Qantas' A380 bill to Rolls-Royce to top A$200 million?

By David Flynn, December 9 2010

Update

Rolls-Royce could find itself facing writing Qantas a cheque for upwards of $200 million in compensation for the drama caused by its Trent 900 engines to Qantas' Airbus A380 fleet.

Analysts at US firm Merrill Lynch are now pegging the cost at A$207 million (US$204 million) – more than double earlier estimates by the insurance arm of US-based Aon Group which started at A$100 million.

Merrilll Lynch says that A$137 million of their tally is for lost revenue, along with A$70 million for repair costs to the Trent 900 engines. However, as Merrill Lynch analyst Kevin O'Connor notes, "this doesn’t cover the cost of rebuilding Qantas' brand." And what that will add to the final bill is anyone's guess.

Qantas is now moving to recover costs from its recent A380 woes from Rolls-Royce, manufacturer of the Trent 900 engine which exploded on its QF32 flight (see the leaked pics) and subsequently grounded the airline's entire Airbus A380 superjumbo fleet.

The airline is tipped to resume A380 flights between Sydney and Los Angeles on a limited basis from Tuesday January 18, 2011, with full services for both Sydney and Melbourne recommencing at the start of February.

The high-revenue Australia to Los Angeles routes have been without the A380 for over one month, following Qantas' decision to ground the entire fleet after the dramatic explosion of a Rolls-Royce engine on an Airbus A380 flight from Singapore to Sydney on November 4.

Initial estimates for Qantas' month of A380 misery range from at least A$100 million through to A$135 million, according to the insurance arm of US-based Aon Group.

The damage from the exploding engine on QF32 to the plane's wing and fuselage are expected to represent almost half of that bill.

On top of that comes the cost of lost business and service disruptions as Qantas moved to juggle other planes in its fleet to back-fill against the grounded A380 on high-capacity routes to the USA, Singapore and London, which Aon Group has pencilled it at a further $30 million to $60 million.

And that's before less tangible factors such as the cost to Qantas' reputation are taken into account.

Although Qantas returned its first A380 to service last weekend, it's not expected to be until early 2011 that the entire fleet is back in the air.

Two new A380 deliveries have been made with the revised engine designs already fitted, but the others must undergo an engine swap before coming back on the schedule.

Qantas CEO Alan Joyce has previously said that once the immediate A380 situation was past, the airline would begin discussions with engine-maker Rolls-Royce on the matter of compensation.