Air Navigation and Transport (Indemnities) Bill, 2001: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

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.

I welcome the Minister of State to the House for this very important legislation which is in response to the events of 11 September over which none of us had control and which have had a major impact on all the western economies, including the United States. It brought into clearer focus what was happening in the airline industry for a number of years. It was evident that even without this massive terrorist onslaught on the twin towers and the Pentagon and the failed attempt in Philadelphia, the airline business was slipping into disarray. In respect of domestic flights in America there was little or no control over passengers and how one could board a plane. Irrespective of what instruments one had, one could get on a flight.

This was all brought into focus after the events of 11 September. As a result safety procedures have been tightened up by all the aviation authorities throughout the world. Consumers will feel more at ease when flying in that some of what was happening prior to 11 September will not now happen. Given that there had been access to cockpits and that pilots were vulnerable to attack from any type of madman, terrorist or deranged person, it was vital that access to cockpits be closed off.

The legislation before the House is a response to all I have said. It is due to the fact that insurance companies have withdrawn cover for a terrorist-related incident. Having known insurance companies down through the years and that they always look at the bottom line, once Governments in the west carry a particular liability they may be left to carry it much longer than anticipated at present. In his contribution, the Minister of State said the Government, in com mon with other EU Governments, took the view that arrangements should be put in place to allow the airlines to continue flying. The immediate response in both cases was for the Government to step in and take on the insurance burden that the insurers were no longer prepared to carry.

He also stated that at a Transport Council meeting on 16 October it was concluded that member states may continue to operate temporary Government schemes and at the same time the Council would like to see a speedy and concerted return to commercial insurance arrangements in preference to Government schemes. There does not seem to be any mechanism by which Governments, or a particular Government, can decide at a future date that no act of terrorism is looming, that conditions have returned to normality and in such a context that the insurance companies should assume the responsibilities they had heretofore in relation to the aviation industry. I am concerned that there appears to be no mechanism by which they can be forced to assume those responsibilities. If there is such a mechanism, perhaps the Minister of State will tell the House when responding to the debate. There is no mechanism in force to redefine for insurance companies at what juncture they should come back into the marketplace and allow the normal arrangements to continue as heretofore. That is one aspect of the legislation about which I am concerned.

If the industry here is to continue it is essential that this legislation is passed. We are all aware of the plight of Aer Lingus due mainly to the attacks on the United States and the consequent downturn in the aviation industry. This has a serious effect on Aer Lingus finances, on morale within the aviation industry as a whole and on workers in Aer Lingus who will lose their jobs as a result of this heinous attack that occurred on 11 September. There had been a downturn but, nevertheless, it was exacerbated to an enormous extent by these events.

Aer Lingus, as the national carrier, has to be safeguarded because the economy, including the tourism industry, is almost entirely dependent on it and its flights from the US. It is unfortunate to note the curtailment already planned for next year. The number of seats which will not be available even if people want to come here is extraordinarily high. It will put the tourist industry back ten years if other arrangements cannot be made to bring people in from the Continent on low cost flights to stimulate the domestic market here, which might take up some of the slack as a result of the non-appearance of our friends from the United States who were big spenders in respect of gifts and many other purchases. The dollar was always valuable, especially when the economy was not nearly as strong.

I welcome the legislation and the speed and efficiency with which the Minister has presented it. It will go a long way towards ensuring our air traffic will continue. As the Minister said, it is legislation which, I hope, will be short-lived. In view of the reservations I have expressed, however, I see it extending much longer than anticipated.

I could not conclude without making some reference to our local Knock airport which is always a cause for discussion and concern in the west. It is one of the major airports in the west along with Galway and Sligo, which are minor in comparison to the runway facilities at Knock. It is regrettable that the airport is not bringing in the numbers of people originally envisaged by the promoters. I do not blame the airport board for that and I know the chairman, Mr. Cathal Duffy, is one of the hardest-working chairmen of any company. It is not a State company but a private company in trust for the people of Connacht and Mayo in particular.

The Government should re-examine the position of Knock in relation to how its viability can be improved and how it can reach its potential. We complain constantly about our national road network in the west. Our airport is a vital piece of infrastructure for bringing people into the west. There are now also public service obligation flights taking place on a daily basis, courtesy of Aer Árann, from Knock to Dublin.

