How much will Boeing pay AA for 787 delays?

[FWAAA]

In 2008, AA ordered 42 firm 787-9s and obtained options for 58 more. The 42 firm were to be delivered starting in 2012 thru 2018. The options were for delivery positions from 2015 thru 2020.

Of course, the 787 program has been delayed several times and at last word, the first AA delivery is scheduled for late 2014. AA has said that it and Boeing have discussed the compensation due AA as a result of the multiple delays.

Air India has 27 firm orders and has said that it wants $1 billion for the delays. Aim high. Air India also said that its contract calls for at least $145 million in liquidated damages:

http://www.bloomberg.com/news/2012-02-09/air-india-boosts-demand-for-boeing-787-delay-claim-to-1-billion.html

Wonder what AA's compensation includes? I have previously posted that the 77Ws are the only airplane deliveries for which AA has said there is no financing in place. Could AA's compensation include some reduced/cheap/free rent on 77Ws for a couple of years? Additionally, AA has not filed with the bankruptcy court any motions seeking permission to buy 77Ws like it did with the 2012 738 deliveries.

 

[WorldTraveler]

Were the 787 deliveries confirmed? Wasn't their purchase was subject to approval by the pilot's union?

 

[FWAAA]

AA has what amounts to a right to cancel via an "out" if AA does not notify Boeing 18 months prior to delivery that it has obtained a satisfactory contract with the pilots. The pilots were granted nothing. Obviously, Boeing has not shown the orders on its website as "firm" because of AA's right to cancel. AA has referred to the orders as "firm" for a couple of years because Boeing has no corresponding right to cancel, only AA has that right. The contract does not require that AA get a satisfactory pilot agreement - but releases AA if it cannot get one. Of course, come hell or high water, AA is going to get a satisfactory pilot agreement either thru consent or section 1113.

In a previous conference call, Arpey and/or Horton mentioned to the analysts that AA and Boeing were discussing the revised delivery schedule and potential compensation for the delay. Other than that, AA has been very tight-lipped about the issue.

AA has made lots of noise about its 10 77W orders for delivery from late 2012 thru late 2013, however. Boeing's site shows seven 77Ws on firm order for AA, as conversions of long-deferred 77E orders dating back to 2001. Doesn't show the other three, but on November 30, when AA noisily announced the interior configuration (to deflect some attention from the Ch 11 filing the day before), it trumpeted that 10 77Ws were on order. Same thing a couple of weeks ago when AA released computer renderings of the new F suites and true flat J seats (same as new CX business class) for the 77Ws.

 

[WorldTraveler]

given AA's size and the fact that Boeing would like to regain AA as a long-term committed customer, I am sure Boeing will come up w/ something.... and it may have been baked into the 737 order as well.

 

[TWU informer]

Maybe AA can get Boeing to pay enough to cover the cost of required outsourced management work, while the employees hired to do that work remain on the payroll. Say about $850 Million.

 

[Buck]

Maybe AA can get Boeing to pay enough to cover the cost of required outsourced management work, while the employees hired to do that work remain on the payroll. Say about $850 Million.

Are you referring to groups similar to RLG? Six Sigma?

 

[eolesen]

The more prudent approach for both parties might be to use any delay compensation to reduce Boeing's pre-petition claim...

 

[FWAAA]

You're probably right.

Josh Gautbaum's staff is probably thinking that AA should make a $2 billion claim against Boeing to be paid in cash that could be applied to the underfunded pensions.

If Air India's contract liquidated damages provision is typical, then AA's claim could easily be $225 million or more.

 

[eolesen]

Air India may be a different story... did they actually have backstops in place? The financial state of the long-haul Indian carriers is even worse than AA's right now. They're making noise, but it wouldn't surprise me if they were in such poor shape that they couldn't afford to take delivery right now if the planes were on schedule...

 

[787nightmare]

While up in Everett, we noted some suspect 767s being built for 787 launch Cust ANA. We all figd it was an appeasement for the carrier for the 787 delays.
AirIndia still has several 787s sitting around onPaine Field.

AA won't be seeing any 787-9s anytime soon, as they (as far as I've heard) don't even have one built for flt testing-which will have to take place before production.
But that SHOULDN'T take too long, being the -8 is practically done testing. Most of my buddies had to leave Boeing fld & go back up to Everett-which nobody in test & eval likes to go. Different Co up there.

 

[dfw gen]

We found the one billion dollar additional revune stream!

 

[jimntx]

Now, don't forget, the executives will have to be paid their bonusses out of that billion dollars. They deserve a bonus for finding that revenue stream, don't you think? Say, at least $500 million. They've must have something to pay London hotel bills since the simple little Mayfair pied-a-terre got found out.

 

[WorldTraveler]

IIRC, Air India has parked several widebody aircraft including 777LRs and are trying to dispose of them. They might have a hard time convincing Boeing or a court that they should be compensated when they aren't using the fleet they do have... at best the settlement might come down to the difference between operating costs for the 777 and 787s which AI should have. What is certain is that airlines in India do not need any more longhaul capacity... the 787 delays and the 380 delays before them helped prevent aircraft values from falling or from pushing the global aviation industry into overcapacity which would have happened if those two projects had been on-time.

 

[Bob Owens]

Werent there a lot of problems with the 787 because the quality of the work they outsourced was inferior?

AA wants to follow that example?

How much did the savings from outsourcing cost Boeing in the end?

Wasnt the section of the 737 that tore open in flight built by a vendor for Boeing?

Its a shame, people think they are flying on Boeing built aircraft when in fact much of it may have been made by outfits like Spirit or some other vendor nobody heard of.