Amended proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL On insurance requirements for air carriers and aircraft operators (presented by the Commission pursuant to Article 250 (2) of the EC Treaty)

EXPLANATORY MEMORANDUM

During its 13 May 2003 Plenary Session, the European Parliament approved subject to a number of amendments the Commission's proposal for a European Parliament and Council Regulation on insurance requirements for air carriers and aircraft operators. The European Economic and Social Committee and the Committee of the Regions supported the legislative initiative as well.

The European Parliament agrees with the main elements of the Commission's proposal. However, it has formulated a number of amendments, on the basis of which the Commission proposes to introduce some new elements to its original text.

The Commission appreciates the pragmatic and balanced approach followed by the European Parliament in the matter and recognises in particular the added value of the amendments proposing to strengthen certain elements of the Regulation and in that way the functioning of the proposed rules.

In the light of these considerations, the Commission is prepared to incorporate those suggestions and amendments aiming at improving and clarifying the current text of its proposal.

In particular:

A large part (13) of the proposed amendments are acceptable as adopted by the European Parliament. These amendments are the following: 1, 2, 3, 5, 6, 7, 8, 10, 11, 16, 17, 19 and 20. These amendments are accepted as they stand, since they would provide a useful addition to the text, clarify the text or constitute editorial improvements.

These amendments concern the following elements of the proposal:

Recital 10

This recital is amended in the same way as article 5 paragraph 3 is amended to state clearly that depositing evidence of insurance with one national authority shall suffice for all Member States. This will further reinforce the absence of any discriminatory treatment against air carriers and aircraft operators across the Community. EP amendments concerned: 1 and 10.

Article 1 - Objective

The article has been amended so as to render the text clearer with regard to passengers. The amendment of this article is closely linked to the new definition of passenger, which is provided in article 3 (l). EP amendment concerned: 2.

Article 2 - Scope

The article concerning the scope of the proposed Regulation has been amended in various ways: the wording of the article has been streamlined so as to reflect the objective of the proposed Regulation as stated in Article 1; the scope of the proposed regulation has been broadened, so as to apply also to local flights; at the same time state aircraft have been excluded from the scope of application. These changes constitute partly textual clarifications and to the extent they concern the scope, they do not unduly affect the scope of proposed rules. EP amendments concerned: 3, 5 and 6.

Article 3 (k) - Definitions

The definition concerning the basis for classifying aircraft to categories (Maximum Take-Off Weight - MTOW or Maximum Take-Off Mass - MTOM as it is also called in the industry) has been textually clarified without changing the meaning of the provision. EP amendment concerned: 7.

Article 4 - Principles of Insurance

The text of the provision has been clarified without changing the meaning of the provision. EP amendment concerned: 8.

Article 5 3 - Compliance

The text is modified so as to state clearly that when air carriers and aircraft operators deposit evidence of insurance with the competent authority of one Member State that shall suffice for all Member States. This will introduce clarity and will further foster the functioning of the internal market. EP amendment concerned: 10.

Also, in the same context, with regard to overflight, Member States have instead of the option the obligation to require that air carriers and aircraft operators produce evidence of insurance, which has been effected in accordance with the Regulation. This will ensure consistency of the measures regarding compliance. EP amendment concerned: 11.

Article 7 3 Third Party Liability

The change introduced in this part of the proposal is considerable; with the new text it is clearly stated that in as much as third party cover for risks of war and terrorism is concerned, the insurance amounts will be applicable in the aggregate. This change echoes reactions from both the aviation industry and the insurers, which are still unable to provide insurance cover for such risks according to contractual practice prevailing before the events of 11 September 2001. Nevertheless, the change is integrated in such a way into the text of the proposal that allows air carriers to observe the minimum insurance requirements for both general risks as well as specifically for risks of war and terrorism. EP amendment concerned: 16.

Article 8 1, 3 and 4 Sanctions/Enforcement

The text of the proposal has been changed in an effort to render the sanctions more effective, by allowing Member States to proceed to additional inspections to verify the existence of appropriate insurance. EP amendment concerned: 17.