I will give the Minister an example which I hope is not a general symptom of what is happening in Knock. Last Friday morning I booked a flight from Knock to Dublin but I could not get to the airport on time because there had been a head-on collision which blocked the road. I drove to Dublin only to discover that the flight had not left Knock until 9.15 a.m. so I would have been in plenty of time for it. However, I discovered later that it did not leave Dublin on Friday night at all so if I had made the morning flight, I would have been here until Saturday.

An Leas-Chathaoirleach

The Senator is straying off the flight path.

Temporarily. I am still on the aviation industry.

The Senator is still in the air.

I mention that example to illustrate that aircraft companies do not appear to consult the public when drawing up schedules. Do they consult the public? The public does not want the type of flights they are providing from Knock at 7 a.m. where one has to get up at midnight to get to the airport and then arrives in Dublin at 8 a.m. What can anyone do in Dublin at 8 a.m.?

This legislation is necessary and it will ensure, at least in the short term, that our aviation industry will survive. It will be helped also by the Aer Lingus action plan which I hope will be implemented. We cannot allow what happened to Swissair and Sabena to happen to Aer Lingus. If we do, our tourist industry will be back in the Middle Ages. For the sake of tourism we must ensure that Aer Lingus is kept in the air.

The Minister said the Government would review the legislation regularly and I am sure it is hoping that there will be no major claim under it. The possibilities may seem remote but the State's exposure, to the extent of £9 billion, is considerable. Every effort should be made to ensure there is constant vigilance in the area and that it is revisited as often as possible. It should be done with a view to getting insurance companies to take up the slack.

The Minister also referred to charges being imposed in relation to this legislation. Where will those charges be levied? Will they be on insurance companies or on the aviation industry? When things return to normal, will there be any clawback from insurance companies in relation to the State expenditure incurred in underwriting this risk in the aviation industry? In previous cases, such as the collapse of ICI and AIB, there was no question of reimbursing the State for its loss when things got back to normal. The State was not reimbursed for the loss it incurred in preserving the corporate viability of these particular institutions. The Minister should examine the possibility of a clawback situation when events return to normal.

How will we determine normality in this era when what is normal today is abnormal tomorrow? The events of 11 September were in the realm of science fiction up to that date but now they are a reality. We face these realities every day of the week. Determining what is normal, and when the aviation industry has returned to normal, will be a headache for the Government and insurance agencies. This legislation is essential. Knowing insurance companies and their habits, I believe that the cover will go on for longer than the Government believes. All Governments in the EU will have to be careful about that in the future.

I welcome the Minister to the House and this important Bill. In my many years in the Oireachtas I never anticipated that a Bill of this significance would have to be brought before us, although many pieces of emergency legislation in response to terrorist acts or threats have been introduced.

If anything has been highlighted by the horrific events of 11 September, it is that the world we live in is a small global village. I am not the first to say that. Those events put that concept in perspective. The events, horrific as they were, occurred in the United States, yet they had a devastating effect all around the world, not just in Ireland. They had not only a devastating effect directly on the airline industry but directly and indirectly on industry and commerce throughout the world and they were a threat to our way of life, our quality of life and civilisation. The primary aim and thrust of the terrorists' agenda seemed to be to disrupt and destroy our civilisation and replace it with a terrorist type civilisation.

To take up a point made by my colleague, in terms of what we would have envisaged for the present or the future, these events were in the realm of science fiction. None of us would have believed what we read by science fiction writers or saw on our screens, small and large, would have come to reality in such a horrific and horrible way, caused such devastating chaos and wreacked such havoc around the world, threatening our very existence. The threat posed went right to the root of our civilisation.

That raises a question as to how well we have coped or how well we would have coped but for the fact that we live in a global village. If it were not for the evolution of the concept of the global village, we might not have coped. Determined and professional as our Ministers were in response to the terrible tragedy caused by the terrorist acts, if they had happened a decade or two ago, it might not have been possible for us to respond in such a cohesive, practical and realistic way as we did. What has helped the Government and the country enormously in their response has been the evolution of the global village and the understanding, realisation and acceptance of what Prime Minister Blair likes to profess but does not practise too often, the interconnectivity between nations. We are all so interconnected and interdependent that instead of panicking and rushing as individual nations to salvage our bit out of the wreckage of the terrible crisis of 11 September, the immediate response was that nations looked to each other to work together and respond to the crisis through their interconnectivity. That has been the greatest source of strength to us in facing up to this crisis.

