Airbus counts the cost of A380 delays

Qantas Airways today became the first Airbus A380 customer to disclose how much compensation it will receive from Airbus for mounting delivery delays, writes Airline Business deputy editor Brendan Sobie. If A$104 million ($79 million) in payments to Qantas for delays to its 12 A380s are any indication of what Airbus will have to pony up for the 15 airlines and one leasing company which have ordered 168 A380s, the European manufacturer could be facing total penalties of over $1 billion.

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The delivery of nearly every A380 on order has been delayed by at least a half year. However, not all of the customers may be entitled to the $6.6 million per aircraft in penalties Qantas has negotiated. Qantas’ first A380 has been delayed by one year, from late 2006 to late 2007. Only Emirates and Singapore Airlines (SIA) also face delays of one year; the delays to the customers which follow them in the programme are not as severe. And generally manufacturers are not required to pay significant penalties if aircraft are delivered only six months late or less.

How much exactly Airbus will have to pay in penalties is unclear because negotiations with most customers continue and both sides have so far been tight-lipped about these sensitive discussions. Some customers including Emirates, which is by far the largest of the A380 customers with 43 aircraft on order, are also not publicly traded so may not reveal how much Airbus will pay them even after negotiations conclude.
Some customers may also opt for discounts on additional aircraft rather than cash payments. For example Singapore Airlines, which is still planning to place the first A380 into service by year-end, placed an order last month for nine additional aircraft.
Qantas disclosed the A$104 figure in releasing its financials for the fiscal year ending 30 June. It says the funds are being recognised as liquidated damages from Airbus and will be paid over time until the delivery of its last A380.

In announcing the second major delay to A380 delivery schedule earlier this year, Airbus said it expected to deliver only one A380 in 2006, followed by only nine aircraft in 2007. Airbus was originally committed to delivering the first A380 to Emirates, Qantas and SIA in 2006 and was planning to deliver 20 aircraft in 2007.

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