In the same context, where air carriers and aircraft operators from third countries do not observe the insurance requirements of the Regulation, Member States have the obligation to refuse them access to the Community. At the same time, it should be borne in mind, that when EU air carriers are not adequately insured Member States cannot maintain their operating licence as foreseen in article 3 of Council Regulation (EEC), N° 2407/92 on air carrier licensing. EP amendment concerned: 19.

Finally, the proposed sanctions are further strengthened, as Member States have the obligation not to allow the aircraft which has been found without appropriate insurance to take-off from airport before it has produced evidence of valid insurance. This measure should ensure that no air carrier or aircraft operator subject to the Regulation is allowed to start uninsured a flight from a Community airport. EP amendment concerned: 20.

One amendment (21) is acceptable only in principle: it concerns the definition of "passenger". Accordingly a new definition under Article 3 (l) has been introduced.

Some amendments (4) are acceptable only in part and with redrafting: these are: amendments 4, 14, 23 and 31:

Amendment 4 (concerning Article 2 - scope of the Regulation with regard to aircraft operators) can be accepted only in part because the second part thereof is confusing, as aircraft operators are never required to hold an operating licence.

Amendment 14 (concerning Article 7 2 - regarding the categories and amounts of insurance to cover third party liability), can be accepted only in part. The addition of 3 categories of small aircraft below 25 tons and the relevant insurance amounts are acceptable as they clarify the situation of such aircraft. The remaining categories and insurance amounts however, are not acceptable, because they are based on a resolution by the European Civil Aviation Conference (ECAC) of December 2000, which does not reflect any more the reality of the market after the events of 11/9/2001 as they are too low.

Amendment 23 (concerning the definition of a flight) can be accepted only in part because even though it follows largely the Montreal Convention it is unnecessary detailed and needs therefore to be shortened.

Amendment 31 (concerning Article 8 - Sanctions/Enforcement) is acceptable only as far as third country carriers are concerned, but not Community ones. As explained earlier, where insurance requirements are not observed the air carriers bear sanctions in application of existing rules, that is Regulation 2407/92 on air carrier licensing.

The Commission has to reject a number (6) of proposed changes to the Regulation, which affect the core issues of its proposal. These amendments are: 9, 12, 13, 15, 18 and 25.

Amendment 9 concerning state guarantees (Article 5 2 of the proposal) would not be in line with the Commission's state aid philosophy and would distort competition. Therefore, it cannot be accepted by the Commission.

Amendment 12 concerning the validity of insurance (article 5 5 of the proposal) is legally not practicable as insurance may be withdrawn during a flight as after the 11/09/2001 and compliance would be impossible to ensure. Therefore, it cannot be accepted by the Commission.

Amendments 13 and 15 concerning the definition of short-term leases (article 6 2 and article 7 4 of the proposal) fall under the scope of other rules (article 8 of Council Regulation (EEC) N° 2407/92). Also, as far as the responsibility to meet minimum insurance requirement in case of short-term lease is concerned, amendment 15 is legally confusing as the entity that purchases insurance does not always have to be the holder of an Aircraft Operator's Certificate (AOC). Therefore, these amendments cannot be accepted by the Commission.

Amendment 18 containing a detailed description of doubts about effective insurance (article 8 2 of the proposal); is over-prescriptive and cannot be accepted by the Commission.

Amendment 25 which broadens the definition of insurer (article 5 2 of the proposal) cannot be accepted as it would introduce undue discrimination against insurers from third countries and contravene international obligations of the Community in financial services (GATS). Therefore, it cannot be accepted by the Commission.

In the light of all the above and in compliance with Article 250, paragraph 2, the Commission modifies its proposal.

2002/0234 (COD)

Amended proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL On insurance requirements for air carriers and aircraft operators

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 80 (2) thereof,

Having regard to the proposal from the Commission [1],

[1] OJ C , , p. .

Having regard to the opinion of the Economic and Social Committee [2],

[2] OJ C , , p. .