In the absence of that, blind selfishness and a lack of enlightenment would have taken over. There would have been a much greater incidence of catastrophe in terms of economic downturn, particularly in the airline industry, than there has been. I compliment the Government on the mature and enlightened way in which it approached this crisis. Its approach was founded on the evolution that has been in place in relationships among nations within the EU and between the EU and the rest of the world in terms of trade and how we promote and enhance our own civilisation.

An immediate effect of the 11 September crisis was the withdrawal of insurance cover by the airline insurance industry. That was a major additional crisis for an industry which Senator Caffrey and the Minister rightly said was already in serious difficulty, particularly our domestic airline, Aer Lingus. These events threw it into a crisis, as they did the airline aviation industry around the world. To take a simple example: prior to 11 September insurance cover was US$1.5 billion per airline compared to a phenomenal reduction in insurance cover to US$50 million per airline post-11 September and following service of a seven day notice. There was a trebling of aviation insurance cover with a multiplier reduction in the level of cost. The implications of that were startling. It could have grounded the airline industry. These circumstances posed a nightmare scenario for the Government as they did for other governments in Europe, the United States and elsewhere. An added difficulty for the Government was that we did not have legislation in place to effect immediate indemnity. That caused further complications. Nevertheless, positive and effective action was taken.

One of the aims of the terrorists was to wreak havoc on our civilisation. It is clear from the Government's action, which must be strongly commended, that it was determined, as were other governments in Europe and abroad, that there was no way terrorism would prevail and succeed in its primary objective of ruining our quality of life, way of life and civilisation. Their actions and determination to date is a clear manifestation of that.

I commend the decisiveness with which not only the Government and officials but governments of other member states of the EU came together at the Transport Council meetings and the ECOFIN Council in Liège and on the arrangements they succeeded in putting in place, under enormous pressure given the panic experienced by the insurance industry, to deal with this national, international and global emergency. The evolution that has taken place in the relationships, particularly among states within the EU and between the EU and others, significantly enhanced their ability to come forward with these arrangements. There was an understanding, appreciation and acknowledgement of the need to co-operate and help each other. That no doubt facilitated and promoted the putting in place of these arrangements speedily. As the Minister said, the arrangements put in place were directed by the guiding principles of ECOFIN.

In the absence of the necessary legislation, letters of comfort had to be issued to the airlines involved. Letters of comfort were a short immediate solution that enabled airlines to overcome the difficulty of the Government's inability to issue legal indemnities in the short term. As the Minister pointed out, the deadline is 23 December. With the passage of this legislation the indemnities can be issued. Against that background, Members on all sides recognise the major significance of this Bill. Never before was a Bill so necessary and urgent not alone to protect the industry specifically referred to in the Bill but because of the major dependence of many, if not all, sectors of industry in Ireland on that industry. With the advent of globalisation and liberalisation, no economy in the modern world can have any realistic prospect of survival in the absence of air transport. That points to the major and much wider significance of ensuring that our aviation industry is maintained, sustained and helped to grow.

The Bill underpins those arrangements. That is its importance. The implications of its enactment are much wider and more significant, but the urgency of enacting it is appreciated because the letters of comfort expire on 23 December. It is vital they do not lapse before the legislation is replaced.

I want to take up an important point made by Senator Caffrey. Initially, it was envisaged that the timeframe involved would be about one month, but because of the caution being displayed by the airline insurance industry generally that has been extended further into the new year. I fully endorse the sentiments and concerns expressed by Senator Caffrey that the Minister – I know we have her support – should ensure through the Transport Council and the ECOFIN Council that the temporary arrangement by states would be of a very short-term nature.

We fully agree with the concerns expressed by Senator Caffrey that the insurance industry generally can be coy when it sees an opt-out factor. It can be coy in re-establishing its commitment and responsibilities. I know the Minister, the Government and the EU will ensure that will not happen and that pressure will be brought to bear on the industry to renew cover at the earliest possible date, while bearing in mind that the risk, however diminished, still exists. The purpose of insurance is, by definition, to deal with risk and provide people with cover and security from risk. The industry will be encouraged and pressured by every means at the Minister and transport council's disposal to renew its primary role in line with that definition. The purpose of the legislation is to fill a gap between the pre-11 September and post-11 September position.

