Qantas shares rose on Friday as investors appreciated the reasons for the surprise cancellation of orders for 15 Boeing 787 Dreamliners and the delayed delivery of a further 15 aircraft.
Qantas shares rose 3.5 cents to $2.01 on the news, which came two days after Boeing revealed more delays for the increasingly troubled airliner.
But the realities of the market and downsizing of expected future growth drove the Qantas decision, not the delays at Boeing.
The decisions will save the airline tens of millions of dollars a year in interest charges after a $US3 billion (A3.7 billion) cut in its capital spending bill over the next five years.
The airline says it remains committed to the new carbon fibre jetliner and CEO, Alan Joyce said in a statement that the changes to the group’s B787 orders were appropriate in the current climate.
Interestingly, there was no comment on Qantas’ current trading situation, which could be relatively good news (after all it issued an earnings downgrade before the 2008 final profit).
Qantas said it had reached a mutual agreement with Boeing to defer the delivery of 15 Boeing 787-8 aircraft by four years and cancel orders for 15 Boeing 787-9s, scheduled for delivery in 2014/2015.
Mr Joyce said discussions with Boeing, which commenced some months ago, had not been influenced by the Boeing announcement of another design problem that would force further delays to the aircraft’s first flight.
That first flight had been expected to happen in the very near future after a series of positive stories and reports from the Boeing camp in the past month about the good progress on the Dreamliner.
Mr Joyce said Qantas announced its original B787 order in 2005 and the operating environment for the world’s airlines has clearly changed dramatically since then.
"Delaying delivery, and reducing overall B787 capacity, is prudent, while still enabling Qantas and Jetstar to take advantage of growth opportunities and market demands, both domestically and internationally," he said.
Mr Joyce said Qantas remained committed to the aircraft as the right choice for Jetstar’s international expansion, Qantas’s growth and as a replacement for Qantas’s B767-300 fleet.
Boeing said the first flight (which was due to be done by tomorrow) and first delivery would be rescheduled and it would advise of the new schedule in the coming weeks.
Mr Joyce said on Friday that the latest delay was "disappointing".
"The agreement we have reached with Boeing will provide greater certainty going forward in terms of our fleet renewal and growth strategies as well as broader resource planning and matching capacity with demand," he said.
"It will also allow Qantas to manage capital investment more effectively while still delivering an aircraft that offers sound prospects for our flying businesses and our customers."
The changes will result in Qantas’s total firm orders for the Dreamliner reduce from 65 to 50 aircraft, comprising 15 B787-8s and 35 B787-9s.
What Mr Joyce didn’t say is that the ambitious expansion plan for Jetstar into Europe and other parts of the world will have to be slowed.
Jetstar had been looking to take delivery of the new planes from early next year.
Those plans will be slowed and to meet some of the milestones, it will have to consider leasing new jets, such as Airbus 330s, to fill the gap.
Qantas started talking to Boeing around April about changing its huge order. At the time international travel was depressed. Passenger numbers were down by more than 11% and air freight was off 20%.
Since then there’s been signs of a steadying with the pace of the slide slowing and some small examples of growth emerging.
But the industry is still depressed internationally and in many national markets, so the Qantas decision is easier to understand.
The International Air Transport Association (IATA) announced on Friday night that international scheduled traffic results for May showed passenger demand down 9.3% compared to the same month in 2008, while freight demand was down by 17.4%.
"International passenger load factors stood at 71.2%, down from 74.5% recorded in May 2008," IATA said.
"The 17.4% decline in international cargo demand is a relative improvement compared to the 21.7% drop in April.
"Since December 2008, cargo demand has been moving sideways in the -20% range. This is one of the first physical signs of the economic recovery being anticipated in equity markets.
"International passenger demand weakened from the -3.1% recorded in April to -9.3% in May.
"But both of the past two months have been slightly stronger than the 11.1% decline reached in March, even after adjusting for the distortions caused by the timing of Easter.
"This indicates that a floor may now have been reached. However, the capacity adjustment of -5.0% in May did not keep pace with the fall in demand during the same month.
"Moreover, although the impact of the recession appears to be stabilizing, strong headwinds from debt and low asset prices are expected to weaken and delay any significant recovery."
Giovanni Bisignani, IATA’s Director General and CEO said in a statement:
“Capacity is not aligned with demand. Passenger load factors dropped 3.3 percentage points over the last 12 months. The impact on revenue is dramatic.
"After a 20% fall in international passenger revenue in the firs
