The Bug

The brochure was enticing. "Why not be the first to experience the new millennium?", it teased, hinting at a week-long Bacchanalia on a South Sea island beach. But travellers to these and other locations may be in for a shock. The worst-kept secret in the aviation industry right now is that the ominous Millennium Bug could well paralyse air services throughout the world during the festivities.

With fewer than 500 days to go before the moment of truth, the air industry has hardly begun to resolve the bug problem. Or, more accurately perhaps, the industry has only just come to terms with the magnitude of the bug problem.

Keith Selby, chairman of the Aviation Insurance Offices Association, which represents aviation insurers, says that the industry "is putting the building blocks in place" but has not resolved the key issues of the bug. "It is impossible to say where the failures may occur, but we are concerned primarily about the entire aviation infrastructure. All parts of the environment have to be in order."

In other words, every lighting system, power supply, emergency support system and traffic control system at all points in the journey must be fully checked for bug immunity. The task is vast. "We're trying to deal with the problem, but we have a long, long way to go. We're not very far down the track yet."

Selby warns that aviators are unlikely to make a commitment to fly during the millennium. "You can test only 80 per cent of the functionality [of the industry]. If air companies are not entirely sure, they won't go."

Some insurers speculate a "best-case" scenario in which planes will travel only within western Europe, Canada, Australia, New Zealand and the United States. The worst-case scenario postulates a global air traffic paralysis lasting days or even weeks.

The airline crisis is not unique. Over the past 12 months, a growing number of government and industry bosses have acknowledged that the bug problem (known in the acronym-obsessed computer industry as Y2K) may be far more complex and unpredictable than anyone had imagined.

When the Y2K problem first came to prominence in 1996, many analysts saw the challenge from the simple perspective of accounts and record-keeping. Now a harsher reality is hitting home. Y2K will also affect the "embedded" microchips that control our hi-tech world: security systems, life support technology, lifts, shipping navigation systems, and so on. There are about 20 billion of these chips around the world, and each one of them must be individually tested.

Maybe civilisation as we know it will not crash around our ears on 1 January. But even if every chip survives the millennium without a hitch, the secondary effects - public panic, share sell-offs and cash depletion - may be vast.

The insurance underwriters appear to have the clearest view of Y2K, and their prognosis is bleak. Accordingly, insurance companies have already decided to refuse cover for Y2K problems. In recent weeks, both Royal Sun Alliance and Norwich have specifically excluded such claims from their future policies. The exclusion will affect most types of insurance, but especially public liability. Airlines, public transport, public buildings and retailers will be particularly vulnerable, since they cannot function without public risk cover.

Insurance companies have defended this decision, on the grounds that they are unable to judge the scale of the losses that may arise. They also say that Y2K cannot be seen as accidental, and therefore cannot be insured.

The insurance industry has grounds for concern. Some analysts have speculated that the UK banking industry will go into meltdown after 2000 because the data systems of many business customers will be in disarray. Others say that even if the banks manage to fix their "critical" payments and clearing systems, small glitches in "non-critical" security and audit systems will trigger so many false alarms that the banking business will become chaotic.

But the banks appear to be confident. All payment systems will, they say, be functioning perfectly on the big day. All the same, simmering in the banking community is the idea that - however remote - public panic could evaporate the national cash supply and place intolerable stresses on the finance sector, regardless of whether or not the banks' computers are safe. Such an occurrence could create disorder on a vast scale.

One Bank of England official says that the bank is aware of the potential problems from panic withdrawals of cash, and has "fought shy of putting this in our publications. This is a really tricky issue."

The Association of Payment and Clearing Services (APACS) which represents the payments and cash system in Britain, said that it recently advised the Bank of England that the national cash requirements for the two weeks each side of the millennium will be 50 per cent higher than for the average December/January period, but this figure does not take into account the possibility of wide-scale stockpiling of cash that could easily double, or even treble, the normal demand. APACS' head of public affairs, Richard Tyson-Davies, observes: "This is a tremendous logistical challenge. We simply don't know what will happen."

The finance sector may also have to deal with the problem of investors rushing to sell off stock in "risky" industries that are not millennium- compliant. Stock exchanges in Australia have already threatened to withdraw the listing of companies that cannot provide evidence of millennium compliance. This latter issue, says the Bank of England, is likely to become a key problem. In the space of a few weeks, a vast chunk of the British investment market may temporarily disappear.

