Qantas places $26b Boeing order

Qantas CEO Geoff Dixon and chairwoman Margaret Jackson. Picture / Reuters

Boeing, the world's second-largest commercial aircraft maker, beat rival Airbus to win a 115-plane order valued at up to A$24 billion ($25.6 billion) from Qantas Airways.

The order is for 65 Boeing 787s for delivery starting from 2008 and options for another 50 of the same model, Qantas said.

Jetstar Airways, the low-fare unit of Qantas, will use some of the 787 planes, moving away from its all-Airbus fleet.

The purchase, Qantas' biggest since 2000 and the 787's largest single contract, helps Chicago-based Boeing win more orders than Europe's Airbus for the first year in five. Qantas needs so-called wide-body planes that are more fuel-efficient and can carry more passengers over long distances.

"This is a Christmas present to Boeing," Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, said in Sydney.

"This has been a very long, hard-fought battle between the two of them and Boeing will be extremely relieved that they've managed to keep a stake in what has been traditionally a very Boeing market."

Qantas, which plans to spend about A$20 billion on planes in the next 10 years, has been choosing since August between Boeing's 787 and Airbus' A350 model to fly domestic and short international routes. The 787, dubbed by Boeing as the Dreamliner, is designed to burn 20 per cent less fuel than other aircraft of the same size and flying a comparable distance. The Airbus A350, approved this year for development, competes with the 787.

"This will give us the latest aircraft" and a model that's "very fuel efficient in an era of high fuel costs," said Qantas chief executive Geoff Dixon.

The first 65 Boeing 787 planes carry a combined list price of A$13 billion, Dixon said.

Qantas shares rose 3.2 per cent to A$3.87 in Sydney yesterday, the highest in more than two years and extending this year's gain to 4 per cent.

Boeing and Airbus have doubled their 2005 orders from last year, helped by Asia's rising demand for air travel and for more fuel-efficient planes.

Airbus had an order for 687 planes as of November 30, lagging behind Boeing's record 806 firm orders as of December 6. About 30 per cent of Boeing's orders are by airlines based in the Asia-Pacific region.

Qantas will pay for the planes out of its operating cashflow. It will need 145 engines to power the twin-jet aircraft and will choose next year between General Electric and Rolls-Royce to supply the 787's propulsion system.

The Boeing 787 comes in three models. The standard 787-8 can carry between 210 and 250 passengers in three classes and fly a maximum distance of 8500 nautical miles (15,740km).

That's enough to fly non-stop from Sydney to San Francisco, Mexico City or Los Angeles.

Qantas said it chose the 787 over the Airbus A350 because the Boeing model can fly further and faster with a full payload, burn less fuel and reduces maintenance cost with only one aircraft model.

"There was nothing in the price between the two manufacturers," Qantas chief financial officer Peter Gregg said.

Dixon, 65, said Qantas dropped a plan to buy so-called ultra-long-range aircraft to fly to London and New York from Australia.

Offers by Airbus and Boeing of the so-called hub-buster aircraft were unable to meet Qantas' economic requirements, he said.

The number of international passengers flying to and from Australia rose 8.8 per cent to 1.7 million in August from a year ago and 26 per cent more than in 2003, according to latest figures by Australia's Bureau of Transport and Regional Economics.

Domestic air traffic was a record 3.7 million trips in September, 6.3 per cent higher than last year.

Qantas carried 29 per cent of international passengers leaving Australia in the 12 months ended June 30, more than double the volume of Singapore Airlines, its nearest competitor with 10 per cent of the market. Qantas has lost about a quarter of its 40 per cent lead 10 years ago.

The Qantas order is for a mix of 787-8 and 787-9 aircraft.

The 787-9 model, which can fly up to 8800 nautical miles with up to 290 passengers, will enter operations in 2011.

"This is a very, very big commitment to growth and capturing international market share," said Dixon.

Jetstar Airways, Qantas' wholly-owned discount carrier, will add 10 of the 787s to its Airbus fleet from August 2008, part of an expansion plan that may see it start flying international routes to Asia and Vancouver, Canada.

"The economics of the 787 outweighed any disadvantages of having multiple-model fleets," Jetstar chief executive Alan Joyce said. "The price we got for the aircraft will be a lot better than the price any of the competition can get."

Qantas said it expected to spend A$900 million more on fuel this year, lower than its October 13 forecast of A$1.1 billion.

The carrier raised its fuel hedging position to 75 per cent from 60 per cent and is trying to deliver A$3 billion in cost savings by 2008. It has taken on some hedging for fiscal 2007, Gregg said. "We'll start to rev that up as the opportunity arises."

Qantas would not raise its fuel surcharge "at this stage," Gregg said. The carrier increased the price of air tickets for a fifth time in August, adding A$75 to the cost of international travel.

- BLOOMBERG