Rolls Royce settles with Qantas for over $100 million

Qantas has reached a settlement with engine maker Rolls-Royce over last year’s mid-air disintegration of a the Trent 900 engine, which temporarily forced the grounding of its entire fleet of A380s. The terms of the agreement have not been revealed but will give Qantas a $100 million (A$95 million) boost in profits. For Rolls Royce the cost of the Qantas settlement is therefore likely to be somewhat greater and my guess would be in the region of $110 million.

My estimate made in November 2010 that Rolls Royce would face a hit of around $300 million for direct costs and in settlement costs seems to be not far off the mark. The cost to Rolls Royce of loss of future sales remains intangible and perhaps only temporary.

The Telegraph:

Alan Joyce, the Qantas chief executive, said the terms of the agreement are confidential, but said the settlement’s profit and loss impact would amount to a A$95m boost to the Australian airline’s bottom line.

Mr Joyce said the settlement marks an end to the legal proceedings Qantas launched against Rolls-Royce in the Federal Court of Australia in December.

In November, a Rolls-Royce Trent 900 engine on a Qantas A380 disintegrated shortly after takeoff from Singapore, forcing the plane to make an emergency landing.

The Australian Transport Safety Bureau’s interim report on the A380 incident said a manufacturing defect in an oil pipe deep within one of the engines led to an oil leak, which sparked a fire. The fire caused a disintegration of one of the engine’s giant turbine discs, sending pieces of it shooting through the plane’s wing and raining onto the ground below.

The engine explosion was the most significant safety issue an A380 had ever faced since it began passenger flights in 2007, and prompted intense scrutiny of Rolls-Royce engines. 

The settlement will help Qantas recover from the millions it lost following the incident. The airline was forced to temporarily ground its entire fleet of A380s for a series of inspections, and Joyce said the plane damaged by the explosion won’t return to service until February.

“Qantas and Rolls-Royce have had a long and successful commercial partnership spanning several decades,” the airline said in a statement. “Qantas looks forward to a continued strong relationship with Rolls-Royce on the basis of the settlement announced today.”

The compensation payment helped boost the airline’s expected underlying pretax profit for the year to June 30 to between A$500 million (£326m) and A$550 million (£359m), up from A$377 million (£246m) a year ago.

…… Qantas shares rose 0.8 per cent to AU$1.84 in afternoon trading.

This leaves Rolls Royce the task of settling with Airbus and some less costly settlements with Lufthansa and Singapore Airlines.

My estimate is that it will take another 2 to 3 quarters for most of these costs to have worked their way through Rolls Royce’s accounts. However RR will have to bear an increased and continuing service cost regime for some time to come for the Trent 900.

The Trent 1000  for the Dreamliner is still a long way off from generating real revenues for Rolls Royce.

The wrecked Trent 900 engine after the Qantas plane landed in Singapore.Photo: AFP

It could be time to buy Rolls Royce again.

Rolls Royce shares, time to sell? Trent 900 hit will last at least 18 months

In the first half of 2010 Rolls Royce had revenues of £5.421 billion with a PBT of £465 million (8.6%) of revenues. Cash position was strong with net cash for the period at £915 million. But it looks less impressive considering the order backlog of £58.4 billion. How much of the net cash was due to order down-payments is not clear. Orders received during the period were £5.9 billion (and backlog was virtually unchanged) and this would have provided net cash of around £550 million. So operating cash flow (excluding financial posts) was probably only £350 million.

The Trent 900 debacle will probably eat up at least £200 million – and perhaps more – over the next 12 -18 months. The immediate effect will also be the loss of some expected orders and 22 A380s – bought by Qatar Airways, Kingfisher, Etihad and Air Austral – are yet to decide whether to use the Trent 900 or the rival GP7200 made by the GE / Pratt & Whitney Alliance. Any loss of market share will be difficult to recover. To sell the 100 additional engines that will be needed to recover the costs of this fix will take a few years. Even though all the costs will not be incurred in this quarter, some significant provision will have to be made this year (and it will be a real warning sign if such provision is not made).

The financial and technological position of Rolls Royce is strong and they should be able to make the fix and weather the storm. But profits will be hit hard for at least the next 12 months and perhaps even longer if Trent 900 sales suffer or if the Trent 1000 is further delayed.

