monday and we've hammered out a deal which allows them to do that," said David Stewart, a transport department spokesman.

UK Chancellor of the Exchequer Gordon Brown said the plan covers ``third party war and terrorism damage,'' and doesn't amount to state aid.

"There's a charge for the premium," he said in an interview. "The fact that we're waving it for the first 30 days doesn't take away from the fact that this will be a policy for which a premium will be charged."

Brown, who was speaking before a meeting of EU finance ministers in Liege, Belgium, said airline insurance will be on tomorrow's agenda, and that the UK model may be copied throughout the EU.

"There's a general interest in what we are doing," he said.

The German Finance Ministry said the government would provide war-coverage for airlines in the "short-term" until the carriers get new insurance agreements. It said it, too, was trying to work out a common position on the issue with other European governments to keep the planes flying.

"Talks will take place with the affected airlines to work out the precise modalities, for example, on compensation," the ministry said in a faxed statement.

German Transport Minister Kurt Bodewig wants to provide US$20 billion in coverage for the 600 German planes affected, almost half of which belong to Lufthansa, said Felix Stenschke, a ministry spokesman.

Lufthansa said in a faxed statement that it ``welcomed'' the government's actions, particularly efforts to find a European-wide solution.

Belgium Finance Minister Didier Reynders, chairman of the committee of euro finance ministers said he could not "envisage the possibility of state aid" for the airlines. The insurance assistance will be limited, he said.

"The idea is to put forward a code of conduct for member states, defining what can be done and will be done in the short term," he said at a press conference.

The agreement reached so far in Germany and the UK doesn't affect KLM Royal Dutch Airlines NV and other European carriers outside Germany and the UK Each depends on their national governments for assistance in meeting new insurance requirements.

"Talks between KLM and the Netherlands' government are still going on in The Hague," said Frank Houben, a KLM spokesman. "We hope to fly after Monday but we have to be realistic, we need the government to help us here. It's not just KLM, this is the same for all European airlines."
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