A broad look at the QANTAS/Jetstar 787 cancellation and deferral

The news came early this morning in Sydney, that Australia's largest airline, Qantas had made significant changes to its 787 order, deferring the 15 787-8s it was supposed to receive starting in mid-2010 for Jetstar, while canceling 15 additional 787-9s scheduled for delivery in 2014 and 2015.

First, lets examine the changes:

• Jetstar's first 15 787s will now be 787-9s, not 787-8s and will arrive in mid-2013.
• The 15 deferred 787-8s will be put into domestic operations starting in the 4th quarter of 2014 over the following 12 months.
• The remaining 20 787-9 will be for Qantas and Jetstar operations, with the first deliveries in the 4th quarter of 2015 through 2017.
• Total firm order stands at 50 787s, down from 65, with options for 50 more

Qantas cited the volatile economic climate as the reason for the significant shift in its order, and noted that the latest delay in first flight had no bearing on the decision. The deferral negotiation was first announced on April 14th when the airline delayed its A380 deliveries.

Though the cancellation of 15 787-9s is very significant for the 787 program, lowering the total orderbook to 840 units from 56 customers, the disclosure of the revised plans for the aircraft is perhaps the more significant story.

Qantas was originally allocated three aircraft - LN21/24/27 - in the early 787-8 production run. That number was later increased to five with LN22 and LN29 reallocated to the Australian carrier after Delta/Northwest disclosed it was retooling its delivery schedule. These early 787s would have benefited from the second blockpoint weight improvements that are planned for LN20.

Of the first 30 787s being built, 24 are production standard aircraft. Since 2007, seven of 12 787 launch customers have deferred their deliveries of the block of the first 30 aircraft. The five airlines are Delta/Northwest, Air China, Shanghai, China Eastern, Grand China Air, China Southern and now Qantas.

The question becomes which customers backfills the 15 open spots on the 2010 787 delivery calendar. Just last week, Pat Shanahan, vice president of airplane programs at Boeing affirmed that early demand for 787s continued unabated despite the economic downturn. As a result, Boeing maintains its goals for its production pace even with the latest delay in first flight and the uncertainty of the overall schedule.

Long Enough legs?
Before today's order shift, one source very familiar with the airline's planning says that a configuration of up to 330 passengers was being considered for the Jetstar 787-8s to connect Australia to Europe. The source adds that the 787-8 would have been able to perform that mission, but not without two intermediate fuel stops, a reality that likely played into the airline's decision making. The increasing empty weight of the -8 and resulting reduced performance at these high loads would have economically prohibited the high density European routes with the 787-8.

The switch by Qantas to the 787-9 is a further "feather in the cap" for the first 787 derivative, which will benefit from what is learned during flight test on the 787-8 its first years in service with a longer range. Though, the deployment of the -8 beginning toward the end of 2014 on only domestic operations as a 767-300ER replacement within Australia speaks volumes about how the airline perceives the future performance of the airplane and timelines for weight reduction.

AirAsia X Factor
The Jetstar competitive landscape is also crucial to understanding the motivation of the airline. Kuala Lumpur-based Air Asia X has had bold plans to expand its low-cost, long-haul network to the US and to Europe.

Australia Aviation blogger and journalist Ben Sandilands captured the competition:

And AirAsia and Jetstar are competing new model trans border low fare airline franchises. The business models are identical, and not yet fully proven, just like the jets they have chosen for future long haul operations.

Both have international divisions, with AirAsia X the Malaysia based brand's long haul subsidiary already flying A330s to Kuala Lumpur from the Gold Coast, Melbourne and Perth, with Sydney expected to be confirmed soon.

Their international ambitions also overlap on the 'kangaroo routes' between Australia and Europe, where the originally promised, repeatedly promised, long range capabilities of the 787-8 would allow Qantas to re-enter markets such as Amsterdam, Rome and Manchester and expand the network into new ones.

Those promises turned to dust. The Qantas strategy for Jetstar, at least as far as timing is concerned, has been usurped by AirAsia X, and to say that senior management has been embarrassed and very unhappy with the situation is an understatement that quickly cost Boeing $292 million in cash compensation.

At the Paris Air Show last week, AirAsia announced a firm order for 10 A350-900 aircraft seating 400 in a two-class layout with a 10-abreast economy seating. First deliveries of the aircraft are due to take place in the first quarter of 2016. Before the delays stalled the program, Jetstar's first 787-8s were to arrive in August 2008, later revised to June 2010.

AirAsia launched service to London-Stansted on March 11th of this year using an A340-300, after detailing its expansion last October. Had the 787-8 arrived in Jetstar's fleet on time in 2008, the airline would've had a low cost carrier with access to the the European market ahead of AirAsia, however the change of forture for the 787 program has given the Malaysian carrier a lead into Europe.

For Jetstar, selecting the larger -9 to launch service to the US and Europe against AirAsia's A350 XWB will pit the larger 787 against its composite rival, with a more equivalent ability to pack its planes in a high capacity configuration.