Qantas A380 compensation boost to profits

Qantas A380 compensation boost to profits

Qantas has agreed a £62 million settlement with Rolls-Royce for last year’s engine explosion on an Airbus A380 superjumbo.

Qantas was forced to ground all six of its A380s for detailed inspections after a turbine blow-out in November damaged the aircraft carrying 466 passengers and crew bound for Sydney from Singapore.

The incident forced Lufthansa and Singapore Airlines, the only other airlines to fly A380s with Rolls-Royce engines, to also conduct inspections before returning them to service.

The settlement, which excludes Aus$135 million of repair costs covered by insurance, is slightly above estimates by investment bank Merrill Lynch, which had said the grounding of the Qantas A380 fleet could cost the airline Aus$207 million.

The deal has transformed the airline's prospects as it suffers from higher fuel costs, a volcanic ash cloud grounding flights and unions threatening industrial action.

The Australian flag carrier now forecasts an underlying pre-tax profit for the year to June 30 of at least Aus$500 million, up from Aus$377 million a year ago. Chief executive Alan Joyce described the company's earnings as the “best since the global financial crisis”.

But Qantas has been forced to cancel hundreds of flights throughout Australia and across the Tasman Sea to New Zealand because of volcanic ash drifting from Chile.

The disruption cost Aus$21 million up to June 20, bringing total lost earnings from natural disasters including earthquakes in Japan and New Zealand to Aus$206 million.

Higher fuel costs on international routes has been complicated by a lingering dispute with unions representing pilots, engineers and baggage handlers. The airline narrowly avoided a strike last month.

Qantas’ international flight operations are expected to post a Aus$200 million annual loss before interest and tax, with an even weaker result expected next year. However, domestic operations are seeing the benefit of the relative strength of Australia's economy and its proximity to fast-growing Asian economies.


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