Sponsor Message:
Civil Aviation Forum
My Starred Topics | Profile | New Topic | Forum Index | Help | Search 
AI Wont Accept 787 Without $1 Billion Compensation  
User currently offlineAA7295 From Australia, joined Aug 2007, 622 posts, RR: 0
Posted (2 years 3 months 3 weeks 3 days 10 hours ago) and read 36527 times:

http://www.smh.com.au/travel/travel-...-without-compo-20120530-1zj5m.html

Sounds like AI is trying to screw Boeing over and get them to pay for AI's inefficiencies!

178 replies: All unread, showing first 25:
 
User currently offlinebrahmin From United States of America, joined Dec 2007, 79 posts, RR: 0
Reply 1, posted (2 years 3 months 3 weeks 3 days 10 hours ago) and read 36555 times:

AI is asking for compensation for Boeing's inefficiencies.
AI inefficieny is a different matter and not relevant to this.


User currently offlineSpacepope From Vatican City, joined Dec 1999, 2930 posts, RR: 1
Reply 2, posted (2 years 3 months 3 weeks 3 days 10 hours ago) and read 36539 times:

It almost sounds like Dr. Evil's negotiating tactics.

I'd seriously like to see why they think $1 billion is justified.



The last of the famous international playboys
User currently offlineAA7295 From Australia, joined Aug 2007, 622 posts, RR: 0
Reply 3, posted (2 years 3 months 3 weeks 3 days 10 hours ago) and read 36491 times:

Quoting brahmin (Reply 1):
AI is asking for compensation for Boeing's inefficiencies.
AI inefficieny is a different matter and not relevant to this.

$1 billion is exorbitant... and not justified. If AI can substantiate that they suffered a $1 billion loss by not having that Dreamliner, than that's a different story. Right now, isn't AI trying to lease out some of their planes?

So of course they desperately need MORE planes in their fleet right now.   

[Edited 2012-05-31 21:22:20]

User currently offlinefghtngsiouxatc From United States of America, joined Mar 2009, 216 posts, RR: 0
Reply 4, posted (2 years 3 months 3 weeks 3 days 10 hours ago) and read 36465 times:

Can Boeing just say "screw it" and give the AI 787s to another carrier? It'll be interesting to see how this all plays out. It's almost comical how AI is trying to take Boeing for a ride because of its own mismanagement.

User currently offlineXT6Wagon From United States of America, joined Feb 2007, 3409 posts, RR: 4
Reply 5, posted (2 years 3 months 3 weeks 3 days 10 hours ago) and read 36224 times:

Quoting AA7295 (Reply 3):
If AI can substantiate that they suffered a $1 billion loss by not having that Dreamliner

Doesn't matter thier losses, what matters is whats in the contract. I can be fairly sure Its capped at less that less than $1B


User currently offlinewedgetail737 From United States of America, joined Aug 2003, 5911 posts, RR: 6
Reply 6, posted (2 years 3 months 3 weeks 3 days 9 hours ago) and read 36098 times:
Support Airliners.net - become a First Class Member!

I'm sure Boeing can find new customers to take up AI's 787's should the deal with India go south.

User currently offlinePHX787 From Japan, joined Mar 2012, 7595 posts, RR: 18
Reply 7, posted (2 years 3 months 3 weeks 3 days 9 hours ago) and read 36044 times:

Quoting fghtngsiouxatc (Reply 4):
Can Boeing just say "screw it" and give the AI 787s to another carrier? It'll be interesting to see how this all plays out. It's almost comical how AI is trying to take Boeing for a ride because of its own mismanagement.

I think Boeing should just forget it and move it to NH or JL or UA or whoever. AI needs to get thier S%#t together.