Reference has been made to the State's exposure. If one thinks in terms of £1.5 billion cover or £50 million per aircraft for cover, one is talking in terms of huge multiples. The potential liability is absolutely astronomical. A small State such as ours could not afford to aspire to fulfilling that role not just in the short term but in the long term. Nevertheless, I welcome the safeguards, provisions and conditions provided for in the Bill. For example, the Government must decide that a problem exists before an order can be made. The order will last for six months, following which it will have to be renewed. Under the Bill the Government will be obliged to review that order every six months. The indemnity factor lasts for a maximum of 31 days but that has been amended somewhat in the other House. The main provisions in the Bill are important safeguards to limit to the maximum extent possible the exposure of the State, bearing in mind the role it must play. The safeguards are realistic, effective and practical.

The action the Minister took in the dire circumstances which existed was swift, effective and timely. It prevented the airline from going to the wall because that was the scenario if the Government did not step in to fill the gap on an interim basis. It also ensured that economic activity, which is so dependent on the aviation industry, has been facilitated to continue with the minimum possible interruption.

I wish the deliberations well in regard to the survival plan because they are at a delicate stage. I am not familiar with what has happened in the past couple of days. I wish the Minister, the Department, the management and workers of Aer Lingus well in expediting the putting in place of the survival plan. Much work has been put into the plan both here and at EU level. I commend all those involved for their maturity and enlightened approach with which they have faced up to the crisis. I urge all those concerned to grasp this opportunity as part of the restructuring programme to upgrade the Aer Lingus pension plan. It is vital this opportunity is taken to bring more equity and fairness into the whole Aer Lingus pension plan because there is discrimination between that and other public service pension plans.

I commend the Bill and compliment the Minister on her overall management of a terrible crisis not previously envisaged in terms of Aer Lingus and the airline industry generally.

While recognising that the Government had no choice but to introduce this essential legislation, it would be utterly irresponsible of any House of the Oireachtas not to support the general terms of the Bill. However, we should also recognise what is before us here. This is not greenfield legislation because it has a certain sense of déjà vu. What is involved here is the neglect and abrogation of responsibility by the private sector. We have had to do this before. We have had to introduce legislation previously to deal with the ICI debacle when the Government had to pick up the pieces. I do not hear any of the great supporters or disciples of the private sector and the free market telling us how the free market operates in this situation. As soon as there is any element of risk, the insurance companies turn tail, run away and let us look after our own business. All those who speak about the great importance of the private sector and how it works should keep that clearly in mind when facing into this legislation. It goes even deeper than that. I am not opposing the legislation because it must be enacted. However, we should recognise that what is happening is that the Irish taxpayers are taking on the responsibility which the insurance companies with limitless profits have soaked out of the system for years.

Let us go back to the basis of the problem on 11 September. The problem began in Boston airport because it had the worst levels of security of any airport in North America. That fact was established many months before 11 September. There are two serious documents outlining the security in different American airports which showed Boston to be lacking. This was brought to public attention long before 11 September. The issue was flagged for those people who were looking for the worst possible security measures. However, that is not the point I wish to make. The point I wish to make is why Boston? Whether we look at Boston or Berlin for our role models for the future, what happened at Boston airport is that it outsourced security.

The Economist newspaper, which is not notorious for its left wing tendencies, liberal views or being pro-public sector, carried the results of a survey which compared airport security in Boston and Amsterdam. The difference between the two airports was absolutely staggering. First, the people working on airport security, those who look at the screen when we put our bags through security and who judge what is in them, were paid less than operators of cash registers in local supermarkets. Therefore, those who were getting jobs at the airport were people who would not get work anywhere else. This is not my view, it is an established fact. It is also a fact that the people in Boston took up appointment following a couple of hours training as compared to a number of weeks training at Schipol Airport in Amsterdam. The number who remained in the job for any significant period at Boston airport was in single figures compared to it being a career option at Amsterdam airport. These people were well paid and completely skilled at the job. They were security conscious, they knew what they were about and had the experience of identifying on the screen items in suitcases.

That is the reason the problem was encountered on 11 September. It goes back to a basic neglect, to a dependence on the market. The market is good for one thing, making profits. The market is not good at protecting people or looking after the general needs of people. The Government should take a clear interest in any proposals to outsource various aspects of the work of the airport.

