Rolls-Royce, Qantas settle A380 engine dispute

Transportation Reuters

By Balazs Koranyi and Michael Smith

Continue Reading Below

SYDNEY (Reuters) - Rolls-Royce <RR.L> and Qantas <QAN.AX> have reached a settlement over an Airbus <EAD.PA> A380 engine explosion last year that forced a jet with 469 people on board to make an emergency landing and grounded much of the airline's fleet.

Qantas said the out-of-court commercial settlement would add A$95 million ($100.6 million) to its 2011 pre-tax profit and called off legal action against Rolls-Royce.

However, Rolls-Royce provided a lower figure and said the final deal did not change its guidance on the cost of the incident, which forced several airlines to ground their A380s, the world's biggest passenger aircraft, and replace some Trent 900 engines.

"The agreement is entirely consistent with the financial guidance given with our full-year results; that total costs to Rolls-Royce as a result of the incident were 56 million pounds ($90.6 million) in the 2010 financial year, with some small additional costs in 2011," it said in a statement.

Sources close to the deal said the main difference between the figures is that Rolls-Royce likely accounted for some parts and services at cost while Qantas accounted them at market or list prices.

Continue Reading Below

Analysts had previously estimated the airline's loss from the incident would reach about A$60 million while the plane's insurer estimated repair costs at an additional $70 million.

However, Qantas Chief Executive Alan Joyce said repairing the damaged aircraft, named after aviation pioneer Nancy Bird-Walton, would take until next February, keeping it out of action for nearly a year and a half and resulting in further loss of revenue.

The Australian Transport Safety Bureau blamed a disc failure caused by a manufacturing defect in an oil feed pipe for the incident over Batam island, Indonesia, shortly after take-off from Singapore last November.

Qantas immediately grounded its A380 fleet, forcing it to pull its biggest aircraft from some of its most lucrative routes for over three weeks during the southern hemisphere summer travel season.

The airline scrambled to replace potentially faulty engines and even pulled some new engines from Airbus production lines, causing a delivery delays of future A380s.

Qantas shares initially jumped as much as 3 percent but eased back to end 0.3 percent higher as investors digested the airline's warning that its international operations have to be restructured to save profitability.

Qantas said it expects its full-year earnings to come in close to market expectations but faced heavy losses on international routes and it continued to grapple with rising fuel prices and flight disruptions.

($1 = 0.944 Australian Dollars) ($1 = 0.618 British Pounds)

(Editing by Ed Davies and Anshuman Daga)

What do you think?

Click the button below to comment on this article.