Martin Cullen (Waterford, Fianna Fail)

I move: "That the Bill be now read a Second Time."

I thank the House for agreeing to deal with this important emergency legislation at such short notice. The Seanad was similarly supportive. Following the appalling terrorist attacks in the United States on 11 September 2001, insurers withdrew cover for third party war and terrorism risks at short notice and it was necessary for Governments to provide cover so that civil aviation could continue to operate. In Ireland we enacted the Air Navigation and Transport (Indemnities) Act at short notice in December 2001. That Act was designed to expire after 12 months unless motions were passed by both Houses of the Oireachtas keeping it in place. This was due to the significant liability undertaken by the Exchequer under that Act, and because of the perceived temporary nature of the insurance problem at that time.

Thankfully, commercial insurance became available by the second half of 2002 and it was possible to allow the Act to lapse in December 2002, one year after its enactment. Unfortunately, however, the problem has not gone away. During 2004 it became clear that insurers were worried about potentially ruinous claims in the event of a terrorist attack involving the detonation of what is referred to as a dirty bomb, or an electromagnetic pulse. A dirty bomb is one that has been deliberately contaminated with chemical, biological or radioactive material to cause widespread damage to people and property. An electromagnetic pulse is a device that sends out a broadband, high-intensity, short-duration burst of electromagnetic energy — essentially a high-powered pulse of radio waves. Such a bomb could disable or permanently destroy all the electronics and computers in an airport, including those of all the aircraft at that airport, and interfere with radio links for air traffic control. The problem for insurers is that an event involving one aircraft or airport would almost certainly give rise to claims under several, and perhaps dozens, of insurance policies. Cover for "dirty bomb" risks is not normally provided in other areas of insurance, such as marine and property insurance. The international insurance industry believes that such a risk cannot be covered by insurance and must be dealt with at a Government level, in the same way as natural catastrophes.

The matter was discussed on several occasions at meetings of the European Commission's ad hoc group on aviation insurance. As might be expected, neither the Commission nor member states were anxious to give any premature signal to the insurers that they would be prepared to take over any part of the insurance risk, and consequently no overt action was taken while it was not clear that insurance cover would actually be withdrawn. A key part of the strategy in 2001 had been to encourage the commercial insurers to go back to providing the cover that had been withdrawn.

At the most recent meeting of the ad hoc group, on 2 June 2005, member states were informed that insurers have now begun to withdraw cover for "dirty bomb" and electromagnetic pulse risks for aircraft hull insurance as renewals fall due. This has already affected Spain's Iberia Airlines, and my Department has been advised that it will also apply to an Irish cargo airline when its policy is renewed on 1 July. That airline has been in regular contact with the Department of Transport since it was alerted to this issue, and the Department is exploring with it what kind of assistance it may need in light of the change to its insurance cover.

As a result of that information from the European Commission, my Department immediately set about drafting new legislation to enable the Government to provide indemnities. The Bill that I now present is very closely based on the 2001 Act. However, some changes have been necessary to reflect our experience with that Act and to take account of developments in the intervening period. The most significant change arises because this is expected to be a permanent change in insurance conditions. Insurers do not intend to go back to covering "dirty bomb" and electromagnetic pulse risks in future. Therefore, it is not appropriate for the new Act to have a provision for it to lapse automatically.

Since that insurance withdrawal will be permanent, the new Bill will allow Government orders and ministerial indemnities to be issued for 12 months at a time. That should significantly reduce the administrative burden on aviation companies as well as on my Department. The fact that the Bill cannot lapse automatically is balanced by the 12-month time span for indemnities, which means that indemnities cannot be put in place and then simply left there indefinitely. The Bill also provides that indemnities can be terminated at any time, should that become appropriate. It is possible that the aviation industry in Europe will establish a mutual insurance fund that will eventually eliminate the need for Government support, and I understand that European legislation will be initiated by the European Commission soon to deal with the issue.

