The Republic's largest air cargo company has said its future could be in doubt unless the Government passes legislation next week indemnifying airlines against attack from terrorists.

Air Contractors Ltd, which transports cargo throughout Europe from Dublin, said its insurance contract was up on July 1st and insurance providers were no longer prepared to insure against attacks involving "dirty bombs".

These are bombs that are contaminated with chemical biological or radioactive material aimed at causing widespread damage to people and property. This week Ivor Callely, Minister of State at the Department of Transport, introduced a Bill in the Oireachtas to deal with issue.

The Air Navigation and Transport (Indemnities) Bill 2005 will allow the Government to issue indemnities to airlines to ensure they can continue to provide their services.

Mr Rudy Kelleher, managing director of Air Contractors, said he was happy to see the Government taking action and contact between his company and the Department was ongoing.

He said he remained confident the legislation would be sufficient to keep the company in operation. However, he said his company remained concerned about the situation. "It raises great questions about the continuation of our operations otherwise," he said yesterday. Air Contractors move large amounts of cargo each month, most of it through Paris. The company often acts on behalf of large logistical companies like TNT and DHL.

Earlier this month, EU members states were told that the insurance industry was preparing to permanently withdraw insurance cover for acts of terrorism and war, with a particular focus on the use of chemical, biological and radioactive substances.

A spokeswoman for the department said the Minister had brought legislation forward quickly to ensure Irish aviation could continue to operate. It is understood the insurance contract of Aer Lingus will be renewed later in the year.

The provision of insurance for the airline industry is divided in three areas - passengers, third parties and aircraft hulls. It is the providers of insurance for aircraft hulls who have now begun to withdraw cover for dirty bombs in any renewals coming before them.

During the week Mr Callelly said: "One Irish airline has been told that its contract, due for renewal on July 1st, 2005, will not include dirty bomb cover. The airline is very concerned about its ability to operate in those circumstances. The other main Irish airlines renew in November and December," he said.

The Bill was widely supported this week in the Seanad and it moves onto the Dáil next week.