New Airline Tragedy Strikes New York

The crash on Nov. 12 of American Airlines (AA) Flight 587, an Airbus A-300-600, with the loss of all 260 people on board and five on the ground shocked New Yorkers and the rest of the nation. Coming almost two months to the day of the attacks on the World Trade Center, the loss of another airliner raised a number of questions, and dealt another blow to the airlines and their insurers.

The crash itself is filled with grisly ironies. Two of the airplanes hijacked on Sept. 11 were AA flights. The small community of Far Rockaway in Queens, where the stricken plane crashed, was home to the families of a number of victims of the WTC attacks, including many firefighters who lost their lives. At least two passengers on the doomed flight had narrowly escaped death on Sept. 11.

The first thought that ran through everyone’s mind, including TV and radio broadcasters around the world, was that the crash signaled another round of terrorist attacks. Tunnels and bridges into Manhattan were closed briefly, and all flights were suspended. However, as the investigation into the crash revealed more information, experts have privileged the theory that one or more portions of the plane broke off, causing the crash. Although terrorism hasn’t yet been definitively ruled out, it seems increasingly less likely.

Investigators are focusing their efforts on reconstructing the scenario that occurred aboard the airplane only minutes after it took off from JFK. Neither the cockpit voice recorder nor the flight data recorder have shown any evidence of hijacking, or other on-board disturbance, but the data does record two instances of severe shaking of the air frame, possibly caused by turbulence from a Japan Airlines 747, which took off shortly before Flight 587.

AA acknowledged shortly after the crash that the aircraft itself carried hull insurance of around $80 million, and that it had coverage for other liabilities up to $1.5 billion. Its leading insurer is Global Aerospace, an agency jointly owned by U.K. insurers Royal & Sun Alliance and CGNU. It includes Munich Re, Zurich, Chubb Corp. and Tokio Marine who have taken part of the risk.

Lloyd’s issued a brief statement after the crash indicating that it “has some involvement in the insurance of American Airlines,” however it declined to give any loss estimates or comment further. QBE said its net exposure would probably be around $2 million (USD). A report in The Financial Times (FT) estimated that “at least $100 million of the final bill is likely to end up in the London market.”

AXA also has some exposure, but hasn’t given any figures. Swiss Re estimated that its losses could be up to $35 million. Munich Re issued a statement reiterating its call to “fundamentally rethink and reassess the risk situation as a whole,” and said the crash would cost it less than $50 million.

Experts differ on what the exact loss figures may eventually be. Shortly after the crash, many were giving estimates in the $1-billion range, but as more details emerge these have been scaled back.

Robert Hartwig, chief economist for the Insurance Information Institute, told the FT that recoveries on the liability policies would fall between $1.5 and $2.25 million per victim, based on the average recovery for similar events in the U.S. He indicated that U.S. citizens are usually compensated on the high end, with other countries’ nationals receiving somewhat less.

At least 150 people on board were citizens of the Dominican Republic—Flight 587’s destination—which would lead to lower claims settlements. The best estimate right now is that the claims will total between $500 and $600 million, a heavy loss, but much less than Sept. 11.

The plane, designated N14053, was built by the Airbus Consortium in Toulouse, France in 1988, and had logged over 35,000 flight hours. Regular inspections and overhauls had not found any major problems. But carbon fiber technology, which has been widely adopted by aircraft manufacturers, is relatively new. Investigators are therefore closely examining all possibilities, including the presence of previously unknown strain or fatigue in the material that might have caused it to fail under stress with catastrophic results.

The entire 27-foot-tall tail fin with the rudder still in place landed in Jamaica Bay a good ways from the crash site. Both engines also detached from the plane before the crash and fell separately from the fuselage. Neither engine shows signs of an explosion or tampering, increasing the likelihood that a mechanical failure caused the crash. Suspicion centers on the tail fin, which was constructed of ultra-light composite materials.

While it is a relief to learn that the crash didn’t signal a new wave of terrorist assaults centering on airliners, it is very small comfort to the bereaved families, to New Yorkers and to the airline and the insurance industry. Coming so soon after Sept. 11, the tragedy further heightens public concern about flying, and raises more questions about future airline coverage.