Lufthansa announced on Friday that it would pay out initial aid of €50,000 (US$54,000) per passenger who died on the Germanwings Flight 9525 to the families of the victims, but the reality is that Lufthansa could face "unlimited" compensation claims from the families of the 149 victims, and it would be most difficult for Lufthansa to avoid responsibility.
The treaty governing deaths and injuries aboard international flights, requires airlines to compensate relatives of victims for proven damages of up to a limit currently set at about US$157,000 – regardless of what caused the crash. But if the company/airline is held liable then in reality claims can and will be far higher, bringing about unlimited financial damage upon the airline involved. To avoid liability, the carrier has to prove that the crash wasn't due to "negligence or other wrongful act" by its employees, according to Article 21 of the 1999 Montreal Convention. As we know already on this count Lufthansa is clearly liable and therefore the question is how much value does the airline and its advisors and insurers put on a passenger’s head? It is likely that Lufthansa will want to be seen doing the very best it can for victims and that indicates compensation at the higher end of all precedents to date.
We will be able to gauge an indication of possible compensation levels once we see where in the world the claims are filed. Article 33 of the Montreal Convention states that a passenger's principal and permanent residence is used to determine jurisdiction for lawsuits regarding passenger deaths or injuries. All eyes are therefore on the families of the three American victims who could sue the airline in the US courts where claims in the past have run into the millions of dollars per passenger. Lufthansa will look to reach settlements with relatives of victims in private to avoid going to court.
The potential passenger compensation claims and the amounts set aside for the same are a serious blow to Germanwings but pale into insignificance for the Lufthansa Group compared to the cost of the recent strikes this month. The two combined amount to quite a financial hit for the group. It remains to be seen if Germanwings booking numbers will have a lean period following this crash and that means additional revenue may need to be diverted towards advertising. Lufthansa might wish to bring forward its rebranding of Germanwings to Eurowings over the coming months.
As Europe and China move to match the USA in having a two person rule in the cockpit at all times, it is shocking to think that more lives have been lost on board aircraft due to action by the person in charge of the flight deck over the past 20 years than were lost in aircraft on 9/11. This is proof that radical action has to be taken lay in the fact that we have lost a Germanwings A320, MAS MH370, Mozambique Airlines TM470, an Egypt Air 767 in 1999, a Silk Air aircraft in 1997, a Royal Air Maroc flight in 1994 along with a fair few other attempted suicide-murders in Japan, Europe, North America and Russia over the past 20 years. The problem is not widespread but insurers are being pummeled by these suicidal actions and on top of this there have been a myriad of crashes caused by pilot error, including; Spanair flight 5022 / a few TransAsia accidents including the ATR72 crash in February of this year / Air France flight 447 / Lion Air flight 902 / Asiana Airlines flight 214 / Korean Air Cargo flight 8509. The list goes on with Korean Air /Korean Air Lines and KLM are at the top of the pilot error list with over 1,000 deaths due to pilot error between them for the past half century.
So in all this and with a serious Air Canada accident over this past weekend, how long can insurance companies continue without seriously increasing premiums?
Meanwhile, Bombardier has pushed back delivery of the C-Series into 2016. The new CEO Alain Bellemare says the CSeries will be certified in 2015 but will not be delivered until 2016 – three years later than originally planned. Program costs are now estimated at around $5.4bn from an original estimate of $3.4bn. So Bombardier will not record any delivery funds in this fiscal year of account for the C-Series, which will anger shareholders.