Rolls-Royce agrees to pay Qantas $100 million for A380 engine failure

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Published: June 23, 2011

Qantas A380. Photo: By Geoffrey Thomas.

Rolls-Royce agreed to pay Qantas Airways A$ 95 million ($ 100 million) in full settlement for last November’s uncontained failure of a Trent 900 engine on a QF A380 ( ATW Daily News Nov. 4, 2010 ).

The announcement came as part of the airline’s disclosure of a forecast profit before tax of A$ 500 million-A$ 550 million for the year ended June 30. QF reported a profit before tax of A$ 417 million for the half-year to Dec. 31, 2010 ( ATW Daily News, Feb. 23 ).

The airline has blamed disruptions from several significant weather events and natural disasters for an A$ 206 million hit to the bottom line, worse than its earlier guidance of an A$ 140 million hit. The revised figure includes an A$ 21 million cost from the disruptions caused by ash from Chile’s Puyehue-Cordon Caulle Volcano as of June 20 ( ATW Daily News, June 22 ).

In a statement to the Australian Stock Exchange, the airline said that “these events reflect a more challenging operating environment, with significantly higher fuel prices than in the first half.”

QF CEO Alan Joyce said the forecast reflected the underlying strength of the Qantas Group portfolio. “Considering the challenges facing the aviation industry, this is a very good result—the Qantas Group’s best since the global financial crisis,” he stated. “The combination of our two domestic flying brands—Qantas and Jetstar—together with Jetstar International, Qantas Frequent Flyer and Qantas Freight, has enabled us to withstand a number of major events affecting our performance.”

However, Joyce said that Qantas International is forecast to generate a loss before interest and tax of approximately A$ 200 million, on invested capital of more than A$ 5 billion, with a worse result expected next year. “Qantas International is the Group’s weakest business—it has achieved required returns only three times in the past 15 years. Clearly the situation is not sustainable,” he conceded. “However, we are developing a long-term strategy aimed at restoring competitiveness and profitability.”

Qantas will likely announce a major shakeup of Qantas International later this year.

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