The other issue that was evident – this has been in the news again recently – is how few proper scanning machines there were in airports. There is security scanning but the level of security scanning necessary is not taking place at present. There is a shortage of scanning machines in airports around the world, and that is certainly causing a problem.

I reiterate that the market abrogated responsibility by reducing the level of security, reducing the trust and confidence in security and reducing the security of the travelling passenger. That, therefore, allowed people to get on board unchecked and led to the problem on 11 September. That, therefore, led to the bosses of the international insurance corporations saying, "Why should we take the risk, we are here to make a profit, not to pick up risk", because they are averse to risk.

Most insurance companies do not know about risk. Risk is merely a factor in the calculation of premia. It is not something which they engage in at any time. If there is a risk involved, as anybody, whether it is a 19 year old driver looking for insurance or somebody trying to insure a plane at Dublin Airport, will know, these boys just do not want to know. They are not in that business. They are in the business of making profit and they do not care about our demands. That is a point on which one should dwell and which we should remember.

In terms of Aer Lingus, Ireland is the only island nation of the European Union. We need a national airline more than anybody else. It is disgraceful that the European Commission has used the appalling events of 11 September to put forward its agenda to reduce the number of national carriers in Europe to three or four to push forward the demands of British Airways, Lufthansa and whoever might be the other lucky two or three. I assure the House it does not include Aer Lingus.

We in Ireland, the people who need airlines more than others, suddenly find ourselves dependent on other airlines. Some would ask, "Would we not be served by another European airline anyway?", and of course we would, but we need an airline with a commitment, with a stake and a root in this country. There are many strategic reasons for this. Apart from the national pride issue, which counts for a great deal in terms of our status internationally but which I will leave aside for a moment because it is hard to put a clear figure on that, we need our airline for exports. Many people do not realise that a huge amount of our exports to the United States in the IT industry is carried by plane.

Many people do not realise also the importance of having direct routes between North America and Ireland for the purpose of foreign direct investment, of the establishment of industry and of ensuring that there are communications between international head offices in North America and Irish branches. These people do not want to change planes at London. They do not want to be pushed out to a hub. If Ireland is pushed out and becomes a tangent at the far end of a hub located in London, Paris, Amsterdam or wherever, we will lose out financially and in all sorts of ways. Therefore, the Government needs to keep that in mind.

We also need to recognise, as many have pointed out, that what has happened in Aer Lingus in terms of the numbers of redundancies and the decision to eliminate pay increases over the next few years, will have a huge impact on the morale of Aer Lingus workers. We should recognise that the principal trade unions involved in Aer Lingus are going through the difficult and arduous, if not dangerous, task of trying to convince their members to vote for a deal which reduces their prospects, comfort and security and darkens their future. We should recognise what has been done by the trade union movement in talks with Government over the past two to three months to secure the national airline.

In addition, on the point which has been made about insisting that there is a certain element of equity available to the workers as a compensation for their lack of pay increases and for much of what they are losing in terms of involvement in profit sharing, these matters are hugely important in restoring some of the morale among the working in Aer Lingus.

In short, this legislation, although important, should not be necessary but it reflects all that is wrong with privatisation. This is another version of what we saw in the UK last month and the previous month with Railtrack, which has had to be re-nationalised. We have seen it happen also with Air New Zealand, which has effectively been re-nationalised.

I am not making this as a great plea, coming from a rooted philosophical stance of being completely opposed to privatisation and in favour of public ownership or nationalisation in all cases. What I am saying is that in all these cases – we will face it with Aer Rianta next – there is a strategic interest element, a security element and a health and safety element which need to be taken into consideration.

We should approach these matters in the same way as the Government and the trade union movement have recently approached the issue of public private partnerships. We should see how we can achieve our objective by protecting the needs and genuine aspirations of all the parties. Let us put together the building blocks to produce a policy on that. We must be careful in considering public private partnerships and, similarly, with the issue of privatisation. We need to look at our national strategic interests before making a decision.

I will finish up with a story. When CIE was established all those years ago, it took control of the routes and established a monopoly. It was required to maintain a service. That was a condition of the establishment of CIE and what is now Bus Éireann. That is why there are some amazingly quaint routes, where a bus that is supposed to go from A to B seems to hit D, F and H before it gets to B. The reason for this is that the company has had to give a guarantee to maintain the level of service provided by the private sector. One might ask what that has to do with this matter. The answer is that we should take a similar approach and insist that levels of service are maintained, that there is a service contract and that there are certain demands on those issues.

