Qantas cancels, defers 787s

It was just announced that Qantas Airways canceled 15 orders for 15 787s and deferred 15 more.

This has nothing to do with this week’s delays. Qantas has been considering its order positions for some time, based on the global economic conditions, and an unhappiness in performance.

This is essentially immaterial to Boeing’s backlog of what is now about 850 787s. Clearly, with a list price of some $160m each, nobody likes to lose an order. But this allows other airlines to move up in delivery slots. The Qantas slots are early in the program.

12 Comments on “Qantas cancels, defers 787s

  1. Immaterial ? Leehamnet, you must be very rich. To me, $3bn are not at all immaterial. If I were an aircraft manufacturer, I would very seriously ask Qantas for their reasons and I would also ask my financial advisors for the consequences of this loss regarding the future and credit worthyness of my company.
    Qantas is not the only Boeing customer which is in troubles, not even that one which is in the worst troubles.
    Believe me, there is more to come, as long as this recession lasts, and nobody knows how long it will last.

  2. “Immaterial” in this context:

    1. It represents less than 2% of the 787 backlog.
    2. Given the program difficulties, Boeing can use the now-vacant slots to better advantage.
    3. It’s $3bn at list prices, but take off the discount to QF off the purchase price (probably 25%, to $2.25bn) and further offset the penalties that may be reduced to other airlines now that these slots could be reassigned to them, then add back the penalties paid to QF and refunded deposits.
    4. Considering the additional 787 program costs and the factors in #3, plus the big picture of 1 and 2, it’s immaterial.

    Obviously Boeing would rather not lose this order, but it’s got bigger problems. Those 15 slots likely have a tangible and intangible value worth QF’s deal.

  3. If what you are saying is that those slots could be re-sold at a higher price, I think that’s improbable.

    I’ve seen several of the “look on the bright side” comments this morning and frankly, the logic escapes me. If that many cancellations is good, how many have to occur before ‘good’ morphs into ‘bad’?

    Lets keep it simple:

    Orders good. Cancellations bad. OK?

    • We are not suggesting that the slots will be resold. We are suggesting the slots are absorbed into the production and other customers can be moved forward into these slots, thus reducing delays (and penalties) to them.

      Fifteen slots by themselves don’t amount to much but now with 73 cancellations (58+15), some progress may be made in reducing delays.

      If “orders good, cancellations bad” were only that simple but in this case there is a lot, lot more to it than that.

    • When you’re talking about an order book of 800+ aircraft with the earliest delivery slots something like 8 years after the initial delivery unless a second production line is added, you’re dealing with an extraordinary situation. That’s almost 80% of all the orders Airbus has taken for A330s from launch in 1987 through May 09. All before the aircraft is even in service. I don’t find it at all surprising that the backlog might be shrinking now and through the first delivery as reality sets in. Looking at it simple terms like “orders good, cancellations bad” is treating it like a normal aircraft program, and the sales of the 787 (and the A350, frankly) have not been normal.

  4. I see it as material in the sense that Boeing wants the money for the planes and doesn’t want people to buy more A330s as substitutes. However, Boeing has such a huge backlog that figuring out a way to get everyone who wants an aircraft on time is a major headache. The pressure on them to ramp up quickly and add a second line ASAP are the kind of factors that complicate an already difficult-to-manage program. So there’s a silver lining even with a wave of cancellations. Long term, it’s more important to focus on getting the program moving than worrying about losing orders.

  5. With 73 cancellations around 9% of the backlog for 787 have been cancelled before first flight. Not good and it is likely not the last cancellation.

    If that allowed Boeing to move up other customers it could indeed have a positive side however we have just learned about serious design flaw in the wing which will cause multi month delay eating up many more slots than the cancelled ones.

    In short term cancellation also means refund of deposits to the customer therefore cash out of Boeing’s door.

  6. I see this as a tidying up of Qantas’ order. The deferred planes won’t be delivered much later than they would have been if Qantas had kept their place in the queue. In effect, Qantas are not taking the planes that would have been delivered by now, if Boeing had kept to schedule.

    Benefits to Qantas of this rationalisation: They keep their superb early adopter pricing, even on a smaller order. They’ll get their deposits back, with perhaps some further compensation – useful cash in these difficult times. They have the flexibility of buying more planes as options, but aren’t committed to doing so.

    Not especially good news for Boeing, but no worse than a reflection of the reality. They will permanently lose off their backlog a chunk of the planes they should have delivered. As shown by Qantas, airlines have the choice of keeping their orders or converting them to options. Boeing can come back another day and try to interest them in more orders, but it will be a new sale.

  7. Scott, at what point would “Boeing can use the now-vacant slots to better advantage” turn into a problem? Sure, your argument is valid, up to a point, when the projected short to medium term earnings will be reduced by a sizable amount. If the trend of the early slot cancellations + deferrals is to continue, this will be a problem, whichever way you put it.

    • Obviously the bleeding can’t continue indefinitely on cancellations, and we believe there will be more.

      As for projected short- to medium-term earnings reduction, that’s already happening and one Wall Street analyst already predicts the 787 will pull all of BCA into a loss soon.

      • So whatever they do, they can’t win. Either they lose customers for the early slots and the revenue with it, or they keep the orders and deliver them further down the line paying extra penalties for the delays. I don’t see any positives in either scenario.

  8. It isn’t just BCA of course.
    If the partners in total are about 70% of the project, then collectively over the preceding time plus at least a further 18 months before EIS they are saddled with around $50 billion in debts.If BCA lose their financial rating, some of the partners financiers are going to be very nervous.

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