US airlines have the support of their government ... we are counting on the support of our own governments

Federico Bloch Taca executive president

Now that the US and European governments have agreed to underwrite war risk insurance, the threat that trans-Atlantic traffic could grind to a halt this week seems to have been stilled.

But the financial bounty being held out - $15bn in cash and loans to US airlines, together with an unspecified amount from a variety of states in Europe to their own airlines - means that other governments are now under pressure to follow suit.

In effect, some observers say, insurance for practically the whole of commercial aviation is now being nationalised, or "socialised" as US Treasury Secretary Paul O'Neill put it last week.

Insurance companies are unlikely in the foreseeable future to ease the terms under which they offer cover.

Currently the plan is to cap third party war and terrorism insurance at $50m at midnight GMT on Monday 24 September.

In contrast, airlines themselves face potentially unlimited liability, and will happily accept support as long as governments are prepared to offer it.

Running for cover

The call for government aid is now general.

In Asia, China's airlines fly relatively few international routes, which limits their exposure to the "war risks" cover which is proving to be the sticking point for aviation insurance. But they are still looking for help.

"We expect our government will work out some measures to help domestic carriers as other governments have done, because it is a global issue," said Su Liang, speaking for China Southern Airlines.

The airline faced additional costs of about $12m a year, he said. The government is expected to offer tax breaks, if not direct aid, to soak up insurance costs.

Hong Kong's government is offering a six-month indemnity of $1.95bn per incident to its three commercial airlines.

Australia and New Zealand are following suit - the latter not least to help stave off the wholesale collapse of Air New Zealand, on the verges of bankruptcy after its Australian subsidiary Ansett imploded on 14 September.

South Korea is allowing a $1.25 surcharge per passenger to cover insurance costs, which carrier Korean Air says have risen sevenfold.

Singapore Airlines was one standout, refusing to comment on whether it is seeking government help - although the airline said the matter was "receiving attention".

Trouble for smaller states

Smaller, poorer countries are facing real trouble as a result of the insurance hike and general slowdown.

In Central America, Taca Corp - which includes the former flag carriers of Nicaragua, Guatemala and Costa Rica - said it was entering "complex circumstances".

The group explicitly said the aid package promised to US airlines put it at a disadvantage and pleaded for help.

"US airlines have the support of their government and now, in addition, they are going to be subsidised," said Taca executive president Federico Bloch.

He was not expecting subsidies, he said. But airport charges and fuel costs had to be kept down. "We are counting on the support of our own governments," he said.

Europe screws down costs - and fares

The pain continues in Europe as well.

German carrier Lufthansa is considering raising the proportion of transatlantic lights it has scrapped to 21% from 8%.

Swissair's new business plan envisages a minimum of 3,000 job cuts, along with a wholesale restructuring integrating the regional Crossair subsidiary and the Swissair international business more tightly.

And Belgian airline Sabena, which last week warned it faces bankruptcy without a complete restructuring, is still trying to reach a deal with unions to cut 12% of its workforce.

Meanwhile, budget airlines are trying to encourage passengers back to the air, with Irish carrier Ryanair announcing the sale of a million seats at �9.99 apiece and promising not to cut services or sack staff.

And EasyJet founder Stelios Haji-Ioannou said that between three and six of the former state-owned flag carriers needed to disappear if Europe's air travel market were to return to health.