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Qantas cancels 15 B787-9, defers 15 more, Boeing’s Dreamliner nightmare continues

26th June, 2009
Qantas CEO, Alan Joyce
Qantas CEO, Alan Joyce

In another blow to Boeing, Qantas, the largest airline customer for the B787 programme, has announced plans to defer, with "mutual agreement" the delivery of 15 B787-8 aircraft by four years and cancel orders for 15 B787-9 scheduled for delivery in 2014/2015. The move takes to 73 the total number of B787 cancellations by airlines around the world this year – or around 8% of total orders for the aircraft, whose maiden test flight was this week deferred for an unspecified period. As one of the major customers, Qantas' move may be the prelude to further cancellation action.

Qantas CEO, Alan Joyce, stated the changes to the Group’s B787 orders were  “appropriate” in the current economic climate, but added the decision was not influenced by the announcement this week of a design issue and further delay to the aircraft’s first flight - although that may have influenced the negotiations, given the timing of the announcement.
 
Mr Joyce stated, “the agreement we have reached with Boeing will provide greater certainty going forward in terms of our fleet renewal and growth strategies as well as broader resource planning and matching capacity with demand”.
 
The changes will see Qantas Group firm orders reduce from 65 to 50 aircraft, comprising 35 B787-9s and 15 B787-8s.

Jetstar’s expansion on hold; a shift in Qantas' long term development strategy?

The Group’s first 15 aircraft – B787-9s for Jetstar’s international operations – will now be delivered from mid-2013, around three years later than planned. Jetstar was originally expected to take delivery of 15 smaller B787-8s in mid-2010.
 
15 B787-8s will follow over the 12 months from 4Q2014 for Qantas’ Australian domestic operations and to retire the remaining Qantas B767-300 fleet. Remaining deliveries, of 20 B787-9s for both Qantas and Jetstar international operations, take place from 4Q2015 through to 2017.

Mr Joyce said the cancellation of 15 B787-9s would reduce the Group’s aircraft capital expenditure by USD3 billion, based on current list prices. This will take any immediate heat off Qantas on the aircraft financing side.
 
But bigger issues are in play. Going out four years - by which time the world will be a very different place - is really looking beyond most current planning programmes.
 
It appears Qantas could be effectively ceasing to include the B787 in its development strategy, which would have major implications for hubbing and partnerships, not to mention Jetstar's international expansion plans.
 
Assuming Jetstar does continue to expand, it simply will not have a sufficient platform to develop markets in Europe and North America as intended. However, unless Qantas/Jetstar decide that their expansion plans are effectively nil, Jetstar will need to order more A330s. For Qantas, its ageing 767s will now need to be refurbished too.

Mergers/partnerships now back on the agenda?

The implications for the group - which is increasingly confronted on international routes to Europe by the expansion of the Gulf carriers (with Qatar Airways soon to join Emirates and Etihad in operating to Australia) - are that new expansion plans will almost certainly have to involve other airlines.

The implied shift from organic growth towards a partnership strategy could involve acceleration of any proposed relationship with Malaysia Airlines, which desperately needs a friend as its market evaporates, and/or with Abu Dhabi's cash-rich Etihad, with whom Qantas recently established a codeshare agreement. But, unless Qantas is prepared to confine itself to a smaller proportion of Australia's international market, a proposition that becomes more costly to its overall network attraction. Jetstar has helped reinforce the Group's international share of total seats over the past couple of years, but that now looks set to change - barring a large new order from Airbus.

More cancellations to come for the manufacturers - and new strategies for airlines

Whatever this scenario, the key immediate issue for Qantas is on the cash front. Like most others, it is haemorrhaging cash; were it not for its highly profitable frequent flyer programme, the challenge would be even greater too.

Qantas, like most airlines around the world, is clearly in survival mode. As more airlines seek to preserve their cash balances amid the sharp downturn in demand, more aircraft cancellations – of all types – are probable. For it and for other long established carriers, losing market share in a big way becomes increasingly dangerous to market power, a key ingredient of pricing differentiation. In those circumstances, other market strategies become necessary.