The situation with food supply is equally interesting. Now that most supermarkets have ditched warehouses in favour of "just-in-time" ordering direct from suppliers, they scarcely have three days' supply in hand. If food purchases follow the pattern of cash withdrawals, this supply will soon disappear. A few empty shelves may logarithmically accelerate stockpiling by customers.

Supermarket chains are so anxious to tell us that there are no millennium problems, that some are organising comprehensive "feel-good" campaigns to run throughout next year. Sainsbury says that it is aware of the threat of mass stockpiling of food, and will develop contingency plans. "Much will depend on the climate of public opinion closer to the time," says a spokesman.

Organisations are facing a near-impossible task in developing contingency plans for the millennium. Almost all major companies in Britain are now refusing, on legal advice, to disclose their preparedness - or lack of preparedness - for the year 2000.

Sainsbury, like many other organisations, has attempted to secure assurances from suppliers, but often without success. Power companies, for example, have refused to provide anything more than a general statement of intent - which is useless for planning. Water companies are also silent. The Government's task force, Action 2000, is now pushing regulators such as Ofgas to conduct audits.

Gwynneth Flower, director of Action 2000, believes that while much of Britain's critical infrastructure - telephone lines and water and electricity supplies- is likely to survive the millennium, many people will suffer various degrees of inconvenience. "The Tube may not run; there may be no power for the day."

But the Action 2000 view is a deliberately soft pitch designed to avoid panic. Others have a different view. Ross Anderson of the University of Cambridge Computer Laboratory, believes that the greatest threat to the UK economy lies in countries that have not started to take the millennium bomb seriously.

"If Saudi Arabia is reduced to chaos, and the flow of oil stops, we can expect the same kind of economic shock we had in 1956, 1974 and 1979," he says. "If Japan and South Korea have to withdraw from the world trading system for six months to sort out a huge domestic mess, then a lot of Britain's hi-tech companies could go bust for lack of computer chips."

Anderson is concerned at the lack of preparedness of the health system, and believes that many people will die at the millennium. "Ministers and officials at the Department of Health have been passing the buck on this issue since 1995. They have been telling hospital chief executives, `There may be a problem - you fix it'. This means that tests of medical equipment are repeated at hundreds of hospitals, and in a haphazard way."

The Government is reluctant to give credence to this view, but Anderson is in good company. Ed Yardeni, chief economist at Deutsche Bank Securities, recently predicted a 70 to 75 per cent probability that computer failures would be substantial enough to create a world-wide recession.

But Y2K is more than just a problem of computer failure. It is about legal dilemmas, insurance black spots, broken supply chains, public order and contingency planning. The bug has exposed the fragility of a complex "just-in-time" economy.

Robin Guenier, director of the business-funded Taskforce 2000, says that companies have only recently come to terms with the magnitude of the task in hand. "I don't know of one large organisation that has claimed to have fixed it."

In March, Tony Blair signalled that the problem should be dealt with as a national emergency. Britain's economy, he warned, would suffer badly if the bug problem were not addressed. But Blair's warning hardly caused a ripple. Indeed, the past few months have been marked by a form of Y2K burn-out. Ask most newspaper editors these days for their opinion of the bug, and you will probably find yourself on the receiving end of a tired groan.

Meanwhile, it has become fashionable in some computer circles to curl your upper lip at the mention of Y2K. Ironically, many younger information technology professionals have moved, in the space of two years, from apocalyptic mode to outright cynicism.

The two organisations charged with the responsibility for dealing with the problem - the Government-sponsored Action 2000 group, and the industry- sponsored Taskforce 2000 - have radically different approaches to the problem.

Robin Guenier, of Taskforce 2000, believes that the Government is not setting off enough alarm bells. "Tony Blair said five months ago that we should be treating this matter as an emergency," he points out. "Nothing has happened since then.

"I'm sure the Government is in agony over this. It doesn't want to be held responsible for any panic, but it knows something has to be done."

But Gwynneth Flower, of Action 2000, is more optimistic. "We have to anticipate problems," she admits; but she adds that the harshest effects of the bug can be countered by "a careful, structured approach [and] controlled anxiety. We've got to have the public acting as normally as possible".

Simon Davies is a Visiting Fellow in the Computer Security Research Centre of the London School of Economics