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What will change after MH17

Tegel Airport To Close In 2012Tegel Airport To Close In 2012

In the wake of the latest disaster involving Malaysia Airlines, more and more questions are being asked about the financial viability of the airline, as well as the legal fallout and the rights of victims’ families.

But financial questions aside, there are distinct differences between MH 370 and MH 17.

MH 370 remains a mystery (and may remain so for quite some time). It’s also one of the more unusual crashes from an insurance payout perspective because it’s very difficult to litigate negligence and liability in the absence of any hard evidence. It may turn out to be one of the least expensive cases in history.

MH17, however, is very different. The issue won’t be whether claims will be filed, but when, where and how many defendants will be named. Already there’s a huge shopping list of defendants, ranging from the airline (always named in cases relating to a plane crash) to individual governments. Remember Pan Am 103? In the end the Libyan government paid large settlements to the families. But given the current situation in the Ukraine, the legal process here could get very messy and very complicated very quickly.

It could ultimately end — at least in the civil cases filed — with a judgment issued against the Russian government, if families and governments can prove the country armed the separatist rebels allegedly responsible for the crash. That would likely take years, and almost certainly, Russia would either appeal, or simply ignore the judgment. If that happens, there’s precedent to expect at least an attempt by those parties to seize Russian assets in various countries around the world. First country expected to file lawsuit? The Netherlands. The assets likely to be on the target list: Aeroflot planes on the ground in foreign airports, and Russian cruise ships in foreign ports.

In the short term, the Montreal convention protocols for awarding victims’ families payment will again be applied. The 1999 agreement limits claimants to about $174,000 per death, and will be paid regardless of the cause of the crash, including war or terrorism. (This payment could be as high as $49 million, and would come from Malaysia Airlines’ insurers.)

But claimants will most certainly seek more damages. And in this case, one of the claimants will most certainly be Malaysia Airlines itself.

Insurance issues aside, there are other immediate ramifications. For one, the airline industry will move quickly to reroute their planes over any area of conflict. This is a complicated move, because a 200-300 mile diversion (or more) means significant fuel costs and operational challenges. Some long haul nonstop flights may now have to land for refueling. In the process, the cost of the flights goes up, crews may have to be repositioned, and flight schedules may not offer connectivity because of the delays. Don’t be surprised to see a “war-risk” or “conflict” fuel surcharge added to the cost of those tickets because of these navigational changes.

Historically, commercial airlines have long flown over conflicted areas. As you are reading this, at least 20 U.S. commercial airplanes are overflying Cuba. Airlines flying to Jordan are handled on approach by Israeli air traffic control. Commercial airlines overfly Syria, Somalia, Northern Iraq, to name a few.

During the Vietnam War, Air France had a daily nonstop from Paris to Hanoi. The North Vietnamese knew it. The South Vietnamese knew it. And the U.S. knew it. And that plane was never attacked.

But the missile attack that downed MH 17 was a game-changer, and in the risk business, the stakes were just raised stratospherically. The insurance companies that write war-risk policies are now beginning to change their exclusions to add a much wider tract of territory that they now would characterize as a war zone. In doing so, they are putting airlines on notice that—with or without government orders—an airline flying over that zone would be violating the terms of that particular policy. And no airline is going to do risk voiding its coverage.

Meanwhile, at the scene of the crash, the retrieval of the black boxes (the cockpit voice recorder and the flight data recorder) may only have symbolic significance and may have no real constructive role in determining the details of the crash. At this point, assuming they are found intact, not compromised and taken to the appropriate air crash investigation lab, about the only thing the black boxes can contribute is an exact time when the plane was hit with the missile and the aircraft lost electric power.

What’s crucial to the investigators is getting their hands on the fuselage. They need to inspect the metal for definitive signs of striation marks (which would be consistent with chemical explosive, like Semtex, which they quickly discovered on the inside of the fuselage of Pan Am 103) and for the shape of the metal. Twisted out is consistent with an explosion from inside the plane. Twisted in– with burn marks – is consistent with an explosion from outside the plane. Over the next 96 hours, assuming the investigators have unfettered access to the site, they should be able to construct a timeline, and a forensic trail that could give them the chemical DNA they need to lead them back to the missile manufacturer and perhaps even the end-user.

Then there is the aforementioned chain of custody issue—meaning the issue of proving who supplied the weapon and who fired it. Even if we gain clarity on that in the near term, it does not mean it will be settled in a court of law anytime soon. In the next four days, we should be able to learn conclusively the when, the how and the where of the downing of MH17. We might even soon learn the who. But proving who’s responsible in a court of law, and giving families their due, could easily take years.