Qantas 787 Cancellations Spell Uncertainty for OEMs

 - August 27, 2012, 10:25 AM
The cancellation of Boeing 787s is part of a fleet adjustment plan at Qantas Airways that will also see some of these Airbus A330s reassigned to domestic services in Australia. (Photo: Airbus)

Qantas Airways’ August 23 cancellation of “firm commitments” covering 35 Boeing 787-9s previously slated for delivery beginning in 2014 demonstrates the need for an airframer to remain flexible in the face of changing industry demand. The sudden change, prompted by after-tax losses in the current financial year, also demonstrates the continued vulnerability of the airline sector to rising costs and uncertain demand.

The Australian flag carrier has restructured 787-9 deliveries under a five-year plan to rescue its loss-making international business. The airline has retained options and purchase rights for fifty 787-9s, with delivery advanced almost two years from 2018. “Effectively, this constitutes a delay of the first 787-9 delivery by two years, to 2016,” acknowledged Qantas Group chief executive Alan Joyce.

Although the cancellation arises from efforts to reduce capital expenditure, the move has provided ironic benefits. Qantas will now receive a $433 million refund from Boeing, according to its preliminary final report for Fiscal Year 2011/12, which ended on June 30, 2012. For its part, Boeing said: “We stand ready to serve Qantas with 787-9s to meet their long-haul fleet needs.”

Joyce said the 787-9 delivery changes are consistent with broader group strategy. “Qantas continues to practice disciplined capital management and, in the context of international business, this is a prudent decision.” Deliveries of fifteen 787-8s to Qantas low-cost carrier subsidiary Jetstar remain on schedule to begin “toward the second half of next calendar year,” according to Joyce. He said introduction of the 787-8 would permit the transfer of some Airbus A330s from Jetstar to Qantas domestic services, and the subsequent phased retirement of the 767-300 fleet before 2016. Meanwhile, 16 of Qantas’s twenty-two 767s used on domestic service will be upgraded, with the first to be completed this October.

The Qantas group fleet renewal plans are “now substantially complete,” with 114 aircraft delivered in the past four years, said Joyce. “We have 12 A380s in service, and reconfiguration of nine 747[-400]s will be complete by late this year.”

On August 23, Qantas reported an underlying profit before tax of A$95 million (about $100 million) for FY2011/12, which represents a statutory loss after tax of A$244 million ($255 million). Joyce said the result reflects 18-percent-higher fuel prices, costs attributed to an industrial dispute and business-transformation expenditure. “We have the right strategy to position us for sustainable [long term] growth, while enabling us to manage capital requirements,” concluded Joyce.