次は、渋谷、渋谷。出口は、右側です。電車とホームの間は広く開いておりますので、足元に注意下さい。
User currently offlinevin2basketball From United States of America, joined Dec 2009, 317 posts, RR: 0
Reply 8, posted (2 years 3 months 3 weeks 3 days 9 hours ago) and read 36026 times:

Quoting AA7295 (Reply 3):
$1 billion is exorbitant... and not justified. If AI can substantiate that they suffered a $1 billion loss by not having that Dreamliner, than that's a different story. Right now, isn't AI trying to lease out some of their planes?
Quoting XT6Wagon (Reply 5):
Doesn't matter thier losses, what matters is whats in the contract. I can be fairly sure Its capped at less that less than $1B

This is what I wrote back in February; there is literally zero justification for a $1 billion sum.

Quote:


Earlier this week, reports surfaced that India’s national carrier Air India was asking for roughly $1 billion in compensation from US original equipment manufacturer (OEM) Boeing for the roughly 3 year delay of the Boeing 787-8.

With Air India’s initial delivery having been pushed back almost 2.75 years by the natural program delays and further delay of the delivery of Air India’s 787s into early 2012 because of a failure to complete the final certification requirements of the General Electric GEnx-1B engines with the United States Federal Aviation Administration (FAA), Boeing is certainly culpable for these delays. Air India will be the first airline to receive GE-powered 787s, with multiple 787-8s featuring Rolls-Royce’s competing Trent 1000 already plying commercial flights around the globe.

However, when Air India first signed a contract for the 787-8, compensation was capped at 0.5% of the order’s list value, which at that time roughly $3.24 billion due to under-pricing of the 787 by Boeing (it was priced at $120 million then, now at $193.5 million). This would translate to a cap on compensation of $162 million. Of course Boeing naturally had to soften this stance given the image problems created by the 787 delays, even offering about $500 million in compensation.

However, the fact remains that $1 billion in compensation is far, FAR too much for Boeing to have to pay. Air India’s economic losses on the 787 delays are far from $1 billion, as the following analysis should indicate, and as such, we feel that Air India is completely out of line in asking for this much money to pump into their black hole of an operation.

Please consider a few things before reading this analysis. Firstly, these are “back-of-the-envelope” calculations, so to speak; they do not represent Air India’s internal analyses but rather the best “apples-to-apples” estimates we could come up with. Secondly, these are highly optimistic projections, utilizing best case scenarios. Thirdly, the origin of the operating cost data is from my report “Hot Air- The Mid Sized Widebody Race in Early This Decade,” a copy of which can be purchased at Air Insight’s online store for US$ 49 (INR 2,500). I cannot share more details of this data as it would violate certain NDAs and represent conflict of interest between my various ventures.

With all of that being said, here are the major assumptions present in this analysis. The 787-8 is projected to meet all range targets and is thus able to make Chicago/Toronto-Delhi nonstop in both directions with a full passenger load. Air India was to receive 20 787s over the first 3 years of the program; this is an estimate based off the timeline for the delivery of their first seven 787-8s (VT-ANA through ANH) outlined in early December. We are choosing to ignore the fact that Air India was in fact moving to defer their own 787 deliveries by two years in 2009 before being “bailed” out by Boeing’s delay, which would invalidate both this analysis and Air India’s claims. Because the 787 deliveries are staggered, we are projecting that the average of 20 787-8s will only occur in Air India’s fleet only over the last two years of that period and thus we are amortizing the net loss over 2 years.

Based on extensive research of Air India fares over the next 6 months, we have estimated the following typical yield mixes for Air India’s 3 cabins; $234 per flight hour for first class, $136 per flight hour for business class, $67 per flight hour for economy class. In each case, we are assuming 75% loads for first class, 80% loads for business class, and 85% loads for first class to calculate lost revenue potential (rounding to the nearest passenger for each case). We feel comfortable in making these assumptions because Air India has a relatively price inelastic customer base: they charge roughly the same fare for each class on both the 777-200LR and 777-300ER on the same route (where there are aircraft swaps) despite the 777-300ER having 43.7% more seats.

