US aircraft manufacturer Boeing has disclosed that it recovered $500 million from its re/insurance program during the second quarter of 2019 for losses related to the grounding of its 737 MAX fleet.
As part of its Q2 results, Boeing said that it had recorded an earnings charge of $5.6 billion, net of insurance recoveries, in connection with potential concessions and other consideration to customers for disruption related to the suspension.
The company suspended its entire global fleet of 737 MAX aircraft back in March 2019 following the Ethiopian Airlines crash, which experts believe may have been caused by a fault in the model’s automated anti-stall system.
Boeing is continuing to work with civil aviation authorities to ensure its updated software addresses any underlying issues, and currently anticipates that the 737 fleet will be returned to service in the fourth quarter of 2019.
Full details of Boeing’s re/insurance program and the allocation of losses have not been made available, although a number of companies previously announced that they could incur losses related to the Ethiopian Airlines crash.
So far, reinsurers Munich Re, Swiss Re, Hannover Re and GIC Re have been confirmed as facing potential exposure to the crash, with initial loss estimates ranging between €10 million for Hannover Re and up to €120 million for Munich Re.
Chubb and Willis Towers Watson have also been confirmed as the lead insurer and broker for Ethiopian Airlines, respectively, while Global Aerospace is the lead insurer for Boeing alongside broker Marsh.
Analysts at Willis Re have suggested that the incident has the potential to become the largest ever non-war claim incurred by the aviation reinsurance market, while Deutsche Bank also stated that losses are likely to be a “major event” for the industry.
In addition to losses from business interruption and potential lawsuits, Boeing’s production costs were $1.7 billion higher in Q2 due to a reduction in the production rate of the 737 aircraft model.
The manufacture reduced production from 57 in Q1 2019 to 42 in Q2, and said that it would continue to evaluate the potential for future reductions, including a temporary shutdown in 737 production.
Boeing has already faced dozens of lawsuits resulting from the Lion Air crash in Indonesia last October, which also resulted in the deaths of all 189 passengers and crew on board.
In both cases, the planes showed similar flight patterns before crashing, and investigators believe that an anti-stall system on the Boeing 737 Max model may have forced the nose of the aircraft to lower erroneously.