I move: "That the Bill be now read a Second Time."
I echo my colleague the Minister for Justice, Equality and Law Reform, Deputy O'Donoghue, in saying I regret that our colleagues from Fine Gael and the Labour Party are not here today for this important Bill.
The terrible events in New York, Washington and Philadelphia on 11 September, as we all know, had enormous repercussions for the aviation industry and for economies across the globe. This Bill is the Government's response to one aspect of those repercussions, the withdrawal of war risks insurance cover by the insurance industry.
It would help the House if I spend a few moments placing this Bill and the insurance problems in the wider context of the problems caused by 11 September. These fall into three different categories, insurance, security and economic. In the aftermath of the terrorist attacks, the most immediate need was to reassess security measures at airports and, in the first instance, the US authorities closed airspace and airports for four days. Before the airports reopened the US and other Governments had established requirements for much stricter security checks on passengers and luggage before boarding flights. These stricter security measures are continually being reassessed and enhanced, and look likely to be the normal way of doing business from now on.
In Ireland, the Garda and airport security authorities responded immediately on 11 September. The National Civil Aviation Security Committee, which normally meets about twice a year, convened a meeting on 12 September and held eight further meetings since. Extra security measures were implemented at all Irish airports which are under continual review by the committee. The precise details of the new security arrangements are not disclosed on security grounds. In general terms, however, they involve the deployment of extra gardaí, enhanced passenger and luggage screening, extra air-side and land-side patrols, and tighter controls on cockpit access. The procedures controlling access to the air-side of the airports has also been tightened up.
Prior to 11 September, many airlines were starting to feel the effects of one of the usual cyclic slowdowns in the aviation business. The terrorist attacks greatly accelerated this and imposed immediate costs arising from the lost US business on the days that the US airspace and airports were closed and the costs of additional security measures that were put in place. The impact on Aer Lingus has been disastrous. I have spoken before this House about Aer Lingus on a number of occasions recently and I do not propose to say any more on the matter now. Other Deputies may comment on the airline if they wish. Deputies will be aware of the intensive efforts being carried out by me and my Department to find a lasting solution to this difficult issue.
The terrorist attacks resulted in enormous costs in terms of human life, property and business. The reaction of the insurance industry, and its decision to withdraw cover for war and terrorist risks on giving seven days notice, must be seen in that context. The total cost of the US losses is expected to exceed the world's annual premium income for all types of aviation insurance. As well as reducing the war risks insurance cover to a fraction of previous levels, the insurance industry greatly increased the premium for the cover that remained. This is a further economic burden on the already hard pressed aviation industry.
Before to the withdrawal of cover, airlines generally enjoyed third party war risks insurance cover of up to US$1.5 billion per aircraft which, in general, was included as part of the overall insurance premium. This cover indemnifies the policy holder against claims by third parties, in other words, people on the ground, that suffer personal injury or material damage. It is important to note that the insurers have made no change to war risks cover for the passengers on aircraft, which remains fully in place. It is also important to note that there has been no change in insurance cover for accidents and events that have nothing to do with war or terrorism.
Having reviewed the new situation in which civil aircraft could be used as weapons – a new phenomenon – the insurers gave the minimum seven days notice required under the insurance contracts of their decision to unilaterally reduce that cover to US$50 million per airline with effect from 23.59 GMT on 24 September, 2001.
To fully understand the extent of the reduction in cover, this meant that an airline with 30 aircraft which previously had cover of US$45 billion was now reduced to US$50 million. Also, the insurers initiated a charge of US$1.50 per passenger for the new low level of cover. While this may not seem like a great deal, over a full year it would result in almost trebling an airline's total insurance bill even though the amount of cover is only a fraction of what it was. The withdrawal of cover also applied to airports, air traffic control and ground handling activities such as baggage handling, refuelling, maintenance and security. It would have resulted in airport closures and airlines' not flying.
Following the insurance industry's announcement of the reduction in war risks cover, it quickly became apparent that the net result would be a virtually complete cessation of civil aviation services. There are a variety of reasons for this, the most direct being that, in most countries, and certainly throughout the European Union, airlines must have adequate insurance cover to qualify for an operating licence. Regulatory authorities, in Ireland's case the Commission for Aviation Regulation, made it clear that they would not consider the very low level of available war risks insurance to be adequate. In addition, many airlines lease aircraft rather than buy them outright. The lessors of such aircraft include in the leasing contracts a requirement for high levels of insurance for each leased aircraft in order to minimise the lessors' risks. It was clear to the directors of the airlines that they would put the future of the entire business at risk if they continued operations without insurance cover.