There are two models through which we can measure the impact of the 787 delays on Air India’s finances over the past two years. The first is the replacement model, under which the 20 787s would directly replace the 777-300ERs and the 777-200LRs. These two fleets combined for Air India have an average daily utilization of about 11 hours per day in summer 2012, and as such are similar to Air India’s projected 11.78 hours per day total utilization of the 787-8s denoted in the RFP for sale-leaseback from December. Under this model, the cost to AI comes from the lost savings of the 787-8 vs. the 777s net of the lost revenue potential, plus the (very small) marginal benefit of having the passenger friendly and reliable 787-8 in their fleet.

Utilizing this model, we first turn to the 777-300ERs, which have average daily utilization of roughly 9 hours per day, multiplied by 12 aircraft in the fleet for 108 hours per day. Under our estimates, the 777-300ER is on average (for Air India’s routes) $7600 less efficient than the 787-8 per flight hour. Under Air India’s configuration however, the aircraft has 4 more first class seats, 17 more business class seats, and 65 more economy class seats. Under our projected loads, that represents an advantage of 3 first class, 14 business class, and 55 economy class seats. This translates to $6291 of lost revenue potential, which creates a net loss of $1309 per flight hour. Spreading that over 108 flight hours per day over 2 years translates to a net loss of $103.2 million.

Moving to the 777-200LR; this aircraft has 8 more first class seats, 17 more business class seats, and 43 fewer economy class seats. It also costs $5000 more to operate per hour than the 787-8. Under our load factor assumptions, this represents 6 more first class seats, 14 more business class seats, and 34 fewer economy class seats. Thus, the lost revenue potential is just $963 per flight hour, yielding a net loss of $4037 per hour. Spreading that over the 14 hours of daily utilization for 8 aircraft or 112 hours of daily utilization, the net loss over 2 years is $330.1 million.

Summing the costs of these two brings us to $433.3 million, or close to the sum initially offered by Boeing. Given the cascade of bad news that has overcome Air India over the past 3 years, it’s not impossible to tack on another $70 million or so to account for the rising costs of negative customer perception and interest fees on accumulated losses, bringing us essentially to a nice round figure of $500 million.

The second model that we can use is a model of lost revenue/opportunity. Under this model, Air India (as it has for the most part indicated it plans to do) would use the 787-8s primarily for expansion. Thus the cost to Air India of the delay is simply the lost profitability of the 787 (revenue per flight hour minus cost per flight hour), plus the marginal loss of flow traffic (connections) and potential frequent flyers (who might have jumped over to Air India with the new routes).

This model poses a set of unique challenges, however, the first being that it’s hard to find the requisite 236 hours of daily utilization or so that would be required to meet Air India’s projections. That being said, we’ll assume that they do in fact operate these flights and this utilization.

In terms of yields, there will be some drop off due to the added capacity. In terms of the true addition of capacity, Air India’s utilization figures from the RFP indicate that 20 787s would add about 4.4 million annual seats to Air India’s network. From a perspective of Air India’s network, that represents about a 26% increase in seat capacity (measured in available seat miles). Using a consensus of estimates of the price elasticity of demand for air travel and Air India’s unique demand streams, we’ll allow Air India the benefit of the doubt for this exercise, and build in just a 15% drop in yield for Air India (smaller in magnitude than the increase in capacity). Under our model, this would mean that business class yields were $116 per flight hour, and economy class yields were $57. Under this model, the sudden rise in capacity also would decrease load factors by just 5 percentage points in each class; to 75% in business class and 80% in economy class. Under these conditions, the 787-8 would have 14 business class seats filled, and 190 economy class seats filled.

