Fuel Prices Not To Blame This Time

The War Risk Insurance Program, a little known government-sponsored project that helped American air carriers resume their schedules after 9/11, is about to lapse. If it does, you will be paying more for your ticket and not because of the rising price of jet fuel.

Just weeks after airlines lost millions of dollars because of cancelled schedules and fearful flyers, the FAA authorized a system where the airlines could purchase insurance from the government at a fraction of what commercial carriers would be forced to charge, if they even agreed to provide coverage at all.

Considering the enormous cost that insurance actuaries calculated the premium would be in the immediate aftermath of the tragic loss of life and historic economic loss, the government program was the only realistic way for planes to start flying their routes again.

While war-insurance is not strictly required, going without is simply not an option because banks and financiers would repossess their multi-million dollar aircraft at the speed of sound. 

The program was scheduled to expire on August 31, but Maria Cino, acting U.S. Secretary of Transportation authorized an extension til the end of 2006. She has the discretion to extend it one more year, but beyond that, the program requires congressional approval.

Still, long-term government insurance may not continue beyond this year because the European Union considers it an unfair government subsidy and many private insurance carriers and free-market advocates regard it now as a form of corporate welfare.

Currently, the airlines pay a combined premium of around $140 million against what most experts believe would be a commercial rate of $600 to $700 million.

"It's very definite that if the airlines are forced to pay higher premiums, the cost is going to be reflected in higher fares to passengers," said Shalem Massey, an aviation industry attorney based in California, to Newsday Magazine.

Industry experts estimate that the average round-trip ticket price could increase up to $40. Others say the sky could be the limit.

FMI: War Risk Insurance Program