B787 orders: Cumulative through to May-2009

Customer

Region

Model

Engine

Order Date

Total

All Nippon Airways

East Asia

787-3

RR

26-Jul-04

28

All Nippon Airways

East Asia

787-8

RR

26-Jul-04

22

Air New Zealand

Oceania

787-9

RR

25-Aug-04

2

AWAS

Europe

787-8

RR

29-Dec-04

4

Thomson Airways

Europe

787-8

GE

17-Feb-05

6

Icelandair

Europe

787-8

RR

28-Feb-05

2

Northwest Airlines

North America

787-8

RR

6-May-05

18

JAL International

East Asia

787-8

GE

10-May-05

30

LCAL

East Asia

787-8

RR

16-May-05

5

Korean Air

East Asia

787-8

GE

31-May-05

10

Ethiopian Airlines

Africa

787-9

GE

30-Jun-05

2

Continental Airlines

North America

787-8

GE

30-Jun-05

5

Ethiopian Airlines

Africa

787-8

GE

30-Jun-05

8

Shanghai Airlines

East Asia

787-8

GE

22-Aug-05

9

Air China

East Asia

787-8

RR

22-Aug-05

15

LOT Polish Airlines

Europe

787-8

RR

8-Sep-05

7

ILFC

North America

787-8

 

7-Oct-05

6

ILFC

North America

787-8

GE

7-Oct-05

8

ILFC

North America

787-8

RR

7-Oct-05

2

ILFC

North America

787-9

RR

7-Oct-05

4

Air New Zealand

Oceania

787-9

RR

26-Oct-05

2

Air Canada

North America

787-8

GE

10-Nov-05

14

China Eastern Airlines

East Asia

787-8

GE

14-Nov-05

15

Vietnam Airlines

Southeast Asia

787-8

 

16-Nov-05

4

Hainan Airlines

East Asia

787-8

GE

28-Nov-05

8

Royal Air Maroc

Africa

787-8

GE

29-Nov-05

4

China Southern Airlines

East Asia

787-8

GE

16-Dec-05

10

Air India

South Asia

787-8

GE

30-Dec-05

27

Continental Airlines

North America

787-8

GE

31-Dec-05

2

Kenya Airways

Africa

787-8

 

6-Mar-06

6

Qantas

Oceania

787-9

GE

30-Mar-06

30

Qantas

Oceania

787-8

GE

30-Mar-06

15

Icelandair

Europe

787-8

RR

31-Mar-06

2

Air Pacific

Oceania

787-9

GE

19-Apr-06

5

Continental Airlines

North America

787-9

GE

6-Jun-06

9

Continental Airlines

North America

787-8

GE

6-Jun-06

4

AWAS

Europe

787-8

RR

17-Jul-06

2

ILFC

North America

787-8

 

19-Jul-06

2

Business Jet / VIP Customer(s)

North America

787-9

 

28-Jul-06

2

Business Jet / VIP Customer(s)

North America

787-8

 

15-Aug-06

1

Aeromexico

Central America and Mexico

787-8

GE

15-Aug-06

2

Monarch Airlines

Europe

787-8

RR

16-Aug-06

6

TUI

Europe

787-8

 

15-Sep-06

11

C.I.T. Leasing Corporation

North America

787-8

GE

19-Sep-06

2

C.I.T. Leasing Corporation

North America

787-8

 

19-Sep-06

3

Thomson Airways

Europe

787-8

GE

25-Sep-06

2

ALAFCO

Middle East

787-8

GE

26-Sep-06

6

Business Jet / VIP Customer(s)

North America

787-9

GE

29-Sep-06

1

Avianca

South America

787-8

RR

4-Oct-06

10

Singapore Airlines

Southeast Asia

787-9

 

10-Oct-06

20

PrivatAir

Europe

787-8

 

14-Nov-06

1

Nakash

North America

787-9

RR

1-Dec-06

2

Kenya Airways

Africa

787-8

 

