If Chinese passenger planes are caught in acts of war or terrorism during the period, the government will provide billions of US dollars in extra financial support in compensation for injured third-parties whose claims may exceed the 50 million covered by private insurers, an official with the General Administration of Civil Aviation of China (CAAC) told China Daily Tuesday in a telephone interview.

The damage and suffering brought to airlines and passengers, the first and second parties, will be covered by related insurance companies.

Li Hongyu with the Financial Department of CAAC said that the administration adopted the measure in accordance with a policy change of the international insurers.

International insurance companies cut the maximum of the war-coverage insurance to US$50 million from the former US$1.25 billion at 7:59 Beijing Time Tuesday, fearing possible US attacks against terrorists in Afghanistan may lead to more plane accidents.

The terrorist plane crashes in New York and Washington on September 11 left many aviation insurance companies on the verge of collapse.

Li said that only with government insurance could Chinese airlines continue their operation along international air routes after the move.

"No domestic airlines or insurers have the ability to afford such compensation if an accident happens,'' Li said.

Less than 10 airlines now have permission to operate international flights, including Air China, China Eastern Airlines and China Southern Airlines. Nearly all of them buy war-coverage insurance from foreign insurers.

Li refused to explain why the Chinese government will only provide a one-month guarantee for the airlines, while insiders with the administration suggested CAAC may take the month to map out concrete reinsurance plans for the future.

The insurance shake-up did not affect the life insurance market of the aviation industry. Life insurance premiums to US cities by air still remain the same.

Li Bing, an official with Ping An Insurance Company of China, which provides insurance service for Hainan Airlines, said the life insurance premium will not see a sharp increase in the near future.

He said the change of international insurance policies will ring the alarm bell for domestic airlines.

"As along as there are no such accidents happening, airlines will not suffer more losses,'' Li said.

Sources with Air China and China Southern Airlines confirmed Tuesday that they have stopped international flights to Middle-East regions with the threat of possible US attacks on terrorists in Afghanistan.

The Hong Kong Special Administrative Region government will also provide guarantees for Hong Kong-based airlines following the change of insurance policies.

The Legislative Council and its Finance Committee on Monday approved the government's proposal to provide third-party indemnities out of war, or terrorism or other perils, Financial Secretary Antony Leung told the media.

The council agreed to one month's backing, to be extended if necessary, pending new contracts with insurers.

The bailout will help two Hong Kong-based passenger carriers, Cathay Pacific Airways and Hong Kong Dragonair, and one cargo carrier, AHK Air Hong Kong to continue flying.

(China Daily 09/26/2001)