Having regard to the opinion of the Committee of the Regions [3],

[3] OJ C , , p. .

Acting in accordance with the procedure laid down in Article 251 of the Treaty [4],

[4] OJ C , , p. .

Whereas:

(1) In the framework of the common transport policy, it is important to ensure a proper minimum level of insurance to cover liability of air carriers concerned by accidents in particular in respect of passengers, baggage, cargo, mail and third parties;

(2) In the Community aviation market, the distinction between national and international air transport has been eliminated and it is, therefore, appropriate to have the same minimum level and nature of insurance requirements for Community air carriers;

(3) Common action is necessary to ensure that minimum levels of insurance also apply to air carriers from third countries so that to ensure a level playing field with Community air carriers and foster consumer protection;

(4) The Commission has stated in its Communication of 10 October 2001 regarding the repercussions of the terrorist attacks in the United States on the air transport industry, its intention to examine the amounts and conditions of insurance required for the issue of operating licences in order to ensure a harmonised approach; also, the Commission stated in its Communication of 2 July 2002 regarding insurance in the Air Transport sector following the terrorist attacks of 11 September 2001 in the United States, that it would continue monitoring the developments on the aviation insurance market with regard to the revision of the amounts and conditions of insurance required for the issuance of operating licences;

(5) The Community has concluded the Montreal Convention for the Unification of Certain Rules Relating to International Carriage by Air agreed on 28 May 1999 [5] setting new global rules on liability in the event of accidents for international air transport of persons, baggage and cargo replacing those in the Warsaw Convention of 1929 and its subsequent amendments;

[5] OJ L 194, 18.07.2001, p. 38

(6) Article 50 of the Montreal Convention requires parties to ensure that air carriers are adequately insured to cover liability under that Convention;whereas the Warsaw Convention of 1929 and its subsequent amendments will continue to exist alongside the Montreal convention for an indefinite period; whereas both Conventions foresee the possibility of unlimited liability;

(7) Article 7 of Council Regulation (EEC) 2407/92 of 23 July 1992 on licensing of air carriers, requires air carriers to be insured to cover liability in case of accidents, in particular in respect of passengers, baggage, cargo, mail and third parties, albeit without specifying minimum amounts and conditions of insurance;

(8) It is appropriate to take into account that the European Civil Aviation Conference has adopted on 13 December 2000 a Resolution (ECAC/25-1) on minimum levels of insurance cover for passenger and third party liability;

(9) It is necessary to define non-discriminatory minimum insurance requirements to cover passenger, baggage, cargo, mail and third parties for both Community air carriers and other air carriers flying to and from an airport situated in the Community as well as flying over the territory of a Member State;

(10) It is necessary to require air carriers to provide evidence on request that they respect at all times the minimum insurance requirements to cover liability as provided for in the present Regulation; depositing evidence of insurance in one Member State is sufficient for all Member States;

(11) The minimum insurance requirements should be reviewed after a period of time;

(12) Procedures for monitoring the application of the minimum insurance requirements should be transparent and non-discriminatory and should not impede in any way the free movement of goods, persons, services and capital;

(13) Since any measures necessary for the implementation of this Regulation with regard to the adjustment of the minimum insurance requirements are of a general scope and they concern the adaptation of certain non-essential provisions of the Regulation within the meaning of Article 2 of Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred to the Commission [6], they should be adopted by use of the regulatory procedure provided for in Article 5 of that Decision;

[6] OJ L 184, 17.7.1999, p. 23

(14) The Regulation is in accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the Treaty. The introduction of minimum insurance requirements can contribute to the objectives of the internal aviation market by eliminating distortions of competition. The objectives can, therefore, be more effectively achieved by the Community by means of harmonised rules. The Regulation confines itself to the minimum required in order to achieve these objectives and does not go beyond what is necessary for that purpose.

HAVE ADOPTED THIS REGULATION:

Article 1

Objective

The objective of this Regulation is to define minimum insurance requirements in respect of insurance regarding passengers, others on board, baggage, mail, cargo and third parties, that air carriers and aircraft operators have to respect to be allowed to operate services within, into or out of the Community or to fly over the territory of Member States to which the Treaty applies.

