Boeing Co. lost an order for 35 Dreamliners with a list price of $8.5 billion in the biggest 787 cancellation yet as Qantas Airways Ltd. scrapped a contract after delivery delays and losses on international routes.
Qantas’s pullback on the 787-9 reduced Chicago-based Boeing’s backlog for the larger derivative of the composite-plastic plane by about 10 percent. It also underscores a travel slowdown that has caused carriers including Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. to cut growth plans.
“It’s going to bother people more because of what it says about growth in air travel than because of anything it says about the 787,” said Howard Rubel, an analyst with Jefferies & Co. in New York. “You could have seen for some time that there have been some financial challenges in the market.”
Europe’s economic weakness has blunted air-travel strength in other regions, and there are signs that demand for premium seats on international flights, which fetch the highest fares, may diminish further in coming months, according to a report last week from the International Air Transport Association.
Qantas will get $433 million from Boeing, including more than $300 million compensation for 787 delays and a refund of deposits for the canceled order, Chief Financial Official Gareth Evans said today at a press briefing in Sydney.
The airline’s budget arm Jetstar will still receive 15 of the smaller 787-8s starting next year. A Boeing spokesman, Marc Birtel, declined to comment on the finances.
“Although we see this cancellation having no impact on our 787 delivery forecasts out to 2015, this news could have a negative impact on investor sentiment towards Boeing and its suppliers,” Rob Stallard, an analyst at RBC Capital Markets in London, wrote in a note. He rates Boeing shares outperform.
Boeing fell 3.4 percent to $70.36 at the close in New York, the stock’s fourth straight daily drop. Qantas, Australia’s largest airline, rose 2.6 percent, the most in almost a month, to A$1.20 in Sydney as the cancellation and payout eased funding concerns.
Boeing had lost orders for 25 Dreamliners this year before today, including a lot of 24 scrapped by China Eastern in March. The 787 backlog still totals more than 800 planes, according to Boeing’s website. The jet’s first delivery came in 2011, ending more than three years of delays as Boeing struggled to develop the world’s first airliner built of composites and used new production techniques that relied more on suppliers.
Qantas canceled the order after reporting an annual loss of A$245 million ($258 million), the first in its 17-year history as a listed company. The Sydney-based carrier is struggling to pare losses on international routes because of competition from Middle East airlines led by Dubai-based Emirates.
“Circumstances have changed significantly since our order several years ago,” Qantas Chief Executive Officer Alan Joyce said in a statement. “In the context of returning Qantas International to profit, this is a prudent decision.”
Joyce has also delayed Airbus SAS A380s, cut overseas routes, and begun talks on working with Emirates on a partnership to revive international operations.
Qantas was due to receive 17 787-9s in the two years ending June 2016 and 18 after that, according to a company presentation. The airline had chosen General Electric Co.’s GEnx engine to power them. Delivery delays meant the orders became options, which allowed Qantas to cancel them, CFO Evans said.
The carrier is retaining 50 other options for 787-9s. These have also been brought forward by two years so that deliveries will begin in 2016 if they are exercised.
The options give Qantas “a fixed place in the queue and a fixed manufacturing date and a fixed price,” Evans said. The 787-9 seats as many as 290 passengers, compared with the 250 maximum on the 787-8, according to Boeing’s website.
The cancellation may let Boeing deliver 787s ordered by other customers at an earlier date, which will help it reduce other penalties for late payments.
Boeing “has shown its ability to anticipate order deferrals and cancellations with a global fleet planning algorithm and overbook delivery slots in sufficient numbers as to be able to continue a smooth pattern,” Stephen Levenson, an analyst at Stifel Nicolaus in New York who recommends buying the company’s shares, wrote in a note to clients. “As a result, we don’t expect suppliers to be impacted in any way either.”
Boeing is seeking to boost production to 10 Dreamliners a month, a record for wide-body jets, by the end of next year. It currently assembles 3.5 a month at its main wide-body jet factory outside Seattle and at a new 787 plant in South Carolina.
The largest 787 cancellation previously was for a 25-plane order by an unidentified customer in 2009, Boeing’s Birtel said.