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Airbus Pays Emirates US$100M In A380 Liq. Damages  
User currently offlineSInGAPORE_AIR From United Kingdom, joined Nov 2000, 13744 posts, RR: 19
Posted (6 years 5 months 3 weeks 2 days 22 hours ago) and read 7604 times:

Airbus probably paid Emirates US$100M in liquidated damages regarding the A380 delays.

In the financial year, Emirates received S$149.7M / AED404M / US$110M / £55.8M in "liquidated damages".

It described these "liquidated damages" as:

Quote:
Income from claims for liquidated damages is recognised in the consolidated income statement when a contractual entitlement exists, amounts can be reliably measured and receipt is virtually certain. When such claims do not relate to a compensation for loss of income or towards incremental operating costs, the amounts are taken to the consolidated balance sheet and recorded as a reduction in the cost of the related asset.

"A large part of that was part of the compensation deal for the delay of the A380s," said President Tim Clark.

[Edited 2008-05-01 12:49:12]


Anyone can fly, only the best Soar.
45 replies: All unread, showing first 25:
 
User currently offlineGlacote From France, joined Jun 2005, 409 posts, RR: 2
Reply 1, posted (6 years 5 months 3 weeks 2 days 18 hours ago) and read 7270 times:

This could be a low range estimate: EK had A345s they wanted to get rid off, and got more A388 and interim A330 lift at (probably) preferential prices. The cash payment is what Airbus probably tried to minimized as much as possible (Eads problem in 2006 really was free cash flow). Besides, not all 58 deliveries will be late.

The actual number could easily be double.

Any guess re. SQ per-aircraft compensation? I would see more around $5M...


User currently offlineKC135TopBoom From United States of America, joined Jan 2005, 12158 posts, RR: 51
Reply 2, posted (6 years 5 months 3 weeks 2 days 18 hours ago) and read 7242 times:



Quoting SInGAPORE_AIR (Thread starter):
Airbus probably paid Emirates US$100M in liquidated damages regarding the A380 delays.

Does Airbus have that kind of cash? If EK can get cash, and bargan basement pricing on their A-330s, what will the other carriers get for their late A-380 deliveries?


User currently offlineIkramerica From United States of America, joined May 2005, 21544 posts, RR: 59
Reply 3, posted (6 years 5 months 3 weeks 2 days 18 hours ago) and read 7217 times:



Quoting Glacote (Reply 1):
This could be a low range estimate

it's only part…

Quoting SInGAPORE_AIR (Thread starter):
part of the compensation

they had multiple A380 orders, so one would assume there are multiple compensation schemes, one per contract…



Of all the things to worry about... the Wookie has no pants.
User currently offlinePM From Germany, joined Feb 2005, 6938 posts, RR: 63
Reply 4, posted (6 years 5 months 3 weeks 2 days 18 hours ago) and read 7191 times:



Quoting Glacote (Reply 1):
EK had A345s they wanted to get rid off

Uh? They have ten A345s which they are keeping.

http://www.rolls-royce.com/media/showPR.jsp?PR_ID=40588

They have cancelled an order for A346s if that's what you are thinking of.

Quoting Glacote (Reply 1):
...and got more A388 and interim A330 lift



Quoting KC135TopBoom (Reply 2):
If EK can get cash, and bargan basement pricing on their A-330s

What are you two on about?! Emirates' last A330 was delivered in 2003 and they haven't ordered any more. Don't you guys check any facts?


User currently offlineBravo1six From Canada, joined Dec 2007, 398 posts, RR: 2
Reply 5, posted (6 years 5 months 3 weeks 2 days 18 hours ago) and read 7148 times:



Quoting KC135TopBoom (Reply 2):
Does Airbus have that kind of cash? If EK can get cash, and bargan basement pricing on their A-330s, what will the other carriers get for their late A-380 deliveries?

Cash and cash equivalents for EADS at December 31, 2007 was 7.5 billion Euro.


User currently offlineIkramerica From United States of America, joined May 2005, 21544 posts, RR: 59
Reply 6, posted (6 years 5 months 3 weeks 2 days 17 hours ago) and read 7102 times:



Quoting KC135TopBoom (Reply 2):
If EK can get cash, and bargan basement pricing on their A-330s, what will the other carriers get for their late A-380 deliveries?

SQ and QF got the same sort of deal, but on a smaller scale due to a smaller order. Both SQ and QF have A330s coming at a discount, and both ordered more A380s and likely got some cash. But again, at a smaller scale than EK because they have 1/3rd the orders.