Article 2

Scope

This Regulation shall apply

a) to all air carriers flying to or from an airport situated in the Community and/or flying over the territory of a Member State operating a scheduled or non-scheduled flight;

b) to all aircraft operators flying to or from an airport situated in the Community or flying over the territory of a Member State carrying passengers and their baggage, mail and/or cargo with or without remuneration or hire;

c) This Regulation shall not apply to carriage by air of passengers, mail and/or cargo, performed by non-power driven aircraft and/or ultra-light power driven aircraft . In respect of these operations, national law concerning insurance requirements in the event of accidents shall apply.

Article 3

Definitions

For the purposes of this Regulation:

(a) "air carrier" shall mean an air transport undertaking with a valid operating licence;

(b) "Community air carrier" shall mean an air carrier with a valid operating licence granted by a Member State in accordance with the provisions of Council Regulation (EEC) 2407/92 of 23 July 1992 of licensing of air carriers;

(c) "aircraft operator" shall mean a natural person residing in a Member State or a legal person established in a Member State using one or more aircraft in accordance with the regulations applicable in that Member State, as provided for in Council Regulation (EEC) No 3922/91 [7], or a natural person residing outside the Community or a legal person established outside the Community using one or more aircraft in accordance with the regulations of the country of residence or establishment;

[7] Council Regulation (EEC) No 3922/91 of 16 December 1991 on the harmonisation of technical requirements and administrative procedures in the field of civil aviation, OJ L 373 , 31/12/199, p.4 - 8

(d) "insurer" shall mean an undertaking, which has received official authorisation in accordance with Article 6 of Council Directive 73/239/EEC [8], or a non-member-country undertaking, which would require authorisation in accordance with Article 6 of Directive 73/239/EEC or Article 6 of Directive 79/267/EEC if it had its registered office in the Community;

[8] OJ L 228, 16.08.1973,p. 3

(e) "insurance"'shall mean the policy contract setting the conditions whereby the insurer agrees to indemnify the insured for all insured loss up to the limit of liability for all insured perils, in respect of incidents which occur during the policy period; insurance shall also mean the policy contract where the insured perils are acts of war, terrorism, hijacking, act of sabotage, unlawful seizure of aircraft, civil commotion or labour disturbances;

(f) "insurer's principal place of business" shall mean the location of the insurer's headquarters or, alternatively, the place from which the majority of the undertaking's operations are managed on a day to day basis;

(g) "incident" shall mean the occurrence or series of occurrences having the same origin, in which an aircraft causes damage to passengers, baggage, cargo, mail and/or third parties on the surface and/or in the air. Where an incident consists of a series of occurrences, it shall be treated as having occurred on the date of the first such occurrence. Incidents shall be understood to cause accidentally damage to passengers, baggage, cargo, mail and/or third parties on the surface and/or in the air, or because of acts of war, terrorism, hijacking, act of sabotage, unlawful seizure of aircraft, civil commotion or labour disturbances;

(h) "flight" shall mean the beginning of the operations of departure including the boarding or loading onto the aircraft of the passenger and/or baggage until the end of the operations of arrival including the disembarkation or unloading of baggage from the aircraft and where the aircraft has come to a complete stop;

(i) "air service" shall mean a flight or a series of flights carrying passengers, cargo, and/or mail irrespective of remuneration and/or hire;

(j) "scheduling period" shall mean either the summer or the winter season as used in the schedules of air carriers;

(k) "SDR" shall mean a Special Drawing Right as defined by the International Monetary Fund in 1969, as an international reserve asset, to supplement members' existing reserve assets (official holdings of gold, foreign exchange, and reserve positions in the International Monetary Fund) [9];

[9] SDRs are determined daily by the International Monetary Fund. The SDR rate on 5 September 2002 was set at: SDR/Euro 0.747385 -- Euro/SDR 1.338000

(l) "MTOW" shall mean the Maximum Take Off Weight, which corresponds to a certified amount specific to each aircraft type as stated in the certificate of airworthiness of the aircraft;

(m) "passenger" shall mean any person, excluding on-duty members of the flight and cabin crew, who makes a journey by air.

