Tags: Boeing | Qantas | dreamliners | cancel

Boeing Loses Order for 35 Dreamliners as Qantas Cuts Costs

Thursday, 23 August 2012 11:02 AM

Boeing Co. lost 35 orders for 787-9 planes, the biggest Dreamliner cancellation, as Qantas Airways Ltd. scrapped a contract after delivery delays and losses on international routes.

Qantas’s pullback on jets worth about $8.5 billion at current list prices reduced Chicago-based Boeing’s backlog for the 787-9 by about 10 percent. It also underscores a travel slowdown that has caused carriers including Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. to cut growth plans.

“It’s going to bother people more because of what it says about growth in air travel than because of anything it says about the 787,” said Howard Rubel, an analyst with Jefferies & Co. in New York. “You could have seen for some time that there have been some financial challenges in the market.”

Europe’s economic weakness has blunted air-travel strength in other regions, and there are signs that demand for premium seats on international flights, which fetch the highest fares, might diminish further in coming months, according to a report last week from the International Air Transport Association.

Qantas will get $433 million from Boeing, including more than $300 million compensation for 787 delays and a refund of deposits for the canceled order, Chief Financial Official Gareth Evans said today at a press briefing in Sydney.

The airline’s budget arm Jetstar will still receive 15 of the smaller 787-8s starting next year. A Boeing spokesman, Marc Birtel, declined to comment on the finances.

Boeing Slumps

Boeing fell 2.3 percent to $71.13 at 10:01 a.m. in New York, pointing toward a fourth consecutive daily drop. Qantas, Australia’s largest airline, rose 2.6 percent, the most in almost a month, to A$1.20 in Sydney as the cancellation and payout eased funding concerns.

Boeing had lost orders for 25 Dreamliners this year before today, including a lot of 24 scrapped by China Eastern in March. The 787 backlog still totals more than 800 planes, according to Boeing’s website. The jet’s first delivery came in 2011, ending more than three years of delays caused by struggles with the introduction of composite materials and new production techniques.

Qantas canceled the order after reporting an annual loss of A$245 million ($258 million), the first in its 17-year history as a listed company. The Sydney-based carrier is struggling to pare losses on international routes because of competition from Middle East airlines led by Dubai-based Emirates.

‘Prudent Decision’

“Circumstances have changed significantly since our order several years ago,” Qantas Chief Executive Officer Alan Joyce said in a statement. “In the context of returning Qantas International to profit, this is a prudent decision.”

Joyce has also delayed Airbus SAS A380s, cut overseas routes, and begun talks on working with Emirates on a partnership to revive international operations.

Qantas was due to receive 17 787-9s in the two years ending June 2016 and 18 after that, according to a company presentation. Delivery delays meant the orders had become options, which allowed Qantas to cancel them, CFO Evans said.

The carrier is retaining 50 other options for 787-9s. These have also been brought forward by two years so that deliveries will begin in 2016 if they are exercised.

The options give Qantas “a fixed place in the queue and a fixed manufacturing date and a fixed price,” Evans said. The 787-9 seats as many as 290 passengers, compared with the 250 maximum on the 787-8, according to Boeing’s website.

The cancellation may let Boeing make 787s ordered by other customers at an earlier date, which will help it reduce other penalties for late payments.

“This does at least pull forward some delivery slots,” Rubel said.

Boeing is seeking to boost production to 10 Dreamliners a month, a record for wide-body jets, by the end of next year. It currently makes 3.5 a month at its main wide-body jet factory outside Seattle and at a new 787 plant in South Carolina.

The largest 787 cancellation previously was for a 25-plane order by an unidentified customer in 2009, Boeing’s Birtel said.

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Thursday, 23 August 2012 11:02 AM
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