However, that will take several years and may need further legislation when the exact form of the scheme becomes clear. The other important change is that, in 2004, a new European regulation was adopted requiring all but the very smallest aircraft to have insurance, including insurance for war and terrorism risks. That regulation came into effect on 30 April 2005. In 2001, only licensed airlines were required to have insurance and the 2001 Act did not allow the issue of indemnities to private or corporate aircraft operators.

Under the new Bill, it will be possible to issue indemnities for private and corporate aircraft registered in Ireland, as well as for the airlines, airports, ground-handling and maintenance companies that received indemnities under the 2001 Act. If we did not extend the legislation in that way, it would be tantamount to a legislative decision to ban all private and corporate aviation. As a further consequence of that change, the Bill extends the scope of airports to include all licensed for public use by the Irish Aviation Authority. The 2001 Act included only airports with commercial scheduled services. The extension of the definition will include the aerodromes at Connemara, Inisheer, Inishmaan, Inishmore and Weston. It should be emphasised that the State would not simply be automatically subsidising the operation of corporate or executive jets. Indemnities will be granted only if essential to the continued operation of civil aviation, and anyone granted an indemnity will be required to pay a commercial rate.

The new Bill also deals with a problem that emerged under the 2001 Act. Under that legislation indemnities could be issued only to businesses that had commercial insurance policies before the cover was withdrawn. In other words, no provision was made for new airlines or other indemnified businesses that might commence operation after the withdrawal of insurance. As a result, it was not possible for the Minister to provide an indemnity for a new airline, Skynet. As it happened, Skynet was able to obtain sufficient insurance to allow it to commence operations. However, as a precaution, and in light of the fact that the withdrawal of cover for "dirty bomb" risks is expected to be permanent, the new Bill will allow indemnities to be given to new businesses that otherwise meet the criteria for qualifying for indemnities.

On the other side, to increase protection for the State, the new Bill contains examples of reasons the Minister may refuse to grant an indemnity or may issue a restricted one. In the 2001 Act, while the Minister was under no obligation to issue indemnities, it was not clear why he might refuse an application. The reasons for refusal now include situations where an applicant has not or will not comply with conditions, whether an applicant has paid amounts due to the Minister under the Act, whether the applicant has all the necessary operating licences, whether the risk is excessive, and whether it would not be in the public interest to provide indemnities for a particular class of activity, aircraft or applicant.

To avoid any future problems about collecting money, it is intended to require payment in advance for the indemnities to be issued under the new Bill. It is not clear at this stage how much revenue will be collected for indemnities under the Bill. Under the 2001 Act, about €5.4 million was collected and a further amount of about €2.6 million is the subject of a High Court claim between my Department and Ryanair.

I will now say a few words on each section of the Bill. Section 1 deals with interpretation. Three categories of aviation undertakings that will be able to obtain indemnities are identified: airlines and operators of private and corporate aircraft; airports and aerodromes licensed as public service aerodromes by the Irish Aviation Authority; and other companies that provide essential aviation services. Those include baggage handling, maintenance, refuelling and security.

Section 2 deals with making a state of difficulty order. That and section 3 are the fundamental sections of the Bill. 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 provide enough cover to enable Irish aviation to continue in operation. The maximum period for such an order is 12 months. Further orders can be made.

It is anticipated that this change in insurance cover worldwide is permanent and that will mean that orders must be made for the foreseeable future. Section 3 empowers the Minister to give or renew indemnities during the course of an order under section 2. Section 4 provides that an indemnity may be issued only 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. However, where a new aviation undertaking starts business after the commencement of the state of difficulty order and if it would normally have required such cover, an indemnity can be issued for it too.

Section 5 makes it clear that the Minister is not obliged to give an indemnity and provides that no liability will attach to the Minister if an indemnity is not given, is delayed, or is in error. This section appeared as section 12 in the 2001 Act but has been moved in this Bill to make its order more logical. While the 2001 Act did not give any examples of reasons the Minister might wish to refuse to issue or to renew an indemnity, this Bill cites some issues that the Minister may take into account, including failure to pay for previous indemnities issued under this Bill; whether the conditions of previous indemnities have been complied with; whether the Minister is satisfied that conditions in an indemnity to be issued will be complied with; whether the undertaking holds all the necessary licences to operate; and if it would not be in the public interest to issue an indemnity having regard to the overall liability under the Bill.

