Qantas Airways A380 Grounding May Cost $204 Million, Merrill Lynch Says

Qantas Airways Ltd.’s grounding of its Airbus SAS A380 fleet after an engine explosion may cost A$207 million ($204 million), analysts at Bank of America Corp.’s Merrill Lynch unit said.

The estimate includes A$137 million for lost revenue at Australia’s largest airline and A$70 million for direct repair costs for the Rolls-Royce Group Plc Trent 900 engines that power its A380s, Merrill Lynch analysts led by Kevin O’Connor said in a Dec. 7 report to clients.

Qantas began legal action against London-based Rolls-Royce last week, seeking unspecified compensation for the grounding prompted when a Trent 900 exploded shortly after takeoff from Singapore on Nov. 4. The Sydney-based carrier has returned two of its six A380s to the air for flights to London while Los Angeles services for the jets are halted pending further tests.

“We expect compensation to fully cover direct costs and revenue loss,” O’Connor wrote, affirming his “buy” rating on Qantas shares. “But this doesn’t cover the cost of rebuilding Qantas’ brand.”

Qantas fell 1.9 percent to A$2.64 at the 4:10 p.m. close of Sydney trading. The stock has dropped 8 percent since Nov. 3, compared with a 0.5 percent decline in the S&P/ASX 200 index.

Olivia Wirth, a Qantas spokeswoman, declined to comment on the Merrill Lynch estimate. Roger Hunt of Sydney-based Hunt McDonald & Associates, which handles Rolls-Royce’s media communications in Australia, said the engine maker continues to work with customers on resolving issues with the Trent 900, declining to comment further.

Qantas said Dec. 2 it has begun talks with Rolls-Royce to recoup financial losses and may sue if a settlement can’t be reached.

To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.