346 people died in two Boeing 737 Max plane crashes, one in Ethiopia and the other in Indonesia. Their families got a total of $5 million. Is this fair and just?
By Hasan M. Soedjono
The US Department of Justice (DOJ) recently announced that Boeing had agreed to pay compensation and fines of over $2.5 billion to the US government, airlines, and victims’ families. There are 346 families of the victims of both and Lion Air JT610 and Ethiopian Airlines ET302. Under the terms of the deal, Boeing will pay a $243.6 million criminal penalty to the US government — not even ten percent of the total $2.5 billion. Most of the rest, $1.7 billion, will go to airlines that purchased 737 Max planes to compensate them for lost revenue during a lengthy grounding of all 737 Max’s during investigations. $500 million will be paid into a fund to help compensate the families of those killed in the crashes.
Note that 346 people died. Boeing allegedly committed criminal conspiracy to hide facts about the real performance of the B737 Max. But almost seven times the funds for death and alleged criminal conspiracy, combined, are going to airlines as lost revenue damages.
Compare that to what Airbus agreed just 11 months ago. Airbus agreed to a record $4 billion of fines to French, British, and US anti-corruption authorities over allegations of bribery in their AB320 jetliner’s sales transactions, including but not limited to a significant number of Airbus sales to one Indonesian carrier. Nevertheless, there was no loss of life related to Airbus aircraft performance and certification. There was no loss of revenues inflicted on the buyers of their planes.
$2.5 billion versus $4 billion. All of the $4 billion Airbus fines went to just three anti-corruption authorities (UK, EU, and the USA). None to the countries who suffered the economic loss of much higher aircraft costs. In contrast, the US Department of Justice (DOJ) takes less than 10 percent of the Boeing settlement, the rest going to airlines and victims’ families.
The size of the numbers and their distribution raise several issues:
- Despite alleged criminal conspiracy and manslaughter, Boeing’s fines are much less than Airbus’ even though Airbus was not involved in a criminal conspiracy of design and certification. None of Airbus’ deeds resulted in bodily harm, let alone deaths.
- All Airbus fines went to just three government parties. The Airbus settlement did not build back any goodwill with, nor convey remorse to, the genuinely deserving parties, i.e., the airlines of Indonesia, Malaysia, Africa, etc. In the 737 Max case, “thanks” to the US DOJ’s role, the Boeing settlement was distributed much more widely.
- But don’t get side-tracked too quickly as the very same DOJ is one of the three sole recipients of the Airbus settlement. Even if they get only a minor share, say only 25 percent, of the $4 billion, that is more than twice what they will get from Boeing. It’s worthy of remembering that Boeing is a US company employing almost 100,000 of America’s best engineers. Airbus, roughly the same size, is European and employs much fewer Americans.
- Forbes reports Boeing’s financial loss number is $18.4 billion. Boeing acted quickly by recognizing all losses (and potential losses) into their financial reports of just two or three subsequent quarters. It resulted in Boeing’s first-ever loss in 22 years. Go figure. When it takes a whopping $18.4B for Boeing to report a loss, one can only imagine how big Boeing’s profits used to be. Another note: most likely, Boeing already expensed the $2.5B Max settlement in those two or three early quarters. Suppose the contingent loss reserve was actually larger than the real penalty of $2.5B. In that case, Boeing will soon stand to “profit” from settling at a lower number than they had set aside.
- Although undoubtedly very significant, it is hard to value the intangible cost of losing customers, loss of faith among passengers, brand equity erosion, and a tarnished reputation. Even after Max is cleared to fly again, there will still be reluctant passengers. So the lost revenues to airlines will persist long after the green light.
- Summary thought: Airbus pays $4 billion. Three anti-corruption agencies of three governments get $4 billion. The airlines and governments where the corruption occurred get nothing. Boeing pays $2.5 billion. DOJ receives
$244 million. Airlines compensated $1.7 billion. Three hundred forty-six people died; they get $500 million.
You be the judge. (To be continued)
Editor’s note: This article is a commentary. The views expressed in it are those of the writer and do not reflect those of PinterPolitik.