Tuesday, November 23, 2010

Qantas will return two A380s to the skies this week

Qantas will resume flying Airbus A380 superjumbos this week on a limited basis, giving Airbus and engine maker Rolls-Royce a confidence boost after an engine failure crippled a jet with 466 people aboard this month.

Europe's aviation safety authority EASA also chipped in with some positive news, lightening its compulsory inspection regime for the Rolls-Royce Trent 900 engine, after one such engine partially disintegrated on a Sydney-bound Qantas flight on November 4, forcing the plane to make an emergency landing in Singapore.

Qantas will put two of its six A380s in the air from Saturday but the others will take "some time" to return, pending engine fixes, and the A380 will stay off routes to Los Angeles, among the its most lucrative, the airline said on Tuesday.

"Out of abundance of caution we've taken 16 engines that we regard as having a bigger likelihood of having a problem on them and as a consequence those engines will be modified...," Qantas chief executive Alan Joyce told a news conference.

"This is a worldwide fleet issue so it's not just engines Qantas has, it's engines that other operators also have and this is an issue that will have to be resolved for all of the other operators," he added.

Still, the Qantas move to put the A380 back in the sky and the EU's new directive are welcome news for Airbus whose much-delayed EUR€12 billion (USD$16.3 billion) A380 program has struggled to attract airlines in some key markets, including the United States and Japan.

Rolls-Royce concluded the incident was caused by an oil fire but that the issue was confined to a specific component. It has since been pushing to find a fix and replace faulty engines with new turbines.

That conclusion prompted the EU to implement inspection measures, which analysts said were so time consuming they could take planes out of rotation every ten days or so, costing airlines revenue.

However, citing progress in the analysis, the EU will no longer require airlines to conduct extensive ground idle runs and turbine blades checks inside the engines -- a time consuming check.

Qantas replaced two engines on the first aircraft that will return to service, but declined to detail other engine changes, saying these had not been finalized.

The first A380 will be reassigned from the Los Angeles route and will enter service on the Sydney-London route on Saturday.

Singapore Airlines, the biggest operator of Rolls-Royce powered Airbus A380s, has already replaced engines on three aircraft and said it remained in compliance with air safety directives.


Qantas declined to discuss the earnings impact of the A380 disruption but analysts said it would be modest but noticeable.

"Together with the likelihood of ongoing disruptions through mid-December, we have estimated incremental costs of around AUD$20 million (USD$19.8 million)... along with an around 1 percent decline on mainline international capacity for the first half of 2011," Macquarie said in a note.

Brokerage CLSA cut its fiscal 2011 earnings estimate for Qantas, given the airline was running with smaller capacity and therefore missing out on last-minute bookings, which were usually higher-margin fares.

"While the airline is squeezing everyone onto flights that have existing bookings, Qantas is missing the higher yields from selling last-minute seats for rack-rate fares," it said.

Qantas is also keeping the A380 off the high-margin Los Angeles routes -- which require use of maximum certified engine thrust -- as a precaution. These are the longest routes served by an A380 and require the plane to be fully laden with fuel, which in turn requires higher thrust for take off.

Joyce said Qantas was not yet discussing compensation issues with Rolls-Royce.

"Our priority is to get all of the aircraft back in the air... and when the time is appropriate, we will have the dialogue with Rolls-Royce."

On top of the two aircraft returning to service, Qantas will take delivery of two new Airbus A380s before year-end, giving it four superjumbos for the busy Christmas and southern hemisphere summer holiday season.

Joyce last week estimated Rolls-Royce might have to replace 40 engines globally, or about half the engines currently in service on the A380.


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