Article 4

Principles of insurance

1. Community air carriers and aircraft operators operating aircraft registered in the Community, as well as other air carriers and aircraft operators operating air services into the Community and/or flying over Community territory, shall be insured in respect to their liability for damage sustained on the territory of a Member State and for which a right to compensation exists.

Article 5

Compliance

1. The insurance shall be effected by an insurer authorised to effect such insurance under Community law or the laws of:

- the country which has delivered an operating licence to the air carrier concerned, or

- the country where the aircraft is registered, or

- the country where the insurer has its residence or principal place of business.

This paragraph shall not affect the rights of Member States to define the prudential conditions under which an insurer non-authorised according to Article 6 of Council Directive 73/239/EEC may conduct business in its territory.

2. Air carriers and aircraft operators registered in a third country, shall provide alternatively to the insurance requirements referred to in paragraph 1, any of the following securities:

A cash deposit in a depository maintained in the country having granted a valid operating licence to the air carrier concerned, or having delivered the air operator's certificate to the aircraft operator concerned;

A guarantee issued by a bank authorised to do so by the country of registration of the aircraft and whose financial responsibility has been verified by that country;

A guarantee issued by a bank authorised to do so by the country of registration of the aircraft, if that country undertakes that it will not claim immunity from suit in respect of that guarantee.

3. Air carriers and aircraft operators shall deposit an insurance certificate issued in accordance with paragraph 1 or any of the securities provided for in paragraph 2 with the competent authorities of Member State(s) concerned before the beginning of each scheduling period. Depositing evidence of insurance in one Member State shall suffice for all Member States.

For the purpose of application of the present paragraph, Member State concerned shall mean the Member State(s) which has issued an operating licence to an air carrier or the Member State where an aircraft has been registered and the Member State responsible for the airport to and from an air service is operated.

Member States overflown shall also require that air carriers and aircraft operators produce evidence that insurance has been effected in accordance with the present regulation.

4. Where an air service consists of series of flights, all air carriers or aircraft operators concerned shall meet the requirements stipulated in the present Regulation.

5. Where the insurance or the guarantee or the security expires during a flight, air carriers shall ensure that it shall continue to be in force until the next safe landing of the aircraft specified in the flight plan.

Article 6

Passenger, baggage, mail and cargo liability

1. Where passengers are carried by air, all air carriers shall be insured to cover their liability for death, wounding or any other bodily injury sustained by a passenger for the minimum amount of 250 000 SDRs per passenger. Such insurance shall be understood to also cover damage sustained in the case of destruction or loss of, or damage to checked baggage of a passenger, upon condition only that the event causing the damage took place in the period during which the checked baggage was in the charge of the carrier, or its servants or agents.

This provision shall apply mutatis mutandis to aircraft operators.

2. In case of aircraft operated under short term lease agreements with or without crew minimum insurance requirements have to be met by the air carrier actually performing the flight.

3. Where cargo is carried by air, air carriers and aircraft operators shall be insured to cover their liability for damage sustained in the event of the destruction or loss of, or damage to cargo carried for the minimum amount of 17 SDRs per kilogram upon condition that the event, which caused the damage so sustained, took place during the flight.

4. Where mail is carried by air Member States shall set the minimum insurance requirements in value for the carriage of mail by air carriers and/or aircraft operators without discrimination on grounds of nationality or identity of the air carrier or the aircraft operator.

5. The values referred to in this Article may be amended as appropriate including where changes in international law indicate the necessity of such decision, in accordance with the procedure laid down in Article 9 (2).