With average cycle length of 5 hours and average annual utilization of 4300 hours, the 787-8’s operational profitability under the conditions denoted above would thus be roughly $119 million over the two years. This operational profitability is a best case scenario (and hard to envision given Air India’s current status of not even covering costs of fuel on some long haul flights), and does not include the financial costs (lease rates and/or depreciation) of operating the aircraft.
Building in $100 million for the effects of increased flow traffic through Delhi and Mumbai, as well as another $50 million for the effect of increased frequent flyer retention (both very generous estimates), plus $100 million for all other effects, including increased negative customer perception and accumulated losses (and the resultant interest charges). Even adding up these highly optimistic charges, we still reach a sum of $469 million, less than the sum Boeing has offered.

So it should be abundantly clear that Air India has very little basis to claim $1 billion in compensation. It would appear rather, that a carrier who is seeking a $6 billion bailout from the Indian government to fund loss-making operations from the next decade is simply looking to soak Boeing for more cash (funding a whopping 1 year more of Air India operations) so as to slightly delay the timing of their next bailout, which we can be sure will at least double in size. Air India is building off of the baseline of other, profitable, carriers who have valid claims for compensation from Boeing, but should not be allowed to do so.

As Devesh pointed out last week, Air India’s proposed bailout of 30,000 crore could feed all of India’s hungry (231 million people, or close to 20 times Air India’s annual passenger base) for more than one year. The best solution for Air India is to simply accept the more than generous $500 million offered by Boeing and allow the OEM to focus its cash on improving the 787-8 further, perhaps cutting Air India’s future losses and distributing the savings to the hungry.


User currently offlinebrahmin From United States of America, joined Dec 2007, 79 posts, RR: 0
Reply 9, posted (2 years 3 months 3 weeks 3 days 9 hours ago) and read 35953 times:

Quoting fghtngsiouxatc (Reply 4):

If Boeing does this, they can forget all defense deals.


User currently offlineflightsimer From United States of America, joined Aug 2009, 557 posts, RR: 1
Reply 10, posted (2 years 3 months 3 weeks 3 days 9 hours ago) and read 35884 times:

Quoting fghtngsiouxatc (Reply 4):

Probably not due to being under contract with them, but I really wish they could. If I was Boeing, I would even be nice enough to give back the deposits they even made on them.

They could then reorder their order and pay twice as much or they can take their bs elsewhere. Plus Boeing still would be able to sell the 10-13 frames already built at a closer to list price to a new customer or one that has already ordered.

Currently, Boeing is offering 500mil as of may 2011, of this, 145 mil was due to contracted delay payout.



Commercial Pilot- SEL, MEL, Instrument
User currently offlinescouseflyer From United Kingdom, joined Apr 2006, 3391 posts, RR: 9
Reply 11, posted (2 years 3 months 3 weeks 3 days 8 hours ago) and read 35241 times:

This reminds me of some of the hysterical negotiations EK initiated when their A380s were propert delayed. There will be a resolution and these will get delivered. Personally I can't stand negotiating through the media but that's re way that business is done there!

User currently offlinelaca773 From United States of America, joined Nov 2004, 4020 posts, RR: 2
Reply 12, posted (2 years 3 months 3 weeks 3 days 8 hours ago) and read 35224 times:
Support Airliners.net - become a First Class Member!

AI is desperate at this point. They will do whatever it takes to bring in additional money considering the sad state of AI's financial affairs, rank and file and the government stepping in, to save them. Very sad. Boeing, shouldn't give in to their demands. I'm sure Boeing can find one of the upcoming customers who will be willing to move up their first deliveries.

User currently onlinebennett123 From United Kingdom, joined Aug 2004, 7615 posts, RR: 3
Reply 13, posted (2 years 3 months 3 weeks 3 days 8 hours ago) and read 35208 times:

Point is, if they do not buy the B787, then what will they buy, and when will it be available.

http://www.airfleets.net/ageflotte/Air%20India.htm

Looking at their fleet, I assume that these planes will replace the A310/B744.

Given the age of both, (especially the A310, and the first 3 B744) I do not see that time is on their side.