Of all the things to worry about... the Wookie has no pants.
User currently offlineSingapore_Air From United Kingdom, joined Nov 2000, 13744 posts, RR: 19
Reply 7, posted (6 years 5 months 3 weeks 2 days 17 hours ago) and read 7047 times:



Quoting Glacote (Reply 1):
Any guess re. SQ per-aircraft compensation? I would see more around $5M...

It's complicated. They did publicly state it but from what I remember it confused me greatly and it was accounted for weirdly as well.

I could try and dig around and find out for sure though. However, maybe we can get greater clairty on 13 May 2008 when the FY figures are out.



Anyone can fly, only the best Soar.
User currently offlineDocLightning From United States of America, joined Nov 2005, 19930 posts, RR: 59
Reply 8, posted (6 years 5 months 3 weeks 2 days 13 hours ago) and read 6794 times:

$100M doesn't strike me as a lot. How much is an A380? $300M?

User currently offlineIkramerica From United States of America, joined May 2005, 21544 posts, RR: 59
Reply 9, posted (6 years 5 months 3 weeks 2 days 13 hours ago) and read 6778 times:



Quoting DocLightning (Reply 9):
$100M doesn't strike me as a lot. How much is an A380? $300M?

With engines. But you don't pay Airbus for the engines, so once you factor in discounts, $100M from Airbus is over 50% of the price of another frame (without engines).



Of all the things to worry about... the Wookie has no pants.
User currently offlineBaroque From Australia, joined Apr 2006, 15380 posts, RR: 59
Reply 10, posted (6 years 5 months 3 weeks 2 days 13 hours ago) and read 6751 times:



Quoting PM (Reply 4):
What are you two on about?! Emirates' last A330 was delivered in 2003 and they haven't ordered any more. Don't you guys check any facts?

Much about Airbus and EK, but as I recall, a couple of engine manufacturers had some kit all ready to go. What happens to major suppliers of equipment such as the engine manufacturers - are their contracts at own risk?

And the same question applies to the other compo question that is not part of this thread.

Between the two sets of delays, all three major engine manufacturers must be less than happy.


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 11, posted (6 years 5 months 3 weeks 2 days 12 hours ago) and read 6683 times:

Might be useful to mention the meaning of 'liquidated damages.'

Airbus won't have contracted to deliver the A380 on time; no manufacturer would. They'll only have undertaken to use 'best endeavours' to do so. But the purchasers won't have been satisfied with that; they'll have insisted on a right to some compensation.

However, it would have been impossible to quantify any possible losses in advance. Nor would the manufacturer be prepared to 'sign an open cheque.' So it's normal in such cases to 'pre-agree' (i.e. 'liquidate,' 'express in cash') a specific sum which is payable in case of any delay, regardless of whether the eventual loss to the orderer is more or less than the sum agreed.

EK will have had an option, of course - they could have gone for damages on grounds that Airbus had not used their 'best endeavours' through stuffing up the wiring etc., and were instead guilty of negligence. But that would have meant the case spending five years or so winding through a maze of courts, and at the end of all that they might not have got any more money - and they certainly wouldn't have got the aeroplanes.

[Edited 2008-05-01 23:01:21]


"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10107 posts, RR: 97
Reply 12, posted (6 years 5 months 3 weeks 2 days 12 hours ago) and read 6663 times:
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Quoting SInGAPORE_AIR (Thread starter):
A large part of that was part of the compensation deal for the delay of the A380s," said President Tim Clark.

A "two part" statement eh?  Wink
"Part" 1 appears to mean that not all of these liquidated damages were related to the A380
"Part" 2 appears to mean that the liquidated damages that DID relate to the A380 did not constitute the whole of the A380 liquidated damages.

Underrated exercise, reading.....  Smile

Rgds


User currently offline777law From Monaco, joined Jul 2006, 203 posts, RR: 0
Reply 13, posted (6 years 5 months 3 weeks 2 days 12 hours ago) and read 6607 times:



Quoting NAV20 (Reply 12):
Might be useful to mention the meaning of 'liquidated damages.'

Airbus won't have contracted to deliver the A380 on time; no manufacturer would. They'll only have undertaken to use 'best endeavours' to do so. But the purchasers won't have been satisfied with that; they'll have insisted on a right to some compensation.

However, it would have been impossible to quantify any possible losses in advance. Nor would the manufacturer be prepared to 'sign an open cheque.' So it's normal in such cases to 'pre-agree' (i.e. 'liquidate,' 'express in cash') a specific sum which is payable in case of any delay, regardless of whether the eventual loss to the orderer is more or less than the sum agreed.

