The list of problems facing the world's major airlines had been long enough before last Tuesday's terrorist attacks. The economic slowdown had cut demand for flights and eliminated profit margins. That list is much longer now. A further drop in demand is already apparent. Increased security will add to the cost and inconvenience of flying. Airlines face the prospect of huge legal claims resulting from the death and destruction in New York and Washington. Reflecting this, the shares in many US airlines fell by nearly a half yesterday.

The industry is requesting government help. Dick Cheney, the US vice-president, has indicated that the administration will help to avoid airlines crumbling in the wake of terrorism and a package of up to $15bn grants and loans has been tabled in Congress. That response is understandable. But the government should be careful with public subsidies.

Airlines should not receive public money to operate flights for which there is insufficient demand to cover operating costs. These should be cancelled and excess aircraft should be mothballed until demand resumes. If debts threaten to bankrupt airlines, they should seek protection from their creditors under Chapter 11 of the US bankruptcy code. This would allow them time to formulate a restructuring plan while they continue to operate on a variable cost basis.

In other areas, the case for government involvement is stronger. The US had believed that airlines had appropriate incentives to provide security because a competitive market would guarantee that it was in airlines' interests to ensure no breaches occurred. This market solution has failed. Airlines could not foresee, calculate or insure against the scale of risks they faced. Passengers welcomed fast check-in procedures and would have found it almost impossible to know which airline offered the best security.

The US government needs to regulate for or to provide adequate security on flights. The presumption should be for public provision, as existing regulations have been shown to fail.

The administration should also seriously consider limiting airlines' legal liabilities. Perhaps the state's most important role is to provide security for its citizens. Private companies should not bear the responsibility.

Last Tuesday's terrorist attack presents great challenges for western governments in determining the boundary between security and freedom. It also demands a rethink of the boundaries between private and public responsibilities. But existing bankruptcy procedures are sufficient to deal with the airlines' immediate financial problems.