User currently offlineBurkhard From Germany, joined Nov 2006, 4397 posts, RR: 2
Reply 14, posted (2 years 3 months 3 weeks 3 days 7 hours ago) and read 35003 times:

Boeing offers 500Mio as I read in one of the above posts - so there is a point they have. So 1 Bio is a good starting point to meet near 700Mio. Which means they get the first 7 Dreamliners for free - but question is only if they get 5 for free or seven for free.

Quoting bennett123 (Reply 15):
Point is, if they do not buy the B787, then what will they buy, and when will it be available.

The A310 should be replaced by 787s for sure, but this are four frames. I assume 4 used A332/B767ER can be found on the market or leased rather fast.
I fail to see how a 744 can be replaced by a 787 which has half its size - in a country in which increase of frequency is hard due to limits of the airports. But we speak of 5 frames - Virgins A346 come into mind to replace them.

[Edited 2012-06-01 01:01:54 by SA7700]

User currently offlinePlanesNTrains From United States of America, joined Feb 2005, 5582 posts, RR: 29
Reply 15, posted (2 years 3 months 3 weeks 3 days 7 hours ago) and read 34809 times:

Quoting Burkhard (Reply 16):
Boeing offers 500Mio as I read in one of the above posts - so there is a point they have. So 1 Bio is a good starting point to meet near 700Mio. Which means they get the first 7 Dreamliners for free - but question is only if they get 5 for free or seven for free.

At $120M per copy (if that is correct for AI), that'd be four or six free, wouldn't it?

I don't think it's reasonable to expect Boeing to tell AI to pound sand, but I think given the price contracted for, their financial issues over the past few years, and the demand for the plane today, I do think it's reasonable for Boeing to balk at $1B.

-Dave



Next Trip: SEA-ABQ-SEA on Alaska
User currently offlineboeingfever777 From United States of America, joined Jul 2009, 409 posts, RR: 53
Reply 16, posted (2 years 3 months 3 weeks 3 days 5 hours ago) and read 33206 times:

Won't happen...

BTW it's fitting that the first 787 from Boeing's CHS Plant is for AI

I'm sure KQ would take these birds from Boeing.



Faire du ciel le plus bel endroit de la terre.
User currently offlineEK413 From Australia, joined Nov 2003, 4921 posts, RR: 4
Reply 17, posted (2 years 3 months 3 weeks 3 days 5 hours ago) and read 32798 times:

Quoting wedgetail737 (Reply 6):
I'm sure Boeing can find new customers to take up AI's 787's should the deal with India go south.

QF / JQ would be happy to accept these birds right now!

EK413



Good evening, ladies and gentlemen. We are tonight’s entertainment!
User currently offlinena From Germany, joined Dec 1999, 10736 posts, RR: 9
Reply 18, posted (2 years 3 months 3 weeks 3 days 4 hours ago) and read 32445 times:

Quoting bennett123 (Reply 13):
Looking at their fleet, I assume that these planes will replace the A310/B744.

The 787s will likely replace the last A310s, the two oddball A330s and some of the 777s they dont need (and 5 of which reportedly will go to AC). 787-8s are no 747 replacements unless you think that a Chrysler Horizon makes a good replacement for your local 40-seater schoolbus. Anyway, AI wanted to retire their small 747 subfleet two years ago, but they are still active, with two often flying for the government. I have no idea what the future holds for the other 3.


User currently offlinescbriml From United Kingdom, joined Jul 2003, 12569 posts, RR: 46
Reply 19, posted (2 years 3 months 3 weeks 3 days 3 hours ago) and read 31008 times:
Support Airliners.net - become a First Class Member!

Quoting vin2basketball (Reply 8):
there is literally zero justification for a $1 billion sum.

But presumably, full justification for $500 million? I suspect they'll settle somewhere between full and zero justification.



Time flies like an arrow, but fruit flies like a banana!
User currently offlinena From Germany, joined Dec 1999, 10736 posts, RR: 9
Reply 20, posted (2 years 3 months 3 weeks 3 days 3 hours ago) and read 30847 times:

Quoting scbriml (Reply 21):
But presumably, full justification for $500 million? I suspect they'll settle somewhere between full and zero justification.

