Malaysian Airlines Flight 370: Mandatory $176,000 Compensation Under Montreal Convention for Each Passenger & Crew of Plane Could Result in Minimum $42 Million Bill for Air Carrier

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By Vittorio Hernandez | March 26, 2014 10:11 AM EST

Embattled Malaysia Airlines, which is already spending a lot of money taking care of relatives of the 239 people aboard the ill-fated Flight 370, should brace for more expenses as its declaration that the passengers and crew are considered dead could lead to huge compensation claims.

Reuters
Family members of those onboard the missing Malaysia Airlines flight walk into the waiting area at Kuala Lumpur International Airport in Sepang March 8, 2014. The missing Malaysia Airlines flight was carrying 152 Chinese, 38 Malaysians, 12 Indonesians and seven Australians among the 227 passengers, the airline said on Saturday. There were also three U.S. citizens, three from France, two passengers each from New Zealand, Ukraine, and Canada, and one each from Italy, Taiwan, the Netherlands and Austria, the airline said in a statement. There were also two infants. Twelve crew members were also on the flight. Flight MH 370 operating a Boeing B777-200 aircraft left Kuala Lumpur at 12.21 a.m. (1621 GMT Friday) and had been expected to land in Beijing at 6.30 March 7, 2014

So far, the air carrier had offered a partial payment of $5,000 per family, has been shouldering the hotel, food and other expenses of the relatives and pays for 2 dedicated caregivers each family to help the affected kin deal with the problem.

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However, NBC reports that the Montreal Convention, a multilateral treaty, mandates payment of around $176,000 per person, bringing to at least $42 million the minimum compensation package.

The convention said claims could be made in one of five places where the carrier is domiciled, its main place of business, where the ticket was purchased, the destination of the jet or primary residence of the claimant.

That would mean, majority of the passengers would file claims in China or Malaysia where there are limited views of damages, said Floyd Wisner, an aviation crash lawyer.

However, the relatives could still file a lawsuit for higher damages. Insurance experts said these pay-outs could vary widely per claim, with passenger from the U.S. potentially getting millions more than the other Asian travelers.

Terry Rolfe, leader of aviation practice at Integro Insurance Brokers, explained to CNBC that compensation for loss of lives would vastly differ between American and non-U.S. passengers.

Claims brought in U.S. courts usually have significantly more value than in any other courts, and based on experience, U.S. citizens usually don't have problems securing compensation in U.S. courts. She added there are so many lawyers in the U.S. willing to handle such cases, explaining the high pay-outs.

Fortunately for Malaysian Airlines, which has been having financial difficulties even prior to Flight 370's disappearance, the ill-fated flight has only 3 Americans on board, while majority are Asians - 152 from China, 38 from Malaysia and 7 from Indonesia. There were also 6 Australians.

Share prices of Malaysian Airline System closed on Monday, down 4 per cent that could cut over $50 million from the air carrier's market value, compounding the 20 per cent drop in the company's stock price since news of the missing jet came out on March 8.

Ms Rolfie reckoned an American court could order Malaysian Airlines to pay the U.S. passengers between $8 million and $10 million, while the family of the Chinese passengers could get less than $1 million each.

Reuters reported that ahead of court claims, Allianz, the German insurance company that is the main reinsurer of the missing jet, had placed $110 million in an escrow account and has agreed to make hardship payments to relatives of the passengers.

Mr Wisner warned that varying pay-outs could result in an international backlash against the air carrier, particularly if their cases come out in media. He said the affected families could also opt to join in a class-action lawsuit against Malaysian Airlines.

He estimated the liability insurance of the air carrier could reach $1 billion, while Malaysian Airlines would likely pay between $500 million and $750 million as total compensation to the families.

Meanwhile, Malaysia would send another high-level delegation to Beijing in Tuesday night to meet with the families of the victims, said Malaysian Defence Minister Hishammuddin Hussein.

While Malaysian Airlines is also willing to shoulder the cost of flying the Chinese families to Australia, it would depend on the plane being found for Canberra to issue visas to the kin.

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(Photo: Reuters / )
Family members of those onboard the missing Malaysia Airlines flight walk into the waiting area at Kuala Lumpur International Airport in Sepang March 8, 2014. The missing Malaysia Airlines flight was carrying 152 Chinese, 38 Malaysians, 12 Indonesians and seven Australians among the 227 passengers, the airline said on Saturday. There were also three U.S. citizens, three from France, two passengers each from New Zealand, Ukraine, and Canada, and one each from Italy, Taiwan, the Netherlands and Austria, the airline said in a statement. There were also two infants. Twelve crew members were also on the flight. Flight MH 370 operating a Boeing B777-200 aircraft left Kuala Lumpur at 12.21 a.m. (1621 GMT Friday) and had been expected to land in Beijing at 6.30 March 7, 2014
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