European airlines’ plans to set up a risk retention group to fund cover against war and terror-related risks have foundered. The British and German governments have refused to back the plan, forcing the airlines back into negotiations with insurers.

Insurers withdrew terrorism cover from policies after September 11, and most international airlines have been surviving on guarantees from their national governments.

The plan drawn up by the Association of European Airlines said that if all eligible airlines joined, the fund could be financed by a simple ticket surcharge of 50 cents per passenger.

But the AEA still wanted European Union governments to cover third-party terrorism liability claims above US$1.5 billion.

Meeting in Montreal, the International Civil Aviation Organisation failed to reach agreement on the plan after Britain and Germany rejected the proposal. The plan had the backing of Marsh, Aon and Willis.