If Aer Rianta is sold to the wrong person – that is tied in with this legislation – we could be back here next year, with a flaw in security leading to another charge on the taxpayer. Therefore, let us insist that if we privatise Aer Rianta, the levels of security do not go south as they did in Boston airport. These are the kinds of issues we need to address and which should have been addressed previously. What we are seeing today is the failure of the Boston model as opposed to the European-Berlin model. It is a classic example.

I am glad the leader of the Progressive Democrats group is here to listen to this; it is a message he might bring back to his party. This is not a black and white matter, there is more to it. The Irish taxpayer is taking up from the profiteering insurance companies who have walked away from their responsibilities. The taxpayer is also picking up the pieces left by those who have privatised airports and taken the profits.

The Senator will understand the Chairman cannot possibly respond.

I understood that and took advantage of it.

Senator O'Toole made a very fine speech and there is very little that can be added, but there are one or two points he may have omitted. We have been calling for a debate on the insurance industry in this House for a considerable period of time. It is astounding that commercial insurance companies can give an ultimatum to airlines and Governments and withdraw insurance from a given date, namely, 24 September. They left the entire international airline industry high and dry. It seems incredible that that could have happened but it did. Since then all the Government, and other governments, could do was give letters of comfort regarding indemnification. We are being held to ransom by commercial insurance companies.

The legislation before us should be a Bill to regulate the area of insurance and set out the responsibilities of companies in times of crisis. The legislation should deal with how this is to be ordered in a balanced fashion rather than having companies ceasing to carry out the function for which they were originally established. A company cannot provide a service and withdraw it at a whim. There must be regulation. We are not talking about insurance cover only, we are also talking about major industries.

We have seen airlines collapse because of the tragic events of 11 September. Many airlines around the world have shed huge numbers of jobs. There are a minimum of 2,000 jobs at risk in Aer Lingus accompanied by downsizing, a loss of morale and change in conditions. That is only the initial part of the problem. There will be knock-on effects for industry and imports and exports. An island nation like ours is hugely vulnerable but we do not seem to have any protection from the withdrawal of indemnification from airlines by insurance companies. Ireland relies heavily on tourism and many jobs may be lost.

This has huge ramifications and we need to have a very thorough discussion about the entire insurance industry. I do not know if anyone has called for that here, but I would like to have seen that as a preamble to the introduction of any legislation whereby taxpayers take on the indemnification which was hitherto dealt with by commercial insurance companies. Those companies made their profits but ran for cover when the first cold winds blew. They were not prepared to take any chances, nor do they seem to have given any proper reasons or explanation as to why the entire indemnification was lifted in the manner it was.

Have many of these insurance companies closed? Have jobs been lost in the industry? Are they still charging for the insurance they are offering even though it is inadequate to provide all the cover required? What level do the insurance companies who provided cover for air navigation currently operate at? What security measures do they feel are required to enable them to restore indemnification? We do not know the answers to these questions. We have had letters of comfort in recent months. We are now going to extend the cover for another month, have a review in six months and the legislation will stay in effect for 12 months.

The insurance companies seem very cautious and do not know when they will again offer indemnification. Obviously they will not do it until they are ready. What has the Government done to explain to the companies their responsibilities? It is unacceptable for an insurance company not to offer a quote under equality legislation. I understand that every company is obliged to offer a quote in areas such as motor insurance. Are they making outlandish quotations for indemnification or are they making none? This is information that would be very useful to the House. We would like to know how the insurance companies are acting and how they propose to address indemnification in the future. I will not oppose this legislation but I do not want us to lose control. No one knows when these circumstances will change.

We know that many security measures are being introduced. For example, new measures have been introduced in baggage handling and aeroplane cockpits are being sealed. Will a checklist be required? The war in Afghanistan is coming to an end. Is there a checklist the commercial insurance companies require during the so-called war on terrorism that is being fought?