Sure, but I guess it´ll be something like getting the first one or two frames for free.


User currently onlinenomadd22 From United States of America, joined Feb 2008, 1867 posts, RR: 0
Reply 21, posted (2 years 3 months 3 weeks 3 days 3 hours ago) and read 30573 times:

There's a thing called precedent. They might have gotten something if they'd been discreet, but by making a public spectacle out of their demnds, they've pretty much guaranteed Boeing can't back down. There's a good reson the financial aspects of airliner deals are kept secret.


Andy Goetsch
User currently offlinetdscanuck From Canada, joined Jan 2006, 12709 posts, RR: 80
Reply 22, posted (2 years 3 months 3 weeks 3 days 2 hours ago) and read 29495 times:

Quoting brahmin (Reply 1):
AI is asking for compensation for Boeing's inefficiencies.

No, that was codified into the contract and, I believe, already paid. Keep in mind that Boeing *and* Air India agreed to the compensation parts of the contract before signature. AI is asking for *more* money that they appear to have no legal claim on. They're asking for *extra* money. They already got the money the were promised for Boeing's inefficiencies.

Quoting fghtngsiouxatc (Reply 4):
Can Boeing just say "screw it" and give the AI 787s to another carrier?

It depends on what the contract says. Presumably, at some point, if one party is sufficiently in breach of the terms then the other can walk away but that would be complex, messy, damage customer relations for a long time, and probably only end up benefiting the lawyers.

Quoting brahmin (Reply 9):
If Boeing does this, they can forget all defense deals.

Maybe; the P8-I is already pretty far along and has no real competitors that I'm aware of at the moment so, if they cancel that, what will they do in the future for ASW? India also doesn't hold all the cards; some of India's defense industry is offset requirements for existing defense contracts. If they pull out of existing those defense deals then that business disappears for them too.

Tom.


User currently offlinecmf From , joined Dec 1969, posts, RR:
Reply 23, posted (2 years 3 months 3 weeks 3 days 2 hours ago) and read 29333 times:

Quoting vin2basketball (Reply 8):
This is what I wrote back in February; there is literally zero justification for a $1 billion sum.

Whenever I receive a report I start by checking statements I can verify. If they fail it becomes very difficult for me to trust statements I can't verify.

Quoting vin2basketball (Reply 8):
However, when Air India first signed a contract for the 787-8, compensation was capped at 0.5% of the order’s list value, which at that time roughly $3.24 billion due to under-pricing of the 787 by Boeing (it was priced at $120 million then, now at $193.5 million). This would translate to a cap on compensation of $162 million

This is simple math but it is wrong. 162 MUSD represent 5%, not 0.5%. This is not a simple typo. This is a failure to do the most basic of all checks, is it unrealistic. I caught it because I did not find 0.5% realistic. I then checked the math.

Quoting vin2basketball (Reply 8):
we have estimated the following typical yield mixes for Air India’s 3 cabins; $234 per flight hour for first class, $136 per flight hour for business class, $67 per flight hour for economy class.

The ration between first and business seems right but the ratio between economy and business seems much too low. I only checked two long haul routes and the ratio was in 4 -5 range instead of 2.

Quoting vin2basketball (Reply 8):
the 777-300ERs, which have average daily utilization of roughly 9 hours per day,

Nine hours is an incredibly low utilization.I have no way to verify if this number is right or not. Gut feeling based on Air India's problems I can imagine it being right. But it doesn't make it reasonable to use as base for lost revenue. There are multiple reasons why the 787 may have right sized capacity and thus increased utilization.

I'm not saying the calculation is wrong. I am saying there should have been a big remark.

There are multiple similar issues with the report that require a bit more reasoning to justify and will be too lengthy and take too much time but it shows the gist of why I'm having problems with the facts of the report. On top of that I'm questioning the logic applied, again, too lengthy.

