Qantas, Rolls-Royce reach settlement

SYDNEY — Qantas said on Wednesday it had reached a $100 million settlement with engine maker Rolls-Royce over a mid-air blast that forced the grounding of the Australian flag carrier’s entire A380 fleet.

The deal led the airline to increase its profit forecast for the year ending in June despite being hit by natural disasters at home and abroad as well as soaring fuel bills.

‘We have reached a compensation agreement with Rolls-Royce following the Rolls-Royce engine failure on flight QF32 in November last year,’ said a ‘pleased’ Qantas chief Alan Joyce.

‘After extensive negotiations Rolls-Royce has committed to a settlement of around Aus$95 million dollars (US$100 million).’

In November a Qantas A380 superjumbo that had just left Singapore was forced to return and make an emergency landing because one of its Rolls-Royce Trent 900 engines exploded mid-flight.

The incident dented the carrier’s reputation for safety, having never experienced a crash in the jet age, and forced it to initially ground all six of its Airbus double-deckers.

Subsequent investigations pinpointed a manufacturing defect that caused fatigue cracking in an oil pipe, resulting in a fire and potentially catastrophic engine failure.

Qantas, Singapore Airlines and Germany’s Lufthansa all used the Trent 900 engine on their A380 superjumbos and dozens of turbines had to be replaced.

The Australian firm did not resume full A380 services until January, and the plane involved in the blast will be out of action until next February for repairs estimated to cost Aus$135 million.

The carrier said the settlement signalled the end of its compensation case in the Federal Court of Australia, adding that it ‘looks forward to a continued strong relationship with Rolls-Royce’.

Its shares, which have lost about a third of their value since the blast, surged three percent immediately after the announcement before dropping back to around A$1.845 — 1.1 percent firmer in a broadly higher market.

Battered by rising fuel prices and a string of natural disasters including an ash plume from a Chilean volcano that forced widespread flight chaos this week, Qantas has announced job cuts, cancelled plane orders and scaled back growth plans.

In light of the payout and despite the impact from recent natural disasters at home and abroad — including earthquakes in New Zealand and Japan — the airline revised its full year earnings outlook, forecasting a pre-tax profit of Aus$500-$550 million in the 12 months to June.

It had earlier predicted profits would be ‘materially stronger’ than the 2010 figure of Aus$377 million.

Disasters including earthquakes in Japan and New Zealand, floods and cyclones in Australia and the Chile volcano had wiped out $206 million, he said, with the full cost of the ash upheaval yet to be determined.

Historically high fuel prices were also eating into profits.

‘We don’t have much leeway, we have to be excellent just to get a profit at all, let alone make the returns required to justify capital investments,’ Joyce said.

He vowed ‘tough decisions’ on Qantas’s international business, which is set to return a $200 million loss for the 12 months ending June 30, pinning the airline’s future on Asia — the world’s fastest growing aviation market.

‘As a nation we used to fly via Asia — now we fly to Asia, and the future will be all about travel to and within Asia,’ he said, promising to unveil a new international strategy later this year.

There has been widespread speculation that Qantas is planning an Asian subsidiary, hoping to lower its cost base and tap the burgeoning travel market there.

The Qantas chief, meanwhile, stepped up warnings to engineers, pilots and baggage handlers over strike plans, accusing unions of having ‘fallen out of touch with reality.’

‘We have seen the anxiety and stress caused when volcanic ash affects many areas of our network — imagine the consequences of industrial action against the whole of our network,’ he said.