EU aid package

Compensation for direct losses from US attacks Government cover of some insurance costs Public sector to pay for new safety measures Rules on landing and take-off slots will be relaxed

While announcing the package of measures, Ms de Palacio said the EC reserved the right to make further proposals in the future.

"We want to avoid European airlines becoming weaker with respect to the American counterparts," she added.

The EC's new stance on state aid for airlines first emerged from a provisional report - details of which were obtained by BBC's World Business Report on Tuesday.

New measures

"The range of options presented today will permit a concerted response by all European states, precluding any discrimination between airlines," said Ms de Palacio.

The main measures are as follows:

• The Commission will allow governments to compensate airlines for their losses during the four days in which US airspace was closed and for losses directly linked to the closure of US airspace.

• The Commission will permit governments to pick up the tab for the airlines' extra insurance costs for one month.

  This may be extended until the end of the year "should the need for such cover persist" and those subsidies do not put airlines in a better position than before the extra insurance premiums were introduced.

• The EC will take a "favourable" view of agreements between airlines designed to ensure regular service on lower-density routes.

• The airlines will be entitled to retain their slots during the summer 2002 season even after cutting flights.

  "If the current situation continues into the winter 2001 season, which begins on 26 October, the Commission will examine whether measures should be introduced for the corresponding winter 2002/03 season," the EC said in a statement.

• The Commission plans to propose a "code of good conduct" to the US authorities to prevent EU airlines being placed at a disadvantage because of US subsidies.

• Finally, the EC stressed that the moves to restructure and consolidate European airlines "must be continued and even stepped up in some cases".

Earlier on Wednesday, Ms de Palacio told the Today programme that there would be no tax reductions for the airlines.

Change of agenda

The issue of state aid to airlines was pushed onto the EC agenda in recent weeks, following the US attacks which forced airlines to cut capacity and make redundancies.

The US has already outlined plans to compensate its airlines with a $15bn package of grants and loans.

I don't believe that any form of state aid is just

Ray Webster Easyjet

No-frills airlines in Europe, which are weathering the aviation crisis better than the more traditional carriers, had argued against state subsidies.

"I don't believe that any form of state aid is just," Ray Webster, chief executive of Easyjet told World Business Report earlier on Wednesday.

However, Mr Webster went on to argue that the airline industry should not have to bear the extra insurance costs arising from the attacks on the US.

"I don't believe that it's a risk that should be borne by the airlines," he said.

Sir Michael Bishop, chairman of BMI British Midland, also told the Today programme on Wednesday morning that he hoped the EC would "not grant state aid to failing airlines".

Industry losses

The world airlines' club expects industry losses to be three times greater than originally expected, following September's terrorist attacks in the US.

The International Air Transport Agency (IATA) had forecast losses of $2.5bn (�1.75bn) this year - it now expects losses in the region of $7bn (�4.8bn).