16 April 2008

Boeing 787 delay compensation will fund Airbus leased Qantas fleet

A report in The Herald Suns says that Qantas directors will be asked today to sign off on a $200 million deal, paid for with compensation from Boeing, to lease a fleet of jetliners built by Airbus

Jetstar, the Australian flag carrier's budget brand, will ask the Qantas board to sign off on a lease deal for up to six French-built A330 jetliners.

The board will be told that the cost of acquiring the planes will be funded from compensation Qantas will get from the US aircraft maker because of the delayed delivery of its 787 Dreamliner.

Directors will also consider a much revamped frequent flyer program which will offer seats on all flights and is likely to be introduced towards the end of the year.

But the biggest decision centres on filling a gap in aircraft capacity arising from Boeing's third delay in delivering its plane for the future with its high-tech, fully moulded fuselage.

With the 787 program now 15 months behind schedule, Qantas directors will today learn the total sum that Boeing has to pay Qantas in liquidated damages.

Yesterday Qantas sources said only that the amount will be well in excess of the $200 million Airbus paid after it pushed back by two years the delivery to Qantas and other airlines of its first A380 super jumbo because of wiring problems.

Senior Qantas executives are tight lipped about the actual size of the Boeing payout.

"If you look at the size of the Boeing order against the 12 planes that Airbus delayed you get some idea of how much Boeing will have to pay," a senior airline source told BusinessDaily.

Qantas has placed firm orders for 65 Dreamliners with Boeing and holds options and purchase rights for another 50.

At this stage the airline can walk away from the deal without incurring a penalty because the setbacks that have delayed the delivery of the aircraft have already breached the multi-billion dollar sale contract.

But Qantas has no intention of cancelling and remains confident the fuel efficient Dreamliner when it comes into service will prove a winning and profitable aeroplane.

The first Dreamliner, a 787-8 which is range limited to routes from Australia to Asia, won't arrive before early 2009, which delays Jetstar's new routes plan by at least six months.

Qantas and Jetstar have told Boeing they expect to be compensated for loss of potential earnings and the chance Jetstar must forgo in being the first discount airline to operate a number of routes into Asia.

BusinessDaily understands that the Qantas board will be told today that getting the six leased aircraft is vital to maintain market share as well as winning custom for the next stage of Jetstar's growth phase with new services due to begin next year from Australia to southern Europe.

"Unless we get these planes we'll be behind the eight-ball when Air AsiaX launches cheap flights from Australia to Europe," a senior source at Qantas confided.

Air AsiaX flagged this month a plan to charge a $1000 fare, taxes included, to fly from the Gold Coast and possibly Avalon, to London.

But, unlike Air AsiaX which will lease four-engine Airbus A350 jets to fly the route, Jetstar's A330s will be range restricted and, combined with an Asian refuelling stop, will just manage to reach Athens and Rome with a full load of passengers.

The Qantas board's other thorny problem is to approve a revamp of the existing frequent flyer program in a new form that will win support from passengers.

Qantas shares were down 11 to $3.51 yesterday.

A Report by The Mole from The Herald Sun