EK will have had an option, of course - they could have gone for damages on grounds that Airbus had not used their 'best endeavours' through stuffing up the wiring etc., and were instead guilty of negligence. But that would have meant the case spending five years or so winding through a maze of courts, and at the end of all that they might not have got any more money - and they certainly wouldn't have got the aeroplanes.

This is half right. "Liquidated Damages" are generally defined as "an amount contractually stipulates as a reasonable estimation of actual damages to be recovered by one party if the other party breaches."

LD's are generally agreed by the Parties with the idea that it would be difficult to determine actual damages suffered by a party in the event of breach by the other party. They are most commonly applied to delayed deliveries in construction and building contracts. LD's are generally agreed as a portion of the contract price. So a builder of airplanes or ships or oil rigs, etc. will generally look to cap the LD liability at somewhere between 5% - 15% of the contract price. If a builder is desperate for business you may see delay LD's as high as 20% - 30% of the contract price.

In this case, the LD's actually mitigated a lot of Airbus's risk in the EK transaction. Without LD's, EK could have sued Airbus for damages directly and indirectly resulting from delayed delivery, such as loss of business, loss of business opportunity, loss of reputation and so on. Once EK and Airbus agreed on LD's in the contract it became almost impossible that the parties would go to court in the event of delayed delivery of the A380. The contract already addressed consequences of delay. Litigation would only arise if Airbus refused to honor the contract or if there was some disagreement over the delay or the cause of delay.

Since there was uniform agreement that Airbus was at fault for delayed delivery of the A380 there was probably never a great likelihood of litigation or arbitration on this issue.



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User currently offline777law From Monaco, joined Jul 2006, 203 posts, RR: 0
Reply 14, posted (6 years 5 months 3 weeks 2 days 11 hours ago) and read 6464 times:



Quoting Baroque (Reply 11):
What happens to major suppliers of equipment such as the engine manufacturers - are their contracts at own risk?

It depends on who is responsible to supply the engines and what the parties agreed in the Contract. If Airbus agrees to purchase and install the engines then it is up to Airbus to work out an arrangement with the suppliers. If possible, Airbus would probably take timely delivery of the engines and store them at Airbus's cost and risk until the engines were ready for installation. That may mean taking delivery EX WORKS (at the factory door) and then asking the engine manufacturer to store or hold the engines.

It is also possible that EK selected the engines and entered into a separate contract with the engine manufacturer, with installation of the EK-supplied engines being part of Airbus's work scope. In this case, Airbus would most likely be liable to indemnify EK for any breach of contract between EK and the manufacturer as a result of Airbus's delay. Alternatively, EK could take delivery of the engines and demand that Airbus store the engines at Airbus's risk and expense.



UA- Premier Platinum, AF / KL - Flying Blue Petroleum, BA Executive Club Silver
User currently offlineDavescj From United States of America, joined Jun 2007, 2307 posts, RR: 0
Reply 15, posted (6 years 5 months 3 weeks 2 days 10 hours ago) and read 6417 times:

I wonder also if a lower LD was in return for some other discount? It is possible that Airbus and EK reached an agreement for a lower purchase price on 380 or 350 frames, no?

Dave



Can I have a mojito on this flight?
User currently offline777law From Monaco, joined Jul 2006, 203 posts, RR: 0
Reply 16, posted (6 years 5 months 3 weeks 2 days 10 hours ago) and read 6384 times:



Quoting Davescj (Reply 16):
I wonder also if a lower LD was in return for some other discount? It is possible that Airbus and EK reached an agreement for a lower purchase price on 380 or 350 frames, no?

I wouldn't say the LD's were "lowered" for a discount on future frames. Instead, it's more accurate to say the form of consideration given for the LD's was split between discounts on airframes and cash payments to EK. Regardless of HOW the LD's were paid, the value of the LD's still had to meet the agreed amount.

Technicalities aside, I think it's entirely possible, probably likely, that Airbus gave EK discounts on airframes in consideration of a reduced cash payout.



UA- Premier Platinum, AF / KL - Flying Blue Petroleum, BA Executive Club Silver
User currently offlineAstuteman From United Kingdom, joined Jan 2005, 10107 posts, RR: 97
Reply 17, posted (6 years 5 months 3 weeks 2 days 10 hours ago) and read 6368 times:
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Quoting 777law (Reply 17):
Technicalities aside, I think it's entirely possible, probably likely, that Airbus gave EK discounts on airframes in consideration of a reduced cash payout.