The Minister spoke about section 8 of the Bill. Am I to take it that another month of free cover will be offered to all airlines, national and private? What contribution are the airlines making to this cover for which we are providing £9 billion in indemnification? Why should a private airline receive letters of comfort from the taxpayer? Why should they receive free cover from the taxpayer? Is this likely to continue on an ongoing basis? While I have certainly not heard complaints from Ryanair about indemnification for its operations, I have heard it denounce the Government and scream about the manner in which it has been treated regarding the future development of the airline industry.

There is a great deal of hypocrisy in areas of the private sector. The insurance companies, for example, are running scared and do not consider it necessary to respond to any need other than those of shareholders. It has no broader vision, yet it viciously attacks state operations as unsafe, unstable, a waste of time, inefficient and more. On the other hand, the privatisation of national utilities has been a disaster in some cases.

We must reassert the authority of the Government and the Legislature and ensure the private sector operates under a regulatory framework which respects the interests and dignity of people. Until we do this there will be no change in our position of chasing matters up and being left to pick up the pieces. Those involved in the marketplace declare it to be the be all and end all. They take everything that is up for grabs and leave the difficulties behind for the taxpayer to pick up.

I accept the Minister has no choice but to introduce this legislation. However, I call for a major discussion of the broader context in which it is being enacted. We should look again at how the insurance companies operate here and elsewhere, the way in which they can bring the world economy to its knees and make unilateral decisions. I ask that we return to this matter at an early stage to improve the situation.

I thank Senators Caffrey, Liam Fitzgerald, O'Toole and Costello for their excellent contributions. I will make a few comments and endeavour to answer some of their questions.

Senator Caffrey was concerned that governments might have to continue to provide cover and that there was no mechanism in place to reintroduce the norm which would return insurance companies to their former role. He expressed strong sentiments about Knock Airport and asked about charges and the potential for clawback from insurance companies. Senator Fitzgerald also voiced concerns about this matter.

The European Commission is reviewing the manner in which the insurance industry operates in case a cartel is operating in breach of competition law. However, this will take time. In the meantime member state governments must continue to support the civil aviation industry. The Government will meet this obligation. Senator Caffrey will be pleased to note that Knock Airport is also covered by the letters of comfort.

Senators expressed concerns about charges which will be levied on the airports, airlines and ground handling companies which receive indemnities. Because the State will not pay out moneys except where a claim is made as a result of a terrorist attack, clawback will not be required.

Senator Fitzgerald raised the question of indemnity and referred to the interconnectivity between nations in matters such as trade and security measures. I agree this is a very important boon during these troubled times. The Senator's concerns about the implications of the huge insurance cover and expression of appreciation for the huge significance of the legislation were consistent with all the contributions. On his question concerning the duration of indemnity, each indemnity may only last for 31 days, a provision not amended in the Dáil.

Senator O'Toole referred to the abrogation of responsibility by the private sector, which has left the Government and the taxpayer to pick up the tab, and mentioned the deficiency in security at Boston Airport which, he indicated, was due to doing things on the cheap. He also argued that there should not be overdependence on the market to the exclusion of other national strategic requirements and, like all of us, questioned the wisdom of outsourcing functions. He emphasised the importance of Aer Lingus in terms of international trade, our position as the only island nation in the European Union and our exporting status, with which none of us would argue. The Government endorses his sentiment on the need for a national airline.

Senator Costello raised serious and potent questions on insurance. Irish insurance companies do not participate in world aviation insurance. The decision to withdraw cover was taken outside Ireland. Insurance companies are still in business and have greatly increased charges for a reduced level of cover. No explanation was given for the decision to withdraw cover.

I thought as much.

As aviation insurance is a worldwide business, Ireland has very little influence on the market. One group of insurers offers cover, but at a very high price. Insurance companies have not provided a security checklist. The Government indemnities will not be free. It is estimated that charges for all the airlines will amount to approximately €1 million per month.

As Senators will be aware, there is an agreed framework document on Aer Lingus to which the Government, the company and the unions have signed up. The Government and the Minister for Public Enterprise welcome that document in terms of the importance of Aer Lingus, referred to by all speakers. The agreed framework will provide an opportunity for Aer Lingus to face the future with renewed confidence, which we all want. All that remains now is for the workforce to vote on these changes, which appear to be fundamental to the airline's survival and the retention of 4,000 jobs. I hope I have dealt with the queries raised by Senators and I thank them.

Question put and agreed to.
Agreed to take Committee Stage now.