A federal program providing terrorism insurance coverage to domestic airlines has been extended for the first eight months of 2007.

The Aviation War Risk Insurance Program is designed to protect domestic flights from uninsurable exposures. Terrorism risk was added to its jurisdiction in the wake of the Sept. 11, 2001 terrorist attacks, and the program has been periodically renewed since then.

For U.S.-flagged carriers, the program provides war risk hull loss and passenger, crew and third-party liability insurance.

Henry Price, a representative for the Federal Aviation Administration, confirmed that the program has been extended through Aug. 31, 2007.

The extension came in the wake of the continuing resolution for appropriations that was passed by Congress and approved by President George W. Bush last month, and according to the FAA also in anticipation of the expected passage of appropriation legislation by the new Congress or another continuing resolution.

The Bush administration–similar to its view on the federal reinsurance backstop provided to all commercial insureds under the Terrorism Risk Insurance Act–has stated its desire to see terrorism risk solutions handled by the private market.

However, Wayne Wignes, president of the Aviation Group at Aon, said the expectation that a private-market solution will appear may be unrealistic.

With respect to U.S.-flagged operators, the airlines are currently obtaining their coverage through the war risk program. There are, he noted, insurers willing to write the coverage, but only at very high rates. “The insurers see this as an area for profit taking,” he said.

While, as elsewhere, rates for terrorism coverage are improving somewhat, he noted that affordability is not the issue. “No matter what the price, the market disappears for a significant loss event,” he said, adding that insurers simply lack the capacity to cover terrorism exposures for airlines, and that expecting the private sector to establish its own mechanism is a “flawed solution.”

As a result, Mr. Wignes said that airlines are “lobbying anyone who will listen” to ensure that the war risk program is continued.

Mr. Wignes said the similarities facing the airlines and other businesses from terrorism risk have not gone unnoticed, but the differences between the two politically make for very different situations.

Despite what he called a “yeoman's effort” by the FAA, Mr. Wignes explained that the war risk program's problem–the fact it expires so quickly–”has been solved in very small bites,” through a series of short-term extensions.

Although the shorter extensions have made for more paperwork, Mr. Wignes said it is preferable to the alternative, which would be no program at all. “It's annoying to do it in small bites, but it is the politically practical thing to do,” he added.

There are, however, limits on how long the program can last. The current extension runs through August, and Mr. Wignes said another extension could be enacted that would run to the end of the year.

Under the current legislation allowing for terrorism coverage under the war risk program, however, that could only be followed by a short, final extension to keep the program going into the spring of 2008.

The future beyond then is a “great concern” for airlines and their brokers, according to Mr. Wignes, as well as “one of the reasons there's a very active lobbying effort” going on.

“Terrorism against an airline is an attack against our country,” he said. “They're not attacking one corporation or another. They're attacking the United States.”