Insurers Settle Lawsuits over Philippines Crash for $165M

March 19, 2008

Insurance companies have agreed to pay $165 million (euro104.63 million) to settle lawsuits brought by relatives of those killed in a 2000 plane crash in the Philippines, lawyers for the families said.

The families of about 100 of the 131 people killed in the crash sued the American companies that owned the plane and leased it to Air Philippines accusing them of providing a worn-out plane in need of constant maintenance that the airline was incapable or unwilling to do.

The case, filed in state court in Chicago, was scheduled for trial in September but was settled in late February by Air Philippines’ insurers, who negotiated on behalf of the plane’s suppliers. Neither the American companies, Air Philippines nor the insurers admitted responsibility.

Donald J. Nolan, whose Chicago law firm took the lead in the case, said the amount of the settlement will improve safety in developing countries, where carriers often buy aging aircraft no longer wanted by U.S. airlines.

Nolan said after legal fees of about one-third the award, families will get on average more than $1 million (euro630,000) each. The judge must still approve disbursements from a trust fund to individual families, which will receive varying awards.

The lawyer said Air Philippines offered families about $20,000 (euro12,682) each.

The Air Philippines Boeing 737 that crashed was made in 1978 and operated for 20 years by Southwest Airlines Co., which faces a $10.2 million (euro6.47 million) fine by U.S. regulators for flying 737s without making required inspections for cracks in the fuselages.

Lawyers said the plane had cracks and a faulty altimeter when it was delivered to Air Philippines, but they did not sue Southwest because it had no role in selling the jet to the foreign carrier.

The plane was purchased in 1998 by AAR Corp., an Illinois-based company that sells aircraft parts and leases planes to some of the world’s largest carriers. AAR leased the plane to Air Philippines and then sold the plane and the lease to Fleet Business Credit Corp., which is now a subsidiary of Bank of America Corp.

AAR “did some cosmetic work, didn’t do a (heavy-maintenance) ‘D’ check … and shipped it out to the Philippines,” said Gerald C. Sterns, an aviation lawyer in Oakland, Calif., who also represented some of the families. “They are in the business of providing cheap aircraft to lease.”

In 1999, AAR obtained an airworthiness certificate from the Federal Aviation Administration judging the planes sound enough to export to that country.

While on a commuter flight from Manila to Davao in the Philippines in April 2000, the plane crashed into the side of a hill as the pilot made a second attempt to land on the runway. All 124 passengers and seven crew members were killed.

A commission appointed by the president of the Philippines blamed the crash on pilot error and found no evidence of mechanical failure. But lawyers for the families said no one will ever know what caused the crash because parts of the mangled plane were dumped in a pit and buried in concrete before they could be examined by independent experts.

David P. Storch, the chairman and chief executive of AAR, said the burial of the plane probably played a role in the insurance companies’ decision to settle. “I believe they felt they had a problem with what the Philippines authorities had done with the aircraft,” he said.

But Storch defended his company’s overhaul of the plane and the lease to Air Philippines.

“We delivered a very good aircraft in good working condition to a very good airline,” he said. “Unfortunately, this aircraft had an accident because the pilot got in some clouds and got disoriented.”

Gary W. Westerberg, a lawyer for the London insurers, said his clients settled because of court rulings that AAR and Fleet controlled documents, witnesses and disposal of the wreckage. The companies also also failed in an effort to try the lawsuits in the Philippines.

Nolan and Sterns said companies such as AAR that buy planes and lease them to foreign airlines will face higher insurance premiums as a result of the settlement.

But Storch, the AAR chief executive, said the settlement won’t have any financial impact on his company, which he said was indemnified for its costs by Air Philippines’ insurers. He also said the case will not deter AAR from leasing planes to customers that include British Airways, UAL Corp.’s United Airlines and Continental Airlines Inc.

“We have an impeccable safety record,” Storch said.

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