Article 7

Third Party Liability

1. Insurance to cover liability vis-à-vis third parties shall be understood to cover any damage caused by an aircraft in flight or on the ground or by any person or thing falling therefrom to third parties, for each aircraft and incident, only if the damage is a direct consequence of the incident giving rise thereto, and

a) for which the air carrier or aircraft operator concerned is held liable according to national laws of the Member State where the incident has occurred, or

b) was due to an act of war, or hijacking, or sabotage, or terrorism, or civil commotion or social disturbance intended to affect the operation of the aircraft and was due to the negligence or other wrongful act or omission of the air carrier or its servants or agents or the aircraft operator.

This provision shall apply mutatis mutandis to aircraft operators, where the aircraft is registered in a third country.

2. All air carriers shall be insured for damages sustained by third parties in the event of accidents as well as acts of war and acts of terrorism. The minimum insurance requirements shall be understood to cover the following categories of aircraft:

Category 1: aircraft with a MTOW < 2 000 kg 1,5 million SDRs

Category 2: aircraft with a MTOW < 6 000 kg4,5 million SDRs

Category 3: aircraft with a MTOW < 14 000 kg 9million SDRs

Category 4: aircraft with a MTOW < 25 000 kg 80 million SDRs

Category 5: aircraft with a MTOW < 50 000 kg 270 million SDRs

Category 6: aircraft with a MTOW < 200 000 kg 400 million SDRs

Category 7: aircraft with a MTOW > 200 000 kg 600 million SDRs

This provision shall apply mutatis mutandis to aircraft operators, where the aircraft is registered in the Community.

3. Air carriers operating flights to and from any airport situated on the territory of a Member State or flying over the territory of a Member State shall produce evidence that they observe at all times the minimum insurance requirements referred to in paragraph 2.

This provision shall apply mutatis mutandis to all aircraft operators.

The values referred to in paragraph (2) as applied to paragraph (1) (b), shall be limited in the aggregate to amounts available in the commercial insurance market from time to time.

4. In case of aircraft operated under short term lease agreement with or without crew, minimum insurance requirements have to be met by the air carrier bearing the operating risk of the flight.

5. The values referred to in this Article may be amended as appropriate including where changes in international law indicate the necessity of such decision, in accordance with the procedure laid down in Article 9 (2).

Article 8

Enforcement

1. Member States shall perform regular and, where appropriate, additional unannounced inspections to verify that air carriers using airports in their territory, or Community air carriers to which they have delivered an operating licence, or aircraft operators to which they have issued an aircraft operator's certificate according to Council Regulation (EEC) N° 2407/92 comply with the provisions of the present Regulation.

This provision shall apply mutatis mutandis to aircraft operators whichever the place of registration of the aircraft.

2. Where appropriate Member States concerned may request additional evidence from the air carrier, the aircraft operator or the insurer concerned.

3. Where Member States concerned are not satisfied that the conditions of the present Regulation are met, they shall refuse the air carrier or aircraft operator from a third country access to routes into or within the Community or the right to overfly their territory.

4. Where Member States concerned are not satisfied that the conditions of the present Regulation are met before or after an aircraft has landed at an airport in their territory, they shall not allow the aircraft to take-off, before the air carrier or aircraft operator concerned has produced a valid insurance certificate according to the present Regulation.

Article 9

Committee

1. The Commission shall be assisted by the committee instituted by Article 11 of Regulation (EEC) N° 2408/92.

2. Where reference is made to decisions taken pursuant to paragraph 1, the regulatory procedure laid down in Article 5 of Decision 1999/468/EC shall apply, in compliance with Article 7 and Article 8 thereof.

3. The period provided for in Article 5(6) of Decision 1999/468/EC shall be three months.

4. The committee referred to in this Article may furthermore be consulted by the Commission on any other matter concerning the application of this Regulation.

Article 10

Report and cooperation

1. The Commission shall submit a report to the European Parliament and the Council on the operation of this Regulation at least three years after its entry into force. The report shall address in particular the functioning of articles 5, 6, 7 and 8.

2. Member States shall upon request submit information on the application of this Regulation to the Commission.

Article 11

Entry into force

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Communities.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the European Parliament For the Council

The President The President