Governments around the world were united in the view that the terrorists' attacks should not bring normal life to halt, which was what they wanted to achieve. The terrorists wanted to see airlines going to the wall in the aftermath, but we do not want to see that. Our Government, in common with other EU governments, agreed that arrangements should be put in place to allow airlines to continue flying after 24 September. In most cases, the Government took on in various ways the insurance burden which the insurers were no longer prepared to carry. In the UK, for example, appropriate legislation was in place dating from 1952. However, we do not have similar legislation.
Following extensive consultation with the Attorney General's office, the Department of Enterprise, Trade and Employment and the Department of Finance, it was concluded that the Government could not directly indemnify the airlines under existing legislation. In the circumstances, it was decided that the most that could be done in the short-term was to issue letters of comfort in which the Government undertook to introduce the legislation that is now before the House and, in the event that the Bill is enacted by the Oireachtas, to then issue indemnities to the firms that have received letters of comfort.
It is important to make the House aware of the EU dimension to this insurance matter. On 22 September, the matter was first considered at an informal ECOFIN Council at Liege and the following guidelines were issued: Government support will be limited to address a specific short-term failure in the commercial insurance market to ensure that third party cover for war and terrorism remain available; Governments will charge a reasonable premium which as far as possible reflects the risks involved for the schemes they introduce, although it is possible that this will be waived in the short-term; the schemes will be introduced for one month with work continuing on a sustainable solution and to encourage industry to return to the market as soon as possible.
There was a special Transport Council meeting on 14 September in the immediate aftermath of the terrorist attacks which I attended. The Transport Council had asked the Commission to set up an ad hoc group to examine aviation security issues and the ECOFIN Council asked the Commission to extend that work to include the insurance issues.
The Transport Council met again on 16 October and concluded that member states may continue to operate temporary Government schemes on a month by month basis up to 31 December 2001. At the same time the council called for a speedy and concerted return to commercial insurance arrangements in preference to the Government schemes.
A number of meetings of the ad hoc insurance group have now taken place. At the meeting on 23 October guidelines were issued in relation to appropriate levels of charging by Governments and these will form the basis for the charges to be imposed by our Department, in consultation with the Department of Finance when this Bill is enacted. In keeping with the Transport Council conclusions, the guidelines are intended to encourage the airlines and insurers to return to commercial insurance arrangements as quickly as possible.
It will be clear from my summary of the various EU interventions in this matter that policy has had to evolve at short notice to reflect the realities on the ground. Initially, at the time of the informal ECOFIN Council, it was assumed that intervention by Governments for one month would be sufficient. Indeed, at that meeting it was not yet appreciated that insurance cover was being withdrawn from airports and ground handlers. By 16 October it was still hoped that the insurance market would have returned to normal after two months, and certainly by the end of this year. It now seems that insurers continue to be cautious and the need for Government intervention may well extend into the early part of next year. The Government here, in common with our European partners, would like to see the return of normal commercial insurance arrangements as soon as possible and the Government schemes are very much an essential measure to fill a gap for the shortest time possible.
I will now turn to the specifics of the Bill and will start with a general overview. This is a short Bill designed to deal with the immediate insurance problems in a comprehensive manner. It does not deal with any other aviation issues. The House will easily appreciate that, while we have endeavoured to keep the Bill as short as possible, this is not trivial legislation due to the enormous sums of money involved.
Basically, the Bill will authorise the Minister to issue indemnities to airlines, airports, the Irish Aviation Authority and ground handlers to make up the gap between the insurance cover they actually have and what was available before the problem arose. In the present circumstances, that means the normal cover that was available prior to 24 September 2001. This means that many of the indemnities amount to US$1.5 billion per aircraft. The amounts of cover for the airports and the ground handlers were between US$100 million and US$500 million. This creates an enormous potential liability for the Exchequer when one realises that there are over 70 aircraft covered as well as nine airports and 15 ground handler firms. The potential liability is clearly beyond the capacity of a small country like Ireland so the aggregate maximum amount that may be paid out on foot of indemnities is limited by the Bill to 9 billion.
While there is the potential for enormous claims under these indemnities, the decision of the Government to give the letters of comfort reflected the low probability of claims arising and the charges to be made for the indemnities also take this into account. There will be no requirement for the Exchequer to make any payments unless there is a terrorist attack involving an Irish airline or an Irish airport. I know the House will excuse me when I say that with the help of God, that will not happen.
In recognition of the huge financial exposure, the Bill contains a number of important safeguards in addition to providing the legislative authority to issue indemnities. First, the underlying requirement before I can issue any indemnities is the need for the Government to decide that a problem exists and to make an order to that effect. Second, each Government order can only last for six months unless a continuing order is made. Third, each indemnity may only last for a maximum of 31 days, in other words, indemnities of this magnitude cannot be issued by a Minister without careful consideration and must be reviewed every month. The collective decision of Government must be revisited at least once every six months as long as the problem continues. Finally, the entire Act will become ineffective after 12 months unless its continuation is approved by this House and by the Seanad. This will provide elected representatives with an opportunity to consider whether they wish the Government to continue to have the authority to enter into this type of financial commitment.