15-Dec-06

3

Jet Airways

South Asia

787-8

 

29-Dec-06

10

Unidentified Customer(s)

Unidentified

787-8

 

18-Jan-07

2

ILFC

North America

787-8

 

24-Jan-07

1

ILFC

North America

787-9

RR

24-Jan-07

1

LOT Polish Airlines

Europe

787-8

RR

13-Feb-07

1

Air New Zealand

Oceania

787-9

RR

14-Feb-07

4

Azerbaijan Airlines

Central Asia

787-8

GE

22-Feb-07

2

Thomson Airways

Europe

787-8

GE

27-Feb-07

4

Virgin Atlantic Airways

Europe

787-9

RR

9-Mar-07

15

Continental Airlines

North America

787-9

GE

12-Mar-07

5

ALAFCO

Middle East

787-8

GE

14-Mar-07

6

Travel Service

Europe

787-8

 

27-Mar-07

1

Arik Air

Africa

787-9

GE

30-Mar-07

3

Air Europa

Europe

787-8

RR

30-Mar-07

8

JAL International

East Asia

787-8

GE

30-Mar-07

5

Aviation Capital Group

North America

787-8

 

30-Mar-07

5

Royal Jordanian

Middle East

787-8

GE

30-Mar-07

2

Qatar Airways

Middle East

787-8

GE

5-Apr-07

30

Air Canada

North America

787-8

GE

23-Apr-07

23

Business Jet / VIP Customer(s)

North America

787-9

GE

11-May-07

1

ILFC

North America

787-9

RR

18-Jun-07

1

ILFC

North America

787-8

 

18-Jun-07

48

ILFC

North America

787-9

 

18-Jun-07

1

Business Jet / VIP Customer(s)

North America

787-8

GE

27-Jun-07

1

Uzbekistan Airways

Central Asia

787-8

GE

29-Jun-07

2

C.I.T. Leasing Corporation

North America

787-8

 

3-Jul-07

5

ALAFCO

Middle East

787-8

GE

6-Jul-07

10

Air Berlin

Europe

787-8

 

7-Jul-07

25

Business Jet / VIP Customer(s)

North America

787-8

 

31-Jul-07

1

Aeroflot

Europe

787-8

 

5-Sep-07

22

Arik Air

Africa

787-9

GE

11-Sep-07

4

LAN Airlines

South America

787-9

RR

31-Oct-07

8

LAN Airlines

South America

787-8

RR

31-Oct-07

18

Royal Jordanian

Middle East

787-8

GE

11-Nov-07

2

Avianca

South America

787-8

RR

23-Nov-07

2

Qantas

Oceania

787-9

GE

30-Nov-07

20

Business Jet / VIP Customer(s)

North America

787-8

GE

30-Nov-07

1

Air Niugini

Oceania

787-8

 

4-Dec-07

1

Air Pacific

Oceania

787-9

GE

14-Dec-07

3

Business Jet / VIP Customer(s)

North America

787-8

 

20-Dec-07

1

VALC

Southeast Asia

787-8

 

20-Dec-07

8

Vietnam Airlines

Southeast Asia

787-8

 

21-Dec-07

4

British Airways

Europe

787-8

RR

24-Dec-07

8

British Airways

Europe

787-9

RR

24-Dec-07

16

Dubai Aerospace Enterprise

Middle East

787-8

 

31-Dec-07

15

PrivatAir

Europe

787-8

 

15-Jan-08

1

Gulf Air

Middle East

787-8

 

18-Jan-08

16

Etihad Airways

Middle East

787-9

 

10-Mar-08

35

Biman Bangladesh Airlines

South Asia

787-8

 

22-Apr-08

4

Unidentified Customer(s)

Unidentified

787-9

 

5-Dec-08

15

Gulf Air

Middle East

787-8

 

14-Apr-09

8

Unidentified Customer(s)

Unidentified

787-8

RR

21-May-09

5

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