Qantas Says May Defer Deliveries, Has Option To "Walk Away" From 787 Deal

[Saj_A]

http://www.bloomberg.com/apps/news?p...Lc0&refer=home

By Robert Fenner

Nov. 27 (Bloomberg) -- Qantas Airways Ltd., Australia’s largest carrier, may further cut passenger capacity or defer orders of new planes if the global recession continues to reduce demand for air travel.

Planes may be grounded and more international routes can be cut, Alan Joyce, who takes over as chief executive officer tomorrow, said in an interview today. The company’s domestic sales are helping to “insulate” earnings from the drop in international revenue, he said.

Qantas eliminated 10 percent of international seats this week as it forecast profit will drop 64 percent as the global recession erodes business-class travel demand. Joyce, who is scheduled to receive the first of 115 Boeing Co. 787 aircraft next year, may have deliveries delayed by six months because of strikes at the Chicago-based manufacturer.

“While we wouldn’t want to do it, the 787 is so far delayed that our contract allows us to walk away from it,” Joyce, 42, said in the interview. “We still want to take the 787 and we plan to take them, but we do have options with them.”

Qantas shares rose 18 cents, or 8.3 percent, to A$2.35 at the 4:10 p.m. close of trading in Sydney, paring this year’s decline to 57 percent. The benchmark S&P/ASX 200 index rose 1.4 percent.

Joyce, who takes over from the retiring Geoff Dixon, expects the aviation market to have recovered by the time the first 787 is delivered.

Forecast Cut

After accepting its first Airbus SAS A380 plane in September, Qantas has secured funding for two more of the superjumbos due for delivery before the end of the year. The airline has a firm order for 20 of the aircraft with an option to buy four more.

“We won’t exercise those four options until circumstances change,” he said.

Qantas said Nov. 25 that 2009 pretax earnings may fall 64 percent to about A$500 million from A$1.4 billion a year earlier. On Aug. 22 the airline predicted 2009 earnings this year of A$751 million.

[Mick B]

Typical scaremongering from Qantas execs...it seems nothing has changed!

After all, Joyce did learn from the best!

[Mike W]

Originally Posted by Mick B

Typical scaremongering from Qantas execs...it seems nothing has changed!

After all, Joyce did learn from the best!

Sounds like little Al' is trying to put pricing pressure on Boeing. You're right though, different bloke, same story.

[Shameel Kumar]

“While we wouldn’t want to do it, the 787 is so far delayed that our contract allows us to walk away from it,”

...And do what exactly?

Continue to operate 767s and A330s well into the next decade?
Maybe wait for the A350-800 and -900, which won't have a lot of available slot till towards the end of the next decade?

... or..ummm...yeah. Not many options there.


You have to wonder though, don't you think Boeing/Airbus would very easily call the airlines' bluff? In situations such as this where QF really don't have much of an option except to sit patiently and wait (not that they're in any hurry to take delivery anyway)..Boeing should very easily be able to call their bluff.

[Kelvin R]

I understand that the article quoted is actually quoting an article in today's AFR. From reading the original article I would say that the Bloomberg article is perhaps taking the original quote out of context. I left the AFR on the plane, so I can't type it up (it was a full feature which included Joyce's view of the unions) but the article was saying that QF in the contract "could" cancel if the planes are significantly delayed and QF no longer needs the capacity. This appears to be a long way from the comments provided in the post which I think are just a misunderstanding based on the selective quoting by Bloomberg.

The AFR article said two things, one Joyce is taking a very close look at costs and two senior management have to be more active on speaking to and understanding staff on the front line and their issues and challenges. That it is not acceptable that the Union is left as the communication method between the company and staff.

On the 787 it appears first delivery is now going to be June/ July 2010 and at that time if QF doesn't need the capacity it does not have to take it, that is all the original article was saying.

I hope this additional info helps.

[D Chan]

Originally Posted by Mike W

Sounds like little Al' is trying to put pricing pressure on Boeing. You're right though, different bloke, same story.

standard business practice. would be interesting to see how QF is compensated for the delays.

Originally Posted by Shameel Kumar

...And do what exactly?

Continue to operate 767s and A330s well into the next decade?
Maybe wait for the A350-800 and -900, which won't have a lot of available slot till towards the end of the next decade?

... or..ummm...yeah. Not many options there.

How about order more A330s in the interim, until the A350-800/-900 arrives if they decide to switch (there is no guarantees either that Airbus would deliver on time). Given its current progress, the 787 may not be a reality until 2010/2011 or worse. The dream is fast turning to a nightmare, for Boeing and for airlines alike. This will be a lot worse than the A380.

[QUOTE=Shameel Kumar;17189You have to wonder though, don't you think Boeing/Airbus would very easily call the airlines' bluff?[/QUOTE]
As a big customer with a large order + options, I don't think this is bluff at all. They could well do it and they are telling everyone this is one possible option. It's yet another call to Boeing to get their act together.

Originally Posted by Shameel Kumar

...not that they're in any hurry to take delivery anyway

Jetstar's expansion plans are based pretty heavily on the 787. If the business plan is based around the availability of an aircraft that allows them to fly longer non-stop etc. and to enter into markets they have not been in before, I'd say they would want it asap. Given the current economic situation, they probably won't want to expand at this stage, but later on when things improve (and they will), they want to make sure that they have the aircraft available to have the option of expansion.