INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

AIRBUS TO PAY RS 100 CRORE TO KINGFISHER FOR A380 DELAY

   European aircraft manufacturer Airbus has agreed to pay Kingfisher Airlines over Rs 100 crore as compensation for the delayed deliveries of the five A380 aircraft ordered by the airline. The UB group-promoted Kingfisher had ordered the aircraft last year. Airbus on Tuesday announced a one-year delay in the project, its third such announcement. Kingfisher is the only Indian carrier of the sixteen airlines globally that have placed orders for about 150 of the aircraft.

   “Airbus has communicated that they are delaying deliveries of the aircraft and the first aircraft will now be delivered only by 2011,” Kingfisher chairman Vijay Mallya said.

   The airline was gearing up to induct the A330 long-range aircraft next year. Though it has not got the permission to fly on international routes yet, Kingfisher is chalking up plans for an international debut and was planning to use the A380 aircraft on high-density routes, like India to the United States.

   The orders were placed at the Paris air-show last year where the Bangalore-based carrier signed up for 15 planes, including five A380 and as many A350s and A330s. The deal was estimated to be worth about $3 billion.

   Morgan Stanley estimates the A380's launch customer, Singapore Airlines, could get compensation of S$200 million to S$300 million from the European aircraft maker. This could boost the carrier's earnings per share for the current fiscal year ending March 2007 by 11%-17%, the bank said in a report.

   Qantas has already been paid A$104 million compensation for the earlier delay. Credit Suisse said the carrier could be entitled to another A$30 million to A$40 million for the latest holdup.

   In Kingfisher's case, it is still not known whether the compensation will be in the form of discounts for the aircraft.

   Airbus is going through a critical phase in its history with the unveiling of delays in the A380 production programme of up to a year. This prompted the company's parent EADS (European Aeronautical Development Agency) to issue a € 4.8 billion profit warning — more than double the € 2 billion figure announced less than four months ago. The slowdown in deliveries means that only one A380 plane will be delivered (to Singapore Airlines) in 2007 (compared to nine announced in June-06), 13 in 2008 (down from 35), 25 in 2009 and 45 in 2010.

   Peter Harbison, executive chairman of the Sydney based Centre for Asia Pacific Aviation (CAPA) said: "The biggest impact of the delays could be felt in the Middle East. Emirates' and Dubai's growth trajectory and competitive impact could be slowed by the delays, which could be positive news for its competitors. Emirates was on track to become the world's largest long-haul carrier (by seats) by 2012 — a goal it will no doubt strive to maintain." The airline has 43 aircraft on order.