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By CYRIL TUOHY, managing editor of Risk & Insurance®

The past four years have seen the launch of two of the largest passenger planes ever built.

The A380's closes rival, Boeing Co.'s 747-8 Intercontinental, was unveiled in February. Designed to carry between 400 and 500 passengers depending on seating configuration, according to Boeing, the aircraft is scheduled to enter service later this year following flight tests and Federal Aviation Administration certification. The 747-8 isn't meant to compete directly with the A380, but rather fills the niche just beneath the A380, which has no equal.

No one doubts that these marvels of engineering will be able to fly. Indeed, the A380, with a list price of nearly $350 million, has already proven itself air-worthy with more three years of commercial service. The $317.5 million 747-8 was built on the legacy of the iconic and successful 747, in service since 1970.

The question is: How much risk is concentrated in any one of these airplanes? For sure, they are the largest and the most expensive commercial aircraft ever built. Simple arithmetic dictates that losing a loaded A380 would result in a much larger claim than the loss of any other single packed passenger jet.

The big new planes "concentrate the risk," said Jeff Moitozo, chief underwriter for North America for Chartis Insurance Aerospace Services Inc.

"The A380 is breaching the $300 million insurance mark," he said. "Of course, very few of these planes will be actually transporting 800 people. Still, 500 or 600 people on an airplane on an Asia route could be the biggest loss, should it occur."

The markets have already got a glimpse of the kind of astronomical claim they can expect should a plane the size of an A380 fly into trouble.

On Nov. 4, a Qantas A380 experienced a mishap with its No. 2 engine after taking off from Singapore. The malfunction destroyed the engine and also pierced the wing. Two people on the ground were hurt. No one aboard was injured. The incident, however, will result in a $90 million claim to the insurance industry, insurance broker Marsh said in a report released in January.

The mishap will likely be the most expensive claim related to a single-jet-engine incident, said one aviation insurance expert.

The loss will likely be absorbed by the direct airline market or the product liability market, Moitozo said..

Even so, because these huge planes help alleviate congestion in the skies and because they are "taking claims off routes," said Magnus Allan, a London-based aviation analyst with Aon Corp.'s global aviation group, they reduce the overall risk sustained by the commercial airline industry.

More passengers in any one plane means operating fewer aircraft, less congestion and, in the end, fewer claims, Allan said. If one A380 carrying 800 people can fly from Beijing to New Delhi instead of two 747s each carrying 400 passengers, the risk is lowered. There's less wear on the engines and the air frame, fewer gallons of fuel burned, half the takeoffs and landings.

The A380 and the 747-8 represent "an evolving situation," and not a "radical shift," in the development of commercial airline service, Allan said. Even in the event of a catastrophic loss, airlines are bound by the liability agreements set by the Montreal Convention.

Whether the A-380 or the 747-8 concentrate or diffuse risk, the "markets have accepted and understood the risks," Allan said. "There were no major issues with getting insured or major worries. It's just another aircraft."

Because of the years of planning and testing of the aircraft before they enter service, underwriters have had years to work and rework the actuarial details to be able to accurately price the risks these new aircraft pose to their fleets.

"The aircraft have been coming on for a long time," Allan said.

March 1, 2011

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