And or an offset for cancellation charges relating to their A340-600's..... perhaps

Rgds


User currently offlineBabybus From , joined Dec 1969, posts, RR:
Reply 18, posted (6 years 5 months 3 weeks 2 days 6 hours ago) and read 6051 times:



Quoting KC135TopBoom (Reply 2):
and bargan basement pricing on their A-330s, what will the other carriers get for their late A-380 deliveries?

Not sure where you get the bargain basement pricing idea from. Maybe you could post a link to that?

Also can you imagine the massive payments Boeing are going to have to make for the horrendous delays to the 787! There will be many airlines saved from bankruptcy just on those huge proceeds. For a company that has been down on its luck over the past few years the sums are mind boggling.  eek 


User currently offlineNAV20 From Australia, joined Nov 2003, 9909 posts, RR: 36
Reply 19, posted (6 years 5 months 3 weeks 2 days 5 hours ago) and read 5988 times:



Quoting Babybus (Reply 18):
Also can you imagine the massive payments Boeing are going to have to make for the horrendous delays to the 787!

?

Last I heard, Boeing had orders for about seven years' full-rate production of the 787. And I would be absolutely astonished if either manufacturer had agreed to 'liquidated damages' for cancellation which brought the purchase prices down to below cost, That's just not the way business (in any field) works.

The main difference between the two firms is that Boeing largely pay in $US and bill in $US. I very much doubt that they even pay organisations like Alenia in Euros. Airbus, to a much greater extent, pays in Euros and bills in $US. That is the main reason why Boeing is currently returning historically-high profit margins while EADS is only breaking even at best.

Sure, things could start turning round tomorrow. The Euro could start falling and the $US could set off on an upward path. But there's no sign of that sort of thing so far. In any case, the 'longterm outcome' wiil not be decided by the level of late delivery compensation claims paid out by either company.



"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci
User currently offlineStitch From United States of America, joined Jul 2005, 31102 posts, RR: 85
Reply 20, posted (6 years 5 months 3 weeks 2 days 5 hours ago) and read 5939 times:
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Another advantage to Boeing is that since they build and price the 767 and 777 in dollars, they could be quite aggressive with pricing to both cover the 787 compensation as well as try and keep the A350 at bay (new 777s reduce the need for new A350s, even with high fuel prices) and still come out revenue-positive on every deal.

User currently offlineBill142 From Australia, joined Aug 2004, 8458 posts, RR: 8
Reply 21, posted (6 years 5 months 3 weeks 2 days 5 hours ago) and read 5906 times:



Quoting DocLightning (Reply 8):
$100M doesn't strike me as a lot. How much is an A380? $300M?



Quoting Ikramerica (Reply 3):
they had multiple A380 orders, so one would assume there are multiple compensation schemes, one per contract

Well the first order was for 5 aircraft. So one would assume that these cover the first and second orders as $20 million per aircraft is a lot.


User currently offlineBravo1Six From Canada, joined Dec 2007, 398 posts, RR: 2
Reply 22, posted (6 years 5 months 3 weeks 2 days 4 hours ago) and read 5847 times:



Quoting NAV20 (Reply 11):
Airbus won't have contracted to deliver the A380 on time; no manufacturer would. They'll only have undertaken to use 'best endeavours' to do so. But the purchasers won't have been satisfied with that; they'll have insisted on a right to some compensation.

Huh? The purchase agreement would have specified a delivery stream, likely expressed in calendar quarters initially, which gets firmed up to calendar months as a proposed delivery date approaches. Most certainly there would have been specific delivery quarters that Airbus (and all other aircraft manufacturers) committed to, and the reason they are paying liquidated damages is because they've missed those dates.

Quoting Baroque (Reply 10):
EK will have had an option, of course - they could have gone for damages on grounds that Airbus had not used their 'best endeavours' through stuffing up the wiring etc., and were instead guilty of negligence. But that would have meant the case spending five years or so winding through a maze of courts, and at the end of all that they might not have got any more money - and they certainly wouldn't have got the aeroplanes.

Not correct. In the aircraft manufacturing world, the purchaser's only financial remedy for a delayed delivery is liquidated damages. The purchaser also gets a right to terminate the delayed aircraft (NOT the entire transaction, in most cases) if delays go on for too long. The whole point of liquidated damages as a legal principle is that the parties have agreed in advance what the cost is as a result of a breach; by definition that eliminates the possibility of suing for damages.


