Monday, June 4, 2012

Air India Looks To Save Face and Cash after 787 Delivery Cancellation


Air India holds an order for 27 Boeing 787s, but it could struggle to pay for them now. (Photo: Boeing)

June 4, 2012, 12:43 PM

Individuals can argue over who has lost more face as a result of Air India’s last-minute cancellation of its first Boeing 787 delivery: the U.S. airframer or the cash-strapped flag carrier and its masters in the Indian government. But few would debate the awkwardness of a decision by Indian officials to scrap a delivery ceremony planned for between May 28 and 31 at barely four days’ notice, even as a party of 40 invited media and guests prepared to board a flight to Seattle to join elaborate festivities to mark acceptance of the first of 27 Dreamliners ordered by Air India.

Civil aviation minister Ajit Singh canceled the delivery, insisting that Boeing would first have to agree to a revised compensation package for the program’s well-documented delays. Some see the move as a political smokescreen to hide the fact that Air India can barely afford the aircraft and now seeks a face-saving compromise. The airline has suffered through a wave of pilot strikes and is battling to remain competitive in the face of rising costs and debilitating taxes. But Air India badly needs the cost efficiency promised by the 787 to salvage its long-haul international services.

The Air India board met on May 28 to discuss a compensation demand reportedly valued—but not officially confirmed—at $700 million. But it remains doubtful that Boeing will agree to a compensation figure anywhere close to that amount. In March, Boeing Commercial Aircraft president Jim Albaugh dismissed reports that the airframer had agreed to a $500 million refund. “I think if we settled for $500 million, somebody would have told me,” he said. “We don’t comment on deals that we’ve done, but I can tell you that we’re not writing anybody a check for $500 million.”

According to Kapil Kaul, Indian Subcontinent & Middle East CEO with the Center for Asia Pacific Aviation, the final compensation will prove closer to the $275 million figure Boeing reportedly had originally agreed to pay, along with a bit extra “as a face-saving gesture.” Kaul expressed confidence the delivery schedule given by Boeing will stand with an initial delay of two weeks or so. Boeing declined comment.

Suzanne Rab, a partner at London law firm King & Spalding, indicated that despite Boeing’s reputation for insisting on watertight contracts, with little space for exit, high-level political maneuvering might finally resolve the standoff

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