Until the Trent 1000 is established in the Dreamliner (which depends on the Boeing 787 coming into service through next year), Rolls Royce share value is capped and with a big downside. It is perhaps time to sell and it could be time to re-enter in about 12 months if some of the major uncertainties are resolved by then.

ROLLS-ROYCE Share Graph: graphs.lse.co.uk

 

Rolls-Royce cancels Zhuhai Air Show press conference

Rolls-Royce, beset by criticism over its public handling of the uncontained failures of its Trent 900 and 1000 engines, has canceled its planned Airshow China show briefing.

The engine-maker offered no explanation for the cancellation, leaving media attending the show only to speculate on its sudden change of plans.

http://www.flightglobal.com/blogs/flightblogger/2010/11/rolls-royce-cancels-zhuhai-pre.html#comments

Air India’s first Dreamliner gets its colours

Air India‘s first 787 Dreamliner, registered VT-ANA, has been moved from the paint hangar to the Everett flight line. Airplane 25 is slated for a second quarter 2011 delivery to the Indian flag carrier.

Air India has 27 Dreamliners on order.

The VT prefix on Indian aircraft continues an old tradition and stands for “Viceroy Territory”:

The ICAO, a United Nations agency based in Montreal, was established in 1944 to draw up international regulations and standards for air travel. It is responsible for assigning the codes for airlines, airports and individual aircraft used by air traffic controllers across the world. It assigned the code VT to British India in 1944, three years before the country was divided into the independent states of India and Pakistan. India kept VT, while Pakistan was assigned AP. Britain now uses G. Several other former British colonies and territories still use codes that begin with V, such as Australia (VH), Antigua and Bermuda (V2), and the Falkland Islands (VP-F). Others have changed theirs, such as Fiji, which now uses DQ, and Kenya, which uses 5Y.

Plane 25 will be Air India's first Boeing 787 Dreamliner:Photos Credit Moonm

Air India Dreamliner VT-ANA: photo credit moonm

The black plasic on the windows is for  storage. Air India will be using General Electric GEnx engines (and the Rolls Royce Trent 1000 is the only other engine available for the Dreamliner).

 

Image via Wikipedia

General Electric GEnx at the Paris Air Show 2009: image Wikipedia

http://www.flightglobal.com/blogs/flightblogger/2010/11/photo-of-note-air-indias-first.html#comments

Rolls Royce faces 3 different engine issues as Singapore Airlines changes engines on 3 A 380s

It seems that Rolls Royce are facing  issues with three different engines; the Trent 900 for the A380s, the RB211-524s having Trent features and the Trent 1000.

Singapore Airlines are grounding three of their A380s for engine change-outs as a precautionary measure.

AFP:

Singapore Airlines (SIA) said Wednesday it had grounded three Airbus A380 planes to carry out “precautionary” engine changes following a mid-air engine failure on a Qantas-operated superjumbo. ”Based on further analysis of inspection findings as the investigation into last week’s incident involving another operator’s Airbus A380 is progressing, Singapore Airlines will be carrying out precautionary engine changes on three A380s,” the carrier said in a statement.

An SIA spokeswoman told AFP that Rolls Royce had advised the carrier to change the engines after tests showed oil stains on them. ”We were advised by Rolls-Royce in particular that these three engines had signs of oil stains,” she said, stressing the issue was different from the problem that affected the Qantas A380 plane last week.

The three planes are now in London, Sydney and Melbourne pending the engine changes, and SIA could not confirm the duration of their grounding nor the cost of replacing the engines.

My simplistic view of what is certainly a very complicated picture is that there are certain operating conditions at which the Trent 900 is subject to oil leaks (possibly because some oil carrying pipes are susceptible to vibration based cracks). These operating conditions are probably when the Trent 900 is being “pushed” close to maximum thrust conditions and Qantas’ method of operation has these engines operating at these conditions for more of the time than other airlines. This mode of operation probably occurs more often at or soon after take-off.

Even though Rolls Royce has said that the issues with the Trent 1000 are entirely different and have been fixed, there remains the issue of whether the Trent based improvements when introduced into the RB211-524 engine also creates a “dangerous” operating zone.

