I appreciate the House giving time to the Bill at short notice. It is vital legislation without which aviation services into and out of Ireland would quickly come to a halt. We are working to a tight deadline. As the Minister did not have the legal power to issue indemnities straight away on 24 September, the Government approved the issue of letters of comfort for one month. These letters of comfort have been renewed on two occasions since then and the current letters are due to expire on 23 December. It is important, therefore, that this Bill be enacted this week so that the letters of comfort can be replaced by actual indemnities before they expire.
Members of the House will be acutely aware of the commemoration ceremonies that took place in the United States and around the world on Tuesday, three months after the appalling terrorist attacks on New York, Washington and Philadelphia. Those attacks have had enormous repercussions for the aviation industry and for economies across the globe. One aspect of those repercussions was the decision of aviation insurers to withdraw insurance cover in respect of third party damage caused by acts of war or terrorism with effect from 24 September 2001. It was immediately clear that this would result in the grounding of almost all civilian air transport around the world. There was a universal response by governments that this should not be allowed to happen. The Government, in common with those in other EU member states, in the USA and in many other countries decided at short notice to step in to fill the gap left in the insurance market.
Following extensive consultations with the Attorney General's office, the Department of Finance and the Department of Enterprise, Trade and Employment, it was clear the Government was not legally empowered to indemnify the airlines and airports. Consequently, it was decided 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.
When the Minister, Deputy O'Rourke, introduced the Bill in the other House, she indicated that, in addition to the insurance problems which are the focus of the Bill, the events of 11 September also impacted on security measures and on the economics of the aviation business. In the aftermath of the terrorist attacks the most immediate response related to security measures at airports. The US authorities closed their airspace and airports for four days. Before the airports reopened, the US and other Governments had established requirements for much stricter security checks for passengers and luggage before boarding flights. Those stricter security measures are continually being reassessed and enhanced and look likely to be the norm from now on.
The Garda and airport security authorities also responded immediately to the events of 11 September. The national civil aviation security committee convened a meeting on 12 September and has held eight further meetings since. That the committee normally only meets about twice a year puts those meetings in perspective. A wide range of extra security measures have been implemented at all airports and the committee continues to review them. Precise details of the new security arrangements cannot be disclosed on security grounds. However, in general terms, the additional measures have involved the deployment of extra gardaí, enhanced passenger and baggage screening, extra airside and ground patrols and tighter controls on cockpit access. The procedures controlling access to the airside of the airports have also been tightened up.
Prior to 11 September many airlines were beginning to feel the effects of one of the usual cyclical slowdowns in the aviation business. The terrorist attacks greatly accelerated this slowdown and occasioned immediate costs through lost business on the days the USA's airspace and airports were closed and the additional security measures put in place. The impact on Aer Lingus has been disastrous. Senators will be aware of the intensive efforts being carried out by the Minister for Public Enterprise, Deputy O'Rourke, to find a lasting solution to this difficult problem.
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 an already hard-pressed industry. Prior to the withdrawal of cover airlines generally enjoyed third party war risks insurance cover of up to $1.5 billion per aircraft, generally included as part of the overall insurance premium. Third party war risks cover indemnifies the policy holder against claims by third parties, on the ground, who suffer personal injury or material damage. It is important to note that the insurers have made no change in respect of war risks cover for passengers on aircraft, which remains fully in place. It is also important to note that there has been no change to insurance cover for accidents and events that have nothing to do with war or terrorism.
Having reviewed the new circumstances in which civil aircraft could be used as weapons, insurers gave the minimum seven days notice required under the insurance contracts of their decision to unilaterally reduce cover to $50 million per airline with effect from midnight on 24 September 2001. An airline with, for example, 30 aircraft would previously have had cover of $45 billion, but would now have cover of $50 million. In addition, the insurers imposed a charge of $1.50 per passenger for the new low level of cover. While, at first, this may not seem like a lot, over a full year it almost trebles an airline's total insurance bill, despite cover being 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.
Following the announcement by the insurance industry that it was going to reduce war risks cover it quickly became apparent that the net result would be almost a complete cessation of civil aviation services. There are a variety of reasons for this, the most directly relevant perhaps being that, in most countries, certainly in the European Union, airlines must have adequate insurance cover to qualify for an operating licence. In addition, many airlines now lease their aircraft rather than buy them outright and the beneficial owners, the lessors, in order to minimise their risk, include in the leasing contracts a requirement of high levels of insurance for each leased aircraft.
It was clear to the directors of the airlines that they would be placing the future of the entire business in jeopardy if they continued operations without insurance cover. It is no exaggeration to say that governments around the world were united in the view that the terrorist attacks should not be allowed to bring normal life to a halt, which was just the effect the terrorists were trying to achieve. The Government, in common with its EU counterparts, took the view that arrangements should be put in place to allow the airlines to continue flying beyond the 24 September deadline imposed by the insurance industry. The immediate response, in most cases, was for governments to step in and take on the insurance burden insurers were no longer prepared to carry.