Section 6 allows the Minister to impose conditions when issuing an indemnity. The Minister may declare an indemnity void if the conditions are not complied with. It is expected that the conditions will include a requirement to comply with whatever conditions were in the original insurance policy and to notify the Minister if an event arises that might give rise to a claim. This section has one additional feature over the 2001 Act. It specifically states in subsection (2) that the Minister may impose conditions for the purpose of reducing the risk of claims arising in connection to the indemnity.

Section 7 limits the State's liability to whatever limit previously existed under the original insurance cover which was in force before the state of difficulty order came into operation. Furthermore, when all indemnities are taken together, the State's liability will be limited to €9 billion, the same as in the 2001 Act. The Bill proposes that if the total claims from indemnified undertakings were to exceed €9 billion, the payments from the Exchequer would be a proportion of the claims made. In addition to the provisions of the 2001 Act, this section also provides for valuation of the indemnities for undertakings which were not in business before the state of difficulty order came into force but which would have normally required this insurance cover were it available in the market.

Section 8 limits the period of any one indemnity to 12 months, although it may be shorter than that if considered appropriate. Under the 2001 Act, the period of validity was limited to 31 days because the indemnities were seen as a temporary measure. However, as this withdrawal of insurance cover is likely to be permanent, issuing indemnities every 12 months will lessen the administrative burden on both the aviation sector and my Department.

Provision is also made to cover the retrospective period back to 16 June 2005, the likely date of publication of this Bill, in the event that charges need to be applied to cover the period of validity of any letters of comfort that might be issued by the Minister for the period prior to the enactment of the Bill.

Section 9 allows the Minister to impose charges, analogous to insurance premiums, for indemnities. The charge to be applied for indemnities under this Bill has not been set. Guidelines were put in place by the European Council regarding charges for indemnities following 2001 and it is likely that the European Commission will review those guidelines in light of the current situation. Commission officials have indicated that the issuing of indemnities by Governments will not be deemed to contravene the restrictions on State aids, and legislation to that effect is expected to be initiated by the Commission, possibly before the end of July.

Section 10 provides that the Minister may only issue indemnities to Irish licensed airlines, private and corporate aircraft and to airports and service providers whose services are essential to support civil air services. The provision in this section which enables indemnities to be issued to private and corporate aircraft is new. This cover is required because recent European legislation requires these types of operations to have war and terrorism risk cover. Previously, this was not statutorily required but many had such cover in any case.

Section 11 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 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.

An additional feature over the 2001 Act is to provide for cases where indemnities are issued for undertakings which were not in business before the state of difficulty order came into force but which would have normally required this insurance cover were it available in the market. Those undertakings would not have had previous insurance on which to base the Minister's defences. In those cases, the Minister's defences are based on those that would be held normally by that type of undertaking in its policy.

Section 12 requires applications for indemnities to be in the form required by the Minister and to provide relevant information to the Minister. Section 13 provides that the Insurance Acts do not apply, so that the Minister does not have actually to become an insurance company under the Insurance Acts in order to issue indemnities. Application of the Insurance Acts would have meant that various statutory requirements could arise which would not be relevant or appropriate for the circumstances with which this Bill is concerned.

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 as soon as possible unless they get specific permission from the Minister to fly to another airport. This is another key 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, if such re-insurance cover were to become available. Section 16 provides the power for the Minister to make payments in respect of claims under the indemnities. Some minor textual changes have been made to the 2001 Act to clarify how claims are to be presented to the Minister.

Section 17 provides for the Minister's expenses for the administration of this legislation to be met from the Exchequer. Section 18 provides for the payment to the Exchequer of moneys received under the Bill. Finally, section 19 provides for the Short Title of the Act. I commend the Bill to the House.

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