It seems to me that Rolls Royce is wrestling with at least 3 different engine issues:

1. with the Trent 900 for the A 380′s, especially at high-thrust conditions which Qantas uses more than other airlines,
2. with the RB211-524 (xT) where the (T) represents the use of Trent features and used mainly in Boeing 747-400′s, and
3. with the Trent 1000 for the Boeing Dreamliner where some issues have been fixed but where delays are still in the air.

I have no doubt that they are going to get fixed but the direct cost will be high and my guess is that Rolls Royce will have to bear the brunt of the cost with some costs incurred by Qantas for their own fleet. It will need the sale of many Trent 900s before Rolls Royce can amortise all the development and “teething” costs for this engine. It is of some small comfort that the number of engines to be “fixed in the field” is relatively small. The costs for Airbus will be mainly indirect for the loss of reputation and for some lost opportunities. But the A 380′s ability to land safely even after one wing was heavily damaged is not unimpressive.

Damage to Qantas A380 aircraft was more severe than thought

The Australian:

New suggestions have emerged that a spectacular engine failure near Singapore last week caused more damage to the plane involved than first thought. The No 2 engine’s violent disintegration ripped a hole through the Airbus A380′s left wing, destroying wiring that prevented the pilots from turning off the No 1 engine and causing a fuel leak. Suggestions have now emerged that there was also significant damage to hydraulic systems that prevented spoilers, panels on the wing that create drag to slow the plane down, from deploying.

 

The wrecked engine after the plane landed in Singapore.

 

The suggestions came as the Australian Transport Safety Bureau yesterday interviewed the flight crew of the stricken A380 and performed the first boroscope inspection of the Rolls-Royce Trent 900 engine. Investigators are continuing their search for the rest of a turbine disc that broke up in the incident and have set up a schedule for examining a recovered piece that has been sent to Britain for forensic tests.

Inspections of the grounded planes continued yesterday amid suggestions European regulators were poised to issue an airworthiness directive on the checks.

With this amount of damage to the wing it is a tribute to the pilots and to the Airbus A380 aircraft that the landing in Singapore was as smooth as it was and with no injuries at all.

Rolls Royce has said that the issues are specific to the Trent 900 and there are further indications that the issues may be specific to the engines as used by Qantas.

Meanwhile

Rolls-Royce says that the uncontained engine failure on a Qantas Airbus A380 en route from Singapore to Sydney on November 4 “is specific to the Trent 900. We can be certain that the separate Trent 1000 event which occurred in August 2010 on a test bed in Derby is unconnected,” Rolls-Royce said in a statement yesterday. “This incident happened during a development program with an engine operating outside normal parameters. We understand the cause and a solution has been implemented.”

The engine maker added that it would provide a further update on the investigation with its interim management statement on November 12.

Rolls Royce honing in on problem: share price slide halted

It seems that Rolls Royce are honing in on the A380 problem which seems to be specific to the Trent 900 engine (and perhaps just the Qantas Trent 900 engines) and unconnected with the earlier test bed incident on a Trent 1000. The share sell-off which continued on Monday morning was halted and the share price had recovered somewhat by the end of the trading day in London.

StockMarketWire.com

Rolls-Royce is to carry out a series of checks on Airbuses powered by its Trent 900 engine following an engine failure on a Qantas flight last week.

 

RR share price on Monday November 8th: moneyam.com

 

Rolls-Royce said it had made progress on the cause of the failure and it was now clear the incident was specific to the Trent 900 engine.  It said: “As a result, a series of checks and inspections has been agreed with Airbus, with operators of the Trent 900 powered A380 and with the airworthiness authorities.
“These are being progressively completed which is allowing a resumption of operation of aircraft in full compliance with all safety standards. ”We are working in close cooperation with Airbus, our customers and the authorities, and as always safety remains our highest priority.”
Rolls-Royce adds: “We can be certain that the separate Trent 1000 event which occurred in August 2010 on a test bed in Derby is unconnected.  This incident happened during a development programme with an engine operating outside normal parameters. We understand the cause and a solution has been implemented.”
It said the Trent 900 incident was the first of its kind to occur on a large civil Rolls-Royce engine since 1994. Since then Rolls-Royce has accumulated 142 million hours of flight on Trent and RB211 engines.

Further Boeing Dreamliner delays and Rolls Royce shares feeling the heat

Over 25 million shares were sold on Thursday and Friday as Rolls Royce shares plummetted from 654p to 591p as their problems with the Trent 900 engines for the Airbus A380 and with the RB211-524 engines for the Boeing 747 became apparent.

