The government plans to offer up to RM7.41 billion to insure Malaysia Airlines flights against war and terrorism following a cap on war risk protection by global aviation insurers, said Transport Minister Dr Ling Liong Sik today.

"The third-party war risk liability announced by the insurance companies lately is insufficient for any airline to fly. If you don't have proper coverage, a lot of airports will not let you land," said the minister.

Ling was referring to a notice by the insurance industry last week to all airlines that its liability for any single accident related to terrorism will be limited to US$50 million (RM190 million) effective Sept 24.

He was speaking at the press conference after officiating the Fourth Asian Pacific Society of Periodontology Meeting in Selangor.

The decision by the insurance industry came in wake of the unprecedented terrorist attacks on Sept 11, in which hijacked passenger planes were used to smash into New York's World Trade Center and Washington's Pentagon.

Before this, the airline liability ranged from US$400 million (RM1.52 billion) per loss for a small regional operator to over US$1 billion (RM3.8 billion) for major international airlines.

According to the minister, previously the third-party war insurance for MAS flights was RM7.6 billion but this has shrunk to RM190 million - a 98 percent drop - following the latest ruling by the insurance industry.

The insurers of American Airlines and United Airlines are already facing claims of more than RM150 billion over the World Trade Center attacks.

Governments around the world are reportedly stepping in to bridge the insurance gap for their airlines.

Not a bailout

Ling however stressed that the government is not injecting capital into MAS which recorded a loss of RM1.3 billion last year.

"It is just a (supplementary) insurance coverage by the government and we are not forking out money to bail out the company," he said.

"The RM7.41 billion will only be paid by the government as the last resort," he added.

The minister said the government is also "actively" studying the possibility of implementing 'war surcharge' similar to that of Singapore Airlines, or SIA.

However, he added the rural air services will be exempted from such additional fees and the cost will likely be borne by the government.

He did not rule out the possibility that the government may raise airfare to enable MAS weather tough times.

Lay-offs

SIA recently announced that it will charge its passengers a US$1.25 (RM4.75) 'war surcharge' to offset the reduce liability imposed by insurers. The internationally acclaimed air service provider reportedly said there has yet to be any layoff plans.

Last Friday, Singapore's Business Times reported that several regional airlines including MAS and Thai Airlines are beset with growing losses due to falling passenger and cargo traffic.

Even US Airlines have warned that it will be laying off at least 46,000 people, and the number is expected to increase to 100,000.

On Sunday, Ling was quoted by The Star daily as saying MAS may have to retrench its workers to help its business turn around.

MAS was bailed out by the government late last year in a RM1.79 billion deal where RM8.00 was paid for one share - twice higher than the market price of RM3.60 then.

No bar on Malaysian seamen

Meanwhile, Ling said he was happy to know that the US government had denied prohibiting Malaysian seamen from disembarking at ports in their country.

"There was no basis to the claim in the first place. I am glad that the US had made it clear that they did not bar Malaysian seamen from stopping there," he said.

It was earlier reported in local newspapers that Malaysia was among the 24 Muslim countries barred from disembarking at ports in the US.

However, this was denied by a US coast guard in a Berita Harian report today, who said there has only been a directive to tighten security checks on ships.