Odds on Qantas to defer 787 delivery

[NickN]

From the SMH website....

PRESSURE is building on Qantas to defer deliveries of the Boeing 787 Dreamliner aircraft to avoid having to tap the sharemarket again to keep its investment-grade credit rating.

Facing the worst downturn in travel in years, the airline could also be forced to inject up to $200 million into its superannuation scheme because of a shortfall caused by investment losses.

Citi analysts have joined Merrill Lynch in forecasting the need for a cash injection into the super scheme.

Apart from cutting its dividend, deferring deliveries of aircraft is one way Qantas can avoid having to undertake another capital raising.

The Citi analysts estimate Qantas could save about $200 million a year if it cancelled half of its 787 orders, which are already two years behind schedule for delivery.

Qantas's chief executive, Alan Joyce, has repeatedly insisted it has options on the delivery of the more fuel-efficient 787 because of the repeated delays to delivery dates. "The 787 is so far delayed that our contract allows us to walk away from it," he said recently.

The Herald understands Qantas will begin negotiations with Boeing in the coming months about deferring the delivery of the first batch of 787s.

Qantas has the largest firm order, for 65 aircraft, of any airline with Boeing for the Dreamliner, and has purchase rights for another 50. Its low-cost subsidiary, Jetstar, is to receive the group's first Dreamliner. Delivery has been delayed until at least next year.

The Dreamliner has been seen as a key part of Qantas's $3 billion-a-year fleet renewal project. Delta Air Lines, the world's largest airline, has suggested it may not keep all of the orders for the Dreamliner it inherited from its merger with Northwest last year. Airlines in China are also reportedly working to renegotiate delivery of their first Dreamliners.

Qantas recently raised $526 million through an institutional placement and retail share purchase in an effort to protect its investment-grade credit rating. The high rating allows Qantas to finance its operations, including its fleet upgrade, at a lower cost compared with other carriers. However, Moody's cut Qantas's long-term debt rating last month and warned of further cuts if air travel continues to suffer. Citi also said yesterday that it expected the other main ratings agency, Standard & Poor's, to downgrade Qantas from BBB+ to BBB.

Qantas has declined to reveal whether it will be forced to meet a shortfall in its defined benefit pension plan. Under the scheme, more than 13,000 former and present Qantas workers are guaranteed fixed payouts when they retire, despite the collapse in returns from financial markets.

Citi has estimated that the $200 million deficit in the pension plan will have to be met over the next two years. Last week Merrill Lynch estimated that Qantas would have to inject $283 million.

Shares in Qantas closed up 6.5c at $1.85 on Friday, taking its gains to 30 per cent since reaching an all-time low earlier this month.

http://business.smh.com.au/business/...0327-9e4v.html