Airlines are facing a massive rise in insurance premiums that could cripple some players in a struggling industry.

A deal put together by Willis, with fellow brokers Marsh and Aon, provides what is believed to be the first commercially available war and terrorism liability insurance since the withdrawal of most cover following the September 11 hijackings.

The government is currently providing free indemnity for third-party war and terrorism liability after market insurers withdrew most of their cover, threatening to ground all UK aircraft. The deal lasts for 30 days, after which it will be reviewed.

The Willis-led deal effectively reinstates the coverage airlines had before, but at a very high price. It gives cover of up to $1bn (£685m) and has been sold to more than 50 airlines, all based outside the UK.

Airlines pay a surcharge worth $3.10 (£2.13) per passenger to secure the additional cover.

Willis executive director Mike Hughes said: "It's a huge surcharge. Airlines owned by governments may well come into an arrangement with them. The airlines buying this product are the ones that don't have the luxury of government help."

Hughes said premiums paid by airlines before September 11 were around $1.5bn (£1bn), but could now jump to $5bn (£3.4bn) or $6bn (£4.12bn).

The Willis deal offers cover through a number of insurers, including American International Group (AIG), Ace, AXA, Chubb, Hannover Re, St Paul Group, Tokio Marine and Zurich Re.

World airlines are already expected to incur huge losses.

The International Air Transport Agency (IATA) this week forecast industry losses totalling $7bn - nearly three times the estimate made before the attacks. This is based on traffic and capacity falling 15% between September and December. Such a fall could lead to 200,000 job losses. IATA, which has 275 members, said 122,000 jobs had already gone in the US alone.

A spokesman said the industry could not withstand huge price rises for insurance.

"In the days following the attacks, nobody knew what was going on. The airlines felt there had been some market over-reaction. They certainly couldn't, in the short term, pay the sort of premiums being asked."

Global Aerospace Underwriting Managers (GAUM) chief executive Tony Medniuk warned of the difficulties faced by insurers trying to cover airlines. He said the US-led military action against targets in Afghanistan made it less likely that commercial insurers could cover domestic airlines.

Medniuk said current events made it harder to evaluate exposure profiles in a calm way. "I don't think anybody believes long-term commercial solutions won't materialise, but it's a question of what limits are available.

"The reason there's been a move to reduce the amount of cover available for third-party war risks is that many people feel it's an exposure they can't quantify."

In a separate development, it is understood that Lloyd's insurers have settled the insurance claim on at least two of the aircraft destroyed in the September 11 attacks.