I will deal briefly with the principal sections of the Bill. Sections 2 and 3 provide the powers necessary to issue indemnities. Sections 4 to 7, inclusive, 9, 10, 14, 15 and 19 provide a variety of safeguards for the Exchequer. The remaining sections are routine provisions that feature in most legislation covering such matters as definitions and the management of moneys.
While section 1, dealing with interpretation, is a routine section, I draw the attention of the House to the three categories of company that are identified and which may apply for indemnities. These are airlines licensed in the State, the Irish Aviation Authority, airports with scheduled services and other companies which provide ground handling services. These companies include baggage handling, maintenance, refuelling and security. The indemnities to airlines licensed by Ireland will also cover any services that they operate between non-Irish airports.
Section 2 gives the Government power to make an order to declare that a state of difficulty affecting the supply of insurance – relating to air navigation services – exists. The requirement for the Government order reflects the enormous levels of indemnity required to match insurance that was in place prior to 24 September. The maximum period for such an order is six months but a continuation order could be made after six months if necessary.
Section 3 empowers the Minister to give or renew indemnities during the period when an order under section 2 is in force. Under section 4 an indemnity may only be issued in a case where the undertaking requesting the indemnity had insurance immediately prior to the state of difficulty that gave rise to the order under section 2. This is to ensure that the indemnities are limited to cases where insurance cover has been withdrawn or reduced.
Section 5 allows the Minister to impose conditions when issuing an indemnity. The Minister may declare an indemnity void if the conditions are not complied with. The letters of comfort that have been issued already, including a requirement to comply with whatever conditions were in the original insurance policy, include a requirement to notify the Minister immediately an event arises that might give rise to a claim and an entitlement for the Minister to withdraw the indemnities if a terrorist attack should involve an Irish airline or airport.
Section 6 limits the State's liability to whatever limit previously existed under the original insurance cover. Furthermore, when all indemnities are taken together, the State's liability will be limited to 9 billion. This is the approximate euro equivalent of the aggregate limits on indemnities under the existing letters of comfort. The Bill provides that if the total claims from indemnified undertakings were to exceed 9 billion, then the payments from the Exchequer would be limited to a proportion of the claims made.
Section 7 limits the period of any one indemnity to 31 days. This is to protect the Exchequer by requiring renewals to be based on the most up-to-date information about the availability of and need for insurance. Indemnities may be renewed. Provision is also made to cover the retrospective period back to 24 September 2001.
While section 8, which allows the Minister to impose charges for indemnities is a routine provision, I would like the House to be aware that this is in line with the ECOFIN and Transport Council conclusions. In common with most member states it is not proposed to make any charges in respect of the first month of cover.
Under section 9 the Minister may issue indemnities only to Irish licensed airlines and to airports and service providers whose services are essential to support civil air services. The objective here is to limit the exposure of the Exchequer.
Section 10 is another important protection for the Exchequer. It gives the Minister all of the defences against claims that would have been available to the insurance company if the insurance cover had continued in place. Subsection (2) ensures that the issue of an indemnity by the Minister does not give any additional rights to a person compared to those they would have had if the insurance had continued in force.
Section 14 allows the Minister to terminate or suspend indemnities at any time. However, an indemnity in respect of an aircraft in flight will not terminate until it lands. If indemnities are terminated airlines must get their aircraft to land at the nearest airport, which may be the one from which they have just taken off, as soon as possible unless they get specific permission from the Minister to fly to another airport. This is, perhaps, the most important element in limiting the Exchequer's exposure.
Section 15 allows the Minister to re-insure all or part of the liabilities associated with the indemnities. No plans exist to do this immediately but it may be an appropriate way to reduce the risk to the Exchequer if an insurance difficulty were of long duration and if re-insurance is available.
Section 19 provides for the cessation of the operation of the Act 12 months from the date of its coming in to operation, unless extended by a resolution of the Oireachtas. This is another important part of the protections built into the Bill as it provides an opportunity for the Oireachtas to consider the matter on a regular basis.
This legislation is essential to keep Irish civil aviation in operation in these difficult times. I have no doubt that the House shares the Government's strong belief that terrorists should not be permitted to curtail our freedoms. The freedom to travel is an essential part of the modern economy. It is also an essential part of the freedoms we enjoy as citizens of the European Community, as part of our long-standing kinship with the United States and as part of the good will that Ireland and its people have earned throughout the world by our support for human rights.
I commend the Bill to the House.