THAI stuck with A380s

[CebPac]

Cancellation penalties could reach $700m
By: BOONSONG KOSITCHOTETHANA
Published: 11/07/2009 at 12:00 AM
Newspaper section: BusinessThai Airways International (THAI) has no option but to keep its order for six Airbus 380 megajets, because cancelling could have huge legal and financial consequences.



Mockup of the A380 in THAI livery

"The best option available for us is to delay taking delivery of those A380s," Wallop Bhukkanasut, the chairman of THAI's executive board, said last night.

The flag carrier had earlier sought to terminate the A380 contract or change to another future Airbus model, the A350-1000, as it had come to believe the world's largest commercial aircraft would not be economical to operate.

In the recent negotiations with the European planemaker, Airbus has ruled out those changes and THAI itself has come to realise that the cancellation will result in a legal battle that would have a significant impact on THAI and the image of the country as a whole, something the airline wants to avoid, according to Mr Wallop.

The cancellation would expose the airline to US$700 million in penalty costs - $300 million in pre-payment for airframes and $400 million for contracts already committed.

"Several contracts involved in the A380s are restricted with absolutely no room for change," Mr Wallop told reporters after the airline's board meeting.

THAI is now proposing that the delivery of its first three A380s, each costing $300 million, be put off to 2012 and the remaining three in 2013.

The airline has been contracted to take delivery of the jets in two lots, in October 2010 and June 2011.

"In 2012, global economic conditions should be in much better shape, and so will traffic volume. By then, THAI's cash flow problem should have been resolved and the economic environment improved," he said.



Wallop: Delay is the only real option



THAI will continue to negotiate with Airbus on details of the new proposal but it wants the company to cap the cost escalation in order to minimise the financial impact, he added.

The airline will also reconsider how the aircraft could be deployed, he noted.

THAI had earlier planned to fly the A380s on its long-haul routes, such as Bangkok to London, Paris and Frankfurt.

Airbus has scaled back production of the A380 this year as customers resist taking large planes because of the global travel slump.

THAI is seeking to cut costs after posting a net loss of 21.3 billion baht, its first in its history, in 2008. It earned 7.8 billion in profit in the first quarter this year, mainly on currency gains.

Mr Wallop acknowledged that the chance of getting the A350-1000 early in the event of a change from the A380 was slim as there was a huge order backlog for the aircraft, for which deliveries are not expected until 2018.

THAI shares closed yesterday on the Stock Exchange of Thailand at 13.20 baht, down 90 satang, in trade worth 77.88 million baht.