Insurers are undercutting the government-backed insurance scheme that is keeping airliners flying, but UK airlines see their policies as too risky to be worth buying.

Airlines fear another terrorist attack involving aircraft could lead commercial insurers to withdraw cover, leaving operators unable to fly.

And despite government efforts to encourage the return of commercial insurers to the market, aviation experts believe it could be well into next year before the attempts are successful.

Even before 11 September, airlines' premiums were thought to be worth more than £1bn a year to insurers.

Experts have estimated the aviation insurance market could be worth up to £6bn after rate rises prompted by the terrorist attacks.

Airlines are currently buying cover from a government-backed scheme, after commercial insurers withdrew most of their cover for war and terrorism liability risks after the attacks.

The move threatened to ground aircraft worldwide.

The Treasury had been offering the deal free of premiums, but this week announced prices for the cover, following European Commission guidelines.

Airlines will have to pay for their protection from 8 November or 24 November, depending on which of two options they take.

A source close to the airlines' negotiations with the aviation industry, insurers and the government said: "Insurance pricing comes out slightly cheaper than the government price, but we weren't prepared to pay money into an insurance market that could issue a seven-day cancellation.

"The commercial insurance market is trying to recoup the money it lost. We are unwilling to put money into it."

The government scheme, which provides cover for liabilities above $50m (£34m) has been renewed on a monthly basis. A similar scheme in the US provides security until next year.

The source said airlines felt the government was less likely than commercial insurers to cancel policies or withdraw cover.

The source added: "The commercial insurance market hasn't been able to agree a final rate. Initially, the insurers' price was prohibitive.

"We are looking for a fair risk price and stability."

Despite continuing efforts to strike a deal, the source said insurers were showing few signs of movement and he suspected the industry was waiting for reinsurance renewals at the beginning of January.

By then, insurers would know how much capacity they could offer. "It could be the end of the year or the middle of next year before we know the ultimate price," he said.

In a separate development, British Airways, Europe's biggest airline, announced its profits had crashed by nearly 98% for the first half of the year.

It is losing £2m a day and heading towards record annual losses of £775m.