User currently offlineBravo1Six From Canada, joined Dec 2007, 398 posts, RR: 2
Reply 23, posted (6 years 5 months 3 weeks 2 days 4 hours ago) and read 5847 times:



Quoting NAV20 (Reply 19):
Last I heard, Boeing had orders for about seven years' full-rate production of the 787. And I would be absolutely astonished if either manufacturer had agreed to 'liquidated damages' for cancellation which brought the purchase prices down to below cost, That's just not the way business (in any field) works.

The liquidated damages are probably capped on both an aircraft by aircraft basis as well as for the order as a whole.


User currently offlineBaroque From Australia, joined Apr 2006, 15380 posts, RR: 59
Reply 24, posted (6 years 5 months 3 weeks 2 days 3 hours ago) and read 5722 times:



Quoting 777law (Reply 14):
It depends on who is responsible to supply the engines and what the parties agreed in the Contract.

Thanks 777law. It is not only the airlines that are being inconvenienced.

Quoting Bravo1Six (Reply 22):
Quoting Baroque (Reply 10):
EK will have had an option, of course - they could have gone for damages on grounds that Airbus had not used their 'best endeavours' through stuffing up the wiring etc., and were instead guilty of negligence. But that would have meant the case spending five years or so winding through a maze of courts, and at the end of all that they might not have got any more money - and they certainly wouldn't have got the aeroplanes.

Not correct. I

The DM attribution bug has struck, that was Reply 11 from Nav20. But nice to know that they have figured out that the courts are not a smart move.


25 FAEDC3 : The article clearly states that the $100 Mil. is not all the compensation, but if EK has more than 50 planes on order, and lets assume that Airbus th
26 Ikramerica : Actually, it might be $20 million and aircraft for the first 5. We don't know. It sounds like a lot, but when compared to the discounted list price o
27 Stitch : You were actually quoting NAV20, but I will address your points. Yes, those companies do have currency hedges in place. However, they did not hedge f
28 Baroque : DM strikes again - is it the way I part my hair. That one was Ikra in reply 9 - previous miss was reply 11. I am getting worried, being bracketed, it
29 Astuteman : If they were "laddering", as any true Naval Vet. would, you'd be in big trouble now...... Rgds
30 Scbriml : If Airbus couldn't get their hands on $100m cash, they'd be in as much trouble as many on this board wish they were. Which A330s would those be? I'm
31 Baroque : I am not sure how you steer into the fall of shot on a.net. Anyway I am always in trouble, although possibly not as much as some airframers. However
32 Astuteman : They just sell more of the older models...... Rgds
33 FAEDC3 : You're right Stitch, I partially quoted NAV20, basically I tried to give my opinion on both (You and NAV20's) posts. Now, I have to agree with you on
34 Stitch : Three words you do not want to hear in such a situation - "Fire...For...Effect". One of the "unknown unknowns" of the 787 program is how those contra
35 Scbriml : Given the orders that have been placed in the last couple of years for deliveries stretching out to 2015 and even beyond, it would be a major shock i
36 Leskova : I remember reading an article/interview with the person responsible for overseeing the contracts of aircraft purchases at a European airline (think i
37 Astuteman : On a product like an airliner, there's no really simple way of doing this - but it will be done in just about every case. Only lunatic assylum reside
38 Glacote : True, sorry for the confusion Confused with SQ, you are right.
39 ClassicLover : Qantas received just over $100 million for their liquidated damages. I'm sure there are additional ways that Airbus is paying for it too...
40 Lightsaber : It really varies. Usually there is a minimum monthly (average) order quantity or the vendor can demand payment to keep the shop open, but only for sm
41 Baroque : Seems like those three words just came in - again.......... I happen to agree with that remark, the hedges have become worse (but not a Baroque perbo
42 Post contains images NAV20 : Baroque, if you recall, Qantas did its deal for the airframes with Boeing (no doubt cutting them to the bone) and then tendered the engines separatel
43 Lightsaber : Very little at the engine makers or the suppliers who supply multiple engine makers. e.g., Fiat makes gearboxes for most engines, so they'll barely n
44 Post contains links Mariner : Just to clarify - I believe that it Australian dollars. At the time, I think it was calculated at $77 million US: http://airbus-a380-news.newslib.com
45 Baroque : Yes, I do remember that well. I suppose that breakup makes it unlikely that Boeing has liability for those engines, but I wonder if the RR contract f
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