Boeing 737 Max software fix confirmed as Munich Re assesses exposure

As US aircraft manufacturer Boeing announced software upgrades to its 737 Max planes, it remained unclear how far this fix could mitigate the potential losses for the global insurance industry.

The 737 Max 8, and its Mcas flight control system in particular, are under investigation by the Federal Aviation Authority after two fatal crashes involving the aircraft.

One hundred and fifty-seven people were killed when an Ethiopian Airlines plane crashed on the 10 March 2019 and 189 people died in the Lion Air crash in Indonesia in October 2018. The planes are currently grounded.

The lead insurer for Boeing is Global Aerospace, which is majority owned by Munich Re, with Berkshire Hathaway owning a substantial share. Chubb and and Willis Towers Watson have been identified as lead insurer and broker for Ethiopian Airlines.

Speaking at a recent press conference, Torsten Jeworrek, Munich Re chair of the reinsurance committee, said the reinsurer’s exposure could be between €100 and €120 million, which had been accounted for in the company's 2019 first quarter assumptions.

Jeworrek added: “[For] Ethiopian Airlines, with the damage for the airplane and the passengers that’s one part of the story and then Boeing itself, especially [with] the grounding ordered by the aviation authority that’s the other major part of the damage.

“First, these two [areas] are limited, they’re capped, so that’s our exposure to these two parts of the disaster.”

Jeworrek confirmed that money would be coming from both its Global Aerospace share and its reinsurance company. Asked to verify whether the final losses would be closer to €100 or €120 million, he added: “We know the value of the aircraft, but we don’t know to what extent there will be claims going to and fro between Boeing and Ethiopian Air, so we don’t know that yet. That is something that still needs to be settled.”

He also confirmed that Munich Re had exposure to the 2018 Lion Air crash, saying the loss figure was in the “lower double digit millions”, and that it had been counted in its 2018 figures.

Research from Deutsche Bank (DB), published on 24 March, said feedback from senior management at two US airlines about the Max 8 suggested they were confident about the plane’s safety.

According to DB, Southwest and American airlines, which are the largest and tied-for-second largest operators of Max aircraft, “have a tremendous amount of quantitative and qualitative data that supports their confidence in the safety of the aircraft".

“A recent communique from the Southwest pilots' union highlighted that data from 41,000 flights (with each MAX aircraft having 17,000 recordable parameters) supports the company's ‘continued confidence in the airworthiness and safety of the MAX’," the DB report said.

DB added that both management teams thought that the grounded aircraft were likely to return to service before the end of the June quarter, despite reports that Air Canada had pulled its Max 8s from its schedule until 1 July 2019.

“However,” DB said, “[both] management [teams] were very clear that there was still much uncertainty around the Max 8's return to service as Boeing and the regulators can only move so quickly (sign-offs/certifications are required for systems, update of displays, flight manuals and training) as well as the fact that aircraft has become a sensitive/politicized topic, for obvious reasons.”

DB said that the overall impact of the Max grounding to the US airline industry is modest as only three airlines fly the aircraft: Southwest with 34 Max 8s, American with 24 Max 8s and United with 14 Max 9s.

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