Result: Settlement, $165,000,000
Aircraft accident
March 11, 2008
This case was settled after direct discussions in London between Terry O'Reilly and Lloyds of London. The settlement was the result of eight years of hard work and an appeal to the Illinois Supreme Court.
Air Philippines 541 was an exhausted Boeing 737 used by Southwest Airlines in the U.S. until it had 90,000 pressurization cycles. No one knows how long an aircraft can be cycled, but most airlines agree that 90,000 is the equivalent of a sedan driven 500,000 miles. This 737, and five others, were retired to an airplane graveyard near Tucson.
However, a leasing firm in Chicago, AAR Parts Trading, saw the chance for a quick buck. It bought and leased these six airplanes to Air Philippines, a thinly capitalized startup flying domestic Filipino routes. The airline was so broke that Boeing refused to provide parts, spares, maintenance, training, or manuals because it knew the chances of being paid were negligible.
On April 19th, 2000, AP 541 was on approach to Davao, on Mindanao, the southernmost of the major islands in the chain. While it was on approach, it was waived off as another 737 was blocking the runway. The aircraft was seen to turn and to slowly descend over an island in the bay, where it disappeared into cloud and smashed into a banana plantation, killing all aboard.
To this day, no one knows what caused the accident, because the owner of the airline and his insurers had the wreckage buried in concrete immediately.
AAR was sued because the law has long forbidden the giving of a potentially dangerous instrument into the hands of those you know cannot use it with due care. In this case, the CEO of AAR admitted in deposition that even if he knew how appalling AAR was and even if he knew an accident would occur, he would still lease the airplane. Why? It was a good deal.
And it was, as the airplane was grossly over-insured. AAR even kept the $400,000 that Air Philippines had been required to give them for training and maintenance. The airline never had a chance to use it.
