Boeing insurers in turmoil

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Boeing, whose image has been tarnished among customers and pilots, ended up, after lengthy prevarication, admitting its defective MCAS (Maneuvering Characteristics Augmentation System), the defect behind the crash of Lion Air and Ethiopian Airlines planes.

While aircraft manufacturer is held sole accountable for both accidents, the prejudice sustained by third parties affected several Boeing partners including airliners poised to undergo heavy operating losses. The sole grounding of 371 aircrafts delivered to airliners for several months is likely to set Boeing back between 7 and 10 billion USD. The bill will get even heavier if we add the delayed delivery of the aircrafts ordered and not delivered, the cost pertaining to the maintenance of the grounded planes, cancellations, …

Some airline companies have already submitted their compensation requests. In this respect, American Southwest Airlines estimated its daily losses at 5 million USD for the 34 aircrafts received.

The second aspect of compensation pertains to the training of pilots which is likely to hinder a quick restart of operation for these aircrafts. Boeing, having just one flight simulator for 737 MAX in possession, is expected to disburse huge sums to upgrade its crews.

Moreover, suppliers and sub-contractors are also likely to require compensation for the loss of income. The 737 MAX production slowdown and cancellations will certainly weigh down their finances, with 79.5% of the craft manufacturer’s order backlog being accounted for by the airplane in question by April 30, 2019.

Found guilty, Boeing will face lawsuits that will be filed by the insurers of Ethiopian Airlines and Lion Air. Subrogatory action will, therefore, pertain to the amount of compensation of the aircrafts and the damages disbursed to victims’ families.

Atlas Magazine N°162, June 2019 [1]