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 meeting at Liège and the following guidelines were issued. Government support will be limited to addressing a specific short-term failure in the commercial insurance market, to ensure third party cover for war and terrorism remains 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.
In the immediate aftermath of the terrorist attacks, on 14 September, the Transport Council asked the Commission to establish an ad hoc group to examine aviation security issues and ECOFIN asked the Commission to extend that work to include the insurance issues. The matter was discussed by the Transport Council on 16 October and, most recently, on 6 December. It was concluded that member states may continue to operate temporary government schemes on a month-by-month basis up to 31 March 2002. At the same time the Council would like to see 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 a 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 my Department in consultation with the Department of Finance when the Bill is enacted. In keeping with the Transport Council's conclusions, the guidelines are intended to encourage the airlines and insurers to return to commercial insurance arrangements as quickly as possible.
It is 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 meeting, it was assumed that intervention by governments for one month would be sufficient. At that meeting it was not yet appreciated that insurance cover was also being withdrawn from airports and ground handlers. On 16 October it was still hoped the insurance market would have returned to normal after two months or, at worst, by the end of this year. However, insurers continue to be cautious and the need for government intervention may extend well into the early part of next year. The Government, in common with its European partners, would like to see the return of normal commercial insurance arrangements as soon as possible as the government schemes are very much an essential measure to fill the gap in the insurance market for the shortest time possible.
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 appreciate that, while my Department has endeavoured to keep the Bill as short as possible, this is by no means trivial legislation owing to the enormous sums of money involved.
Basically, the Bill will authorise the Minister for Public Enterprise to issue indemnities to airlines, airports, the Irish Aviation Authority and ground handlers to make up the gap between the insurance cover they have and what was available before the problem arose. In current circumstances this means the normal cover available prior to 24 September 2001. Many of the indemnities amount to $1.5 billion per aircraft. The amounts of cover for airports and ground handlers are between $100 million and $500 million. This creates an enormous potential liability for the Exchequer when it is realised that more than 70 aircraft are covered, as well as nine airports and 15 ground handlers. The potential liability is clearly beyond the capacity of a small country like Ireland. Therefore, 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 a terrorist attack involves an Irish airline or an Irish airport.
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 the issuing of 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 last only six months unless a continuing order is made. Third, each indemnity may only last a maximum of 31 days. In other words, indemnities of this magnitude cannot be issued by the 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 the Seanad and the other House. 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.
In the course of its passage through the other House a number of amendments were made to the Bill. I take this opportunity to thank all the Deputies who spoke on the Bill. Many of the points made by the Opposition represented significant improvements to the Bill, and I am pleased to inform Members that they have been incorporated into the text before this House.
I will briefly summarise these changes. Section 2(7) now provides that orders made by the Government to declare the existence of a state of difficulty may be annulled by the Oireachtas within 21 days, as is common in many Acts. Section 12 has been modified so that the Minister is not absolved of liability if there is an unreasonable delay or default in the issue or renewal of an indemnity. Section 14 has been modified to replace the possibility of immediate termination of indemnities with a short period of notification of termination or suspension. Section 16 was extended considerably to provide a mechanism for applying the limit of €9 billion which is a vital protection for the Exchequer.
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 Members to the four categories of company identified who may apply for indemnities. These are airlines licensed in the State, the Irish Aviation Authority, airports with scheduled services and other companies that 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 exists affecting the supply of insurance relating to air navigation services. The requirement for the Government order reflects the enormous levels of indemnity required to match the insurance that was in place prior to 24 September – up to $1.5 billion per aircraft. The maximum period for such an order is six months. A continuation order can 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 already been issued contain conditions, such as a requirement to comply with whatever conditions were in the original insurance policy, 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 – £5 billion for the airlines and £2 billion for the airports and service providers. The Bill provides that, if the total claims from indemnified undertakings were to exceed €9 billion, the payments from the Exchequer would be limited to a proportion of the claims made. The detailed arrangements for applying this limit are in section 16.
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 only issue indemnities to Irish licensed airlines and to airports and service providers whose services are essential to support civil air services. Again, the objective is to limit the exposure of the Exchequer.
Section 10 is another important protection for the Exchequer. It gives the Minister all 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 with those they would have had if the insurance had continued in force.
Section 14 is a very important section. It 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 reinsure 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 reinsurance is available.
Section 19 provides for the cessation of the operation of the Act 12 months from the date of its coming into operation, unless extended by a resolution of the Oireachtas. As I mentioned in my overview, 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 the House shares the Government's strong belief that terrorists should not be permitted to curtail our freedoms. 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 Union, as part of our long-standing kinship with the United States and as part of the goodwill that Ireland and its people have earned throughout the world by our support for human rights.
I commend the Bill to the House.