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Air Passenger Bonds

Volume 487: debated on Thursday 12 February 2009

To ask the Secretary of State for Transport if he will publish the terms of the original Civil Aviation Authority insurance policy with American International Group on air passenger bonds. (253448)

The Air Travel Trust Fund is currently structured to meet tour operator failure costs through a combination of cash, credit facilities and insurance. Cash is received primarily from ATOL Protection Contributions, and Barclays Bank plc provides credit facilities totalling £60 million, which includes a level of liquidity supported by a Government Guarantee.

The insurance policy placed by the Trustees of the Air Travel Trust with AIG UK Limited and Axis Specialty Ltd., is designed to provide the Air Travel Trust with access to funds in the event of a major tour operator failure where costs arising from refund and repatriation exceed £50 million in a year. The policy document is subject to a confidentiality agreement and the insurers have declined permission to disclose the terms of the policy.

To ask the Secretary of State for Transport if he will publish details of the PricewaterhouseCoopers financial model on air passenger bonds prepared for his Department and the Civil Aviation Authority. (253449)

A detailed overview of the financial model, of the Air Travel Trust, was included in appendix 4 of the “Consultation on Reform of ATOL Bonding Arrangements and the Replenishment of the Air Travel Trust Fund”, published by the Civil Aviation Authority and Department for Transport in April 2007. The consultation document can be viewed at:

http://www.caa.co.uk/docs/33/Consultation_ATOL_ Reform_2007.pdf

The model was produced by the Civil Aviation Authority (commissioned by the trustees of the Air Travel Trust), to assess the sustainability of a per passenger ATOL Protection Contribution in building up sufficient funds to meet potential refund and repatriation costs arising from the failure of tour operators, under different adverse scenarios. External forecasts from third parties such as travel companies, insurance firms and banks were used as the basis for assumptions. Information was received from a spread of ATOL license holders, including the four largest air travel tour operators, five medium sized operators and two online tour operators. The spread of firms accounted for more than half of all passengers covered by the ATOL protection scheme.

The Civil Aviation Authority engaged a professional services firm with expertise in economic modelling and the travel sector to review the model methodology, its fitness for purpose and a number of the underlying assumptions. The detailed overview in appendix 4 of the consultation paper took into account the work undertaken by the firm appointed by the Civil Aviation Authority.

To ask the Secretary of State for Transport what representations (a) his Department and (b) the Civil Aviation Authority have received on the adequacy of cover for bonding arrangements for passengers travelling by aircraft, with particular reference to the PricewaterhouseCoopers report on Reform of Air Travel Organisers’ Licensing bonding arrangements. (253450)

The “Consultation on Reform of ATOL Bonding Arrangements and the Replenishment of the Air Travel Trust Fund”, was published by the Civil Aviation Authority and Department for Transport in April 2007. The consultation document can be viewed at:

http://www.caa.co.uk/docs/33/Consultation_ATOL_ Reform_2007.pdf

There were 88 respondents to this consultation and a summary of the responses is available on the Department for Transport website at:

http://www.dft.gov.uk/consultations/archive/2007/atol/summary

A large majority of responses supported the introduction of a £1 per passenger ATOL Protection Contribution (APC) to replace bonding as the main means of meeting costs from the failure of tour operators and to replenish the Air Travel Trust Fund. The decision to introduce the APC was announced to Parliament on 22 October 2007.