Further delays of the Boeing Dreamliner which is to use the RR Trent 1000 engines were reported causing speculation that some of these delays were due to delays with the engine.

Boeing Co.  has told several of its early customers that delivery of the 787 Dreamliner will be delayed by as long as 10 months, Aviation Week reported Friday, citing industry sources. Korean Air will receive its first 787 in August 2012, 10 months later than planned. Air India, previously slated to receive the plane in April 2011, will get it in September or October of that year.

Boeing has said it intends to make the first delivery of the plane to All Nippon Airways in the middle of the 2011′s first quarter, according to reports.

Aviation news website FlightGlobal.com reported Thursday that Japan Airlines Corp. had expected to receive its first 787 delivery in March 2011, will now get the plane in June 2011.

http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=comm&id=news/awx/2010/11/05/awx_11_05_2010_p0-267220.xml&headline=Boeing%20Tells%20Carriers%20About%20More%20787%20Delays

Rolls Royce Trent 1000 fix is in place

RR Trent 1000 cutaway

On August 2nd a  production standard ‘Package A’ Rolls-Royce Trent 1000 engine suffered an engine failure while on the test stand at the company’s Derby, UK facility. The ‘Package A’ engines do not incorporate upgrades planned for the ‘Package B’ engines, which will bring the specific fuel consumption target within 1% of planned spec. The failure – which has been described as an “uncontained failure” – of the Trent 1000 engine, which powers the Dreamliner, resulted in “limited debris being released into the test facility,”
At the time a Rolls-Royce spokesman rejected speculation that the unavailability of the engine that Boeing required was related to the incident earlier this month at one of its test facilities in Derby, England, saying the events were “unrelated,” though he declined to elaborate.

Aviation Week: Rolls-Royce says it is already testing an upgrade to the Trent 1000 engine to mitigate a component problem that caused a failure of one of the turbofans this month. The engine maker suffered a Trent 1000 engine failure this month on a test stand in Derby, England, with the powerplant in a sea-level testbed configuration at high power. The engine suffered an intermediate pressure turbine-related failure because of what is being called an “inappropriate operating regime.”

Rolls officials note that ground and flight trials have not been affected, nor is the miscue expected to affect the larger 787 schedule. Rolls supplies the Trent 1000 to Boeing 787 lead customer All Nippon Airways.

Although some elements of what transpired are understood, a Rolls-Royce official notes that “we are now investigating in detail and have made good progress in understanding the issue.” The company was aware of the issue, so later model Trent 1000 builds already have a fix in place, which is now also being installed on engines built to the earlier standard.

The grapevine as to what transpired on August 2nd points to an oil fire in the high pressure compressor drum leading to a failure of the intermediate pressure (IP) shaft. One industry source says once the IP shaft failed, the mounted IP turbine disk moved rearward, causing its blades to impact the low pressure (LP) turbine inlet guide vanes. The result was the separation of the IP turbine disk, which subsequently spun out of the casing and into the test stand.  The same source adds that the “non-adherence to test procedures” was the root cause of the failure, saying that the “stand crew ran more cold starts in close succession than allowed without purging of fuel and oil that accumulate within the engine in places these fluids are not supposed to be.”

Bloomberg reports today that Boeing delayed the 787’s first delivery last month for the sixth time, saying Rolls-Royce wasn’t going to be able to supply an engine needed to finish flight testing. A $17 million Trent 1000 blew up during testing on Aug. 2, forcing Rolls-Royce to close the plant for repairs to the Derby, England, site used to test engines for the 787 and the Airbus SAS A350.

Dreamliner with RR Trent 1000 engines

Boeing Co. said Rolls-Royce Group Plc has a remedy for the August blowout of a jet engine for the 787 Dreamliner aircraft and the two companies will discuss it in meetings in Seattle this week.

A Rolls-Royce team will brief Boeing on a plan that supports the latest target for delivering the delayed Dreamliner at the beginning of next year, Boeing Commercial Airplanes President Jim Albaugh said. Boeing parked one of its five Dreamliner test jets earlier this month to replace one of its two Rolls-Royce Trent 1000 engines that had experienced a power surge before takeoff. Albaugh said a fix is already in place to address the issue, which Boeing has said was unrelated to the engine blowout.