Boeing and its insurers may be facing multiple claims over the next few months. That is if the reason for the two fatal accidents involving its 737 Max 8 aircraft and subsequent grounding of the global fleet of Max 8s is definitively nailed down as an engineering defect.
The likely plaintiffs include Ethiopian Airlines, Lion Air, the families of the passengers and crew of the two downed aircraft and every airline that has decided to ground its fleet of newly ordered planes in case another disaster occurs.
Claims from the victims’ families
Ethiopian Airlines has just announced that its insurers are preparing to start handing outcompensation to the families of people who died in the recent air crash near the Ethiopian capital of Addis Ababa, in which 157 people died. The CEO of Ethiopian Airlines, Tewolde GebreMariam, explained that compensation will be gradual, depending on positive DNA identification of the victims of the crash. Amounts will be calculated according to the Warsaw and Montreal conventions which determine the amount of compensation that can be awarded to families in the event of the death of a loved one. Reuters has estimated that this could amount to a total of $25 million for the initial compensation payout from Ethiopian’s insurers.
Claims from the airline
The airline’s CEO explained that it will be looking to make a claim for compensation from Boeing directly if there is proof that the plane’s fatal crash was caused by faulty software, as is suspected. The value of the plane itself is in the region of $50 million and insurers providing compensation for the victims would be looking to recover what they have had to pay out from Boeing if a defect in the plane is proven.
The victims’ families may also file wrongful death claims in U.S. courts, either individually or as a group, if proof of the crash is determined. Insurance claims for air crash victims in the U.S. routinely reach $20 million per person, about ten times as much as the amount that families of the doomed plane are likely to get in Ethiopia.
Boeing is not unused to insurance claims. It self-insures up to a certain point, but then directs claims to its largest insurance carrier, which is the British company, Global Aerospace. This is also the lead insurer for Lion Air, the other airline that experienced the first fatal Max 8 crash late last year. Filing a claim through the U.S. courts is not easy for overseas plaintiffs, but the fact that 8 of the 157 people who died in the Ethiopian Airlines crash were U.S. citizens makes it more likely and easier for other passengers’ families to sue Boeing if it comes to that.
Claims from other airlines
There are 400 Boeing Max 8s that have already been delivered to airlines worldwide. All Max 8s were grounded when preliminary investigation into the wreckage of the Ethiopian Airlines plane revealed a strong possibility that a failure in the aircraft’s automated MCAS software system caused the crash. The software malfunction appears to have caused the nose of the affected planes to dip downwards suddenly without any means of manual override.
Airlines have had to cancel or reschedule flights, lease or swap additional aircraft to fill the gap caused by the grounded planes. Boeing faces many hundreds of millions of dollars in compensation payments to airlines affected. Norwegian Airlines, which has 18 of the affected aircraft, has already signaled that it is preparing to sue Boeing for losses caused by the grounding of its Max 8 fleet. The Indian based airline, Spicejet, has also signaled readiness to sue Boeing. Spicejet has 12 grounded Max 8s but had193 planes on order. The order, like other orders around the world, has been halted until Boeing comes up with an answer to its software issue.
Will Boeing find an answer?
Boeing seems confident that it is making progress with perfecting the problematic software issue and claims that it is on the way to certification. Over 120 test flights have already been made in planes with the software update, according to Boeing and the FAA has issued new guidelines for pilot training to fully understand the MCAS system. There is no doubt that Boeing is hoping that it has finally nailed the problem as the bill for grounded planes that it is likely to have to pay is around $60 million a day for every day of worldwide grounding.
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