Ivor Callely (Dublin North Central, Fianna Fail)

I thank the House for agreeing to deal with this important emergency legislation at such short notice. The House will recall, 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 then necessary for governments to provide cover so civil aviation could continue to operate.

In Ireland we enacted the Air Navigation and Transport (Indemnities) Act at short notice in December 2001. Due to the enormous liability being undertaken by the Exchequer under that Act, it was designed to expire after 12 months unless motions were passed by both Houses of the Oireachtas keeping it in place. Thankfully, commercial insurance became available by the second half of 2002 and it was possible to allow the Act to lapse.

Unfortunately, however, the problem has not gone away. During 2004 it became clear that insurers were very unhappy with the prospect of calamitous claims in the event of a terrorist attack involving the detonation of what is referred to as a "dirty bomb". This is a bomb that has been deliberately contaminated with chemical, biological or radioactive material so as to cause widespread damage to people and property.

The problem for insurers is that an event involving one aircraft or airport would almost certainly give rise to claims under several, 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 this risk cannot be covered by insurance and must be dealt with at Government level, in the same way as natural catastrophes.

This matter was discussed on a number of 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. Consequently, no action was taken while it was not clear that insurance cover would actually be withdrawn.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of the strategy in 2001 had been to encourage the commercial insurers to go back to providing the cover that had been withdrawn.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" risks for aircraft hull insurance as renewals fall due. This has already affected the Spanish airline Iberia and the Department has been advised that it will also apply to the Irish cargo airline, Air Contractors, when its policy falls due on 1 July. As a result of this information, the Department immediately set about drafting new legislation to enable the Government to provide indemnities. This Bill 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" risks in the future. Therefore, it is not appropriate for the new Act to have a provision for it to lapse automatically. It is possible that the aviation industry in Europe will establish a mutual insurance fund that will, eventually, eliminate the need for Government support. However, that will take a number of years and may need some further legislation when the exact form of the scheme becomes clear. Also, in view of the fact that this will be a permanent change, the new Bill will allow Government orders and ministerial indemnities to be issued for 12 months at a time. This should significantly reduce the administrative burden for the aviation companies as well as for the Department.

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. This regulation will come into effect on 30 April 2005. In 2001, it was only licensed airlines that 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 this way, it would be tantamount to a legislative decision to ban all private and corporate aviation. As a consequence of this change, the Bill extends the scope of airports to include all that are 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.

The new Bill also deals with a problem that emerged under the 2001 Act. Under that Act indemnities could only be issued 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. As a precaution, and in view 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.

In order to increase the protection for the State, the new Bill contains examples of reasons why the Minister may refuse to grant an indemnity or may issue a restricted indemnity. 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, the applicant has all the necessary operating licences, the risk is excessive or it would not be in the public interest to provide indemnities for a particular class of activity, aircraft or applicant.

In order to avoid any future problems about collecting moneys, 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, approximately €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.

Section 1 deals with interpretation. Three categories of aviation undertakings who will be able to obtain indemnities are identified, including airlines and operators of private and corporate aircraft airports, aerodromes which are licensed as public service aerodromes by the Irish Aviation Authority and other companies that provide essential aviation services, including baggage handling, maintenance, refuelling and security.

Section 2 deals with making a state of difficulty order. It and section 3 are the fundamental sections. 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 continue operation. The maximum period for such an order is 12 months and further orders can be made. It is anticipated that this change in insurance cover worldwide is permanent and this will mean 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 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. However, where a new aviation undertaking starts business after the commencement of the state of difficulty order, which normally would have required this cover, an indemnity can be issued for it also.

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 or 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 the order of the Bill 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 the following: 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; or 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 and he 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 with the indemnity.

Section 7 limits the State's liability to whatever limit previously existed under the original insurance cover before the state of difficulty order came into force. 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. This section complements the provisions of the 2001 Act by providing for the issuing of indemnities for undertakings which were not in business before the state of difficulty order came into force, but which would normally have required this insurance cover if it were available in the market. This lacuna in the 2001 Act became evident when a new airline was established during the period of a state of difficulty order. There was no legal basis for issuing the new airline with an indemnity. As the insurance market was recovering at that time, fortunately, the airline was able to acquire sufficient insurance. As this withdrawal of insurance cover is expected to be permanent, that solution may not be available to newcomers to the market from now on.

Section 8 limits the period of a single indemnity to 12 months, as I have mentioned. An indemnity may be shorter than 12 months if that is considered appropriate. The period of validation was limited to 31 days in the 2001 Act because the indemnities were seen as a temporary measure. I have said on many occasions that this withdrawal of insurance cover is likely to be permanent. Therefore, the administrative burden faced by the aviation sector and the Department of Transport will decrease because indemnities can be issued every 12 months. It has been deemed appropriate to proceed in this fashion. The Bill will extend the retrospective period back to today's date, 16 June 2005, if charges need to be applied to cover the period of validation of any letters of comfort issued by the Minister for the period prior to the enactment of the Bill.

Section 9 allows the Minister to impose charges for indemnities. The charges to be applied for indemnities under the Bill have not been set. Guidelines for charges for indemnities were put in place by the European Council after the passing of the 2001 Act. It is likely that the European Commission will review the 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 aid. 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 issue indemnities to Irish licensed airlines, to private and corporate aircraft and to airports and service providers which offer services which are essential to support civil air services. A new provision in this section enables indemnities to be issued to private and corporate aircraft. As recent EU legislation requires such operations to have war and terrorism risk cover, they cannot fly without such cover. They were not previously statutorily required to have such cover, although many of them did have it.

Section 11 gives the Minister the defences against claims which would have been available to insurance companies if the insurance cover system had remained in place. Section 11(2) ensures that the issue of an indemnity by the Minister does not give additional rights to a person, compared to the rights they would have had if the insurance cover system had continued in force. As I mentioned earlier, this Bill, unlike the 2001 Act, caters for cases in which indemnities are issued for undertakings which were not in business before the state of difficulty order came into operation, but which would normally have required such insurance cover if it were available in the market. Such undertakings would not have had previous insurance on which to base the Minister's defences. In such cases, the Minister's defences are based on the forms of insurance which are normally held by such undertakings in their policies.

Section 12 requires applications for indemnities to be in the form required by the Minister. It also requires undertakings to provide relevant information to the Minister. Section 13 provides that the insurance Acts do not apply. The application of the Acts would mean that various statutory requirements could arise, which would not be relevant or appropriate for the matters with which this Bill is concerned.

Section 14 allows the Minister to terminate or suspend indemnities at any time. An indemnity in respect of an aircraft in flight will not be terminated until the aircraft lands safely. If indemnities are terminated, airlines must get their aircraft to land at the nearest airport as soon as possible, unless they are given specific permission from the Minister to fly to another airport. That is another key element in limiting the exposure of the Exchequer.

Section 15 allows the Minister to reinsure all or part of the liabilities associated with the indemnities, if such reinsurance cover becomes available. Section 16 gives the Minister the power 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. Section 19 provides for the Short Title of the Act. I am happy to commend the Bill to the House.