As to if 1 BUSD is a reasonable amount? Probably not. It represents a very large part of the list price total. Too large for a 3 year delay. But I also think 5% isn't enough for 3 years.


User currently offlinemikefad From United States of America, joined Feb 2005, 120 posts, RR: 0
Reply 24, posted (2 years 3 months 3 weeks 3 days 2 hours ago) and read 29218 times:

East Asians are expert negotiators. If they did not demand, then they would never receive any compensation. It is only a starting point, no?

25 garpd : They already received a lot of compensation and from why I read here, apparently far more than contracted for.
26 flybyguy : If AI gets the $1 billion then what keeps other airlines from demanding the same or more from Boeing? I really do think that this is an extortion tact
27 Post contains images PlaneAdmirer : If Boeing gives in here, every other customer will make the same or greater demands. I wonder how close the AI configuration is to next few customers
28 Mortyman : Norwegian would proabably be interested in these birds too ...
29 Post contains links lightsaber : At some point of compensation, the airframes are worth more going to another customer than AI. Anything near $1billion and it is well past that point.
30 DLPMMM : Boeing probably is not negotiating at this point...they made a best and final offer. The Indian Government loves to drag these things out till the la
31 jetblueguy22 : So they blame losses on not having this airplane, and yet won't take delivery until they get paid? Interesting logic. They should be running to grab t
32 qf002 : In my view, it's Boeing that holds the cards here... If I were Boeing, I'd be putting a reasonable offer on the table (be that some $, free planes or
33 sweair : Look at Ryan Air, Airbus refused them and Boeing wont do any deals like before. Royal Air Maroc would be one taker I am sure, as they have pre LN20 fr
34 brahmin : Would AI be having attorneys on a contingency basis from USA advising them ?
35 poLot : If preparations were made for it (which I'm sure they were), then pretty well. After all, planes spend their entire lives outside.
36 babybus : Well there obviously is or otherwise they wouldn't be trying it on. If Boeing were unable to honour their contract with AI then AI have every right t
37 sweair : Yeah surely they must have climate control in the cabin etc? Otherwise it will start to collect moist and other unpleasant things.
38 SSTsomeday : Is this a "save-face" tactic so that Air India can cancel the order without having to cop to their own financial and management problems?
39 sweair : How would they manage without any new frames?
40 Stitch : The Government of India has already guaranteed the monies needed to pay for the planes and if AI does not get them, they will be at a competitive dis
41 COEWR787 : Wasn't this deal also the subject of the Exim Bank related spat that Delta and Boeing were involved in a while back? I thought Air India loan was spe
42 SSTsomeday : Interesting; I did not know that. So it seems that Air India is simply looking for compensation beyond their contractual agreement. Boeing will have
43 XaraB : I work in the offshore industry (which has ridiculously high daily revenues compared to other fields of business), and it is not common to have penalt
44 sweair : How many 787s would a billion buy?
45 garpd : Not to the tune of $1B. That is by far too high a figure that NO Manufacturer would sign up for with the number of planes AI ordered. There will have
46 trex8 : If the GOI is calling the shots on this (and eventually footing the bill at AI), and there are potential deals for Boeing on the CH47, Apache and a MP
47 SonomaFlyer : They'll haggle a bit, Boeing will eventually give them somewhere between 600m and 700m which will mean the first few planes are free. Everyone declare
48 sweair : Add 10 C17 as well. I guess GOI has quite nice bargaining position here, a lot more than 27 787s are at stake.
49 goacom : I doubt AI/GOI has a strong bargaining position here. While money does talk, I doubt the Indian Air Force and politicians connected with the military
50 clickhappy : The first two AI 787's were supposed to deliver in May...
51 Post contains links and images mffoda : And yet, in FG today. Quote: India has expressed early interest in the possibility of obtaining more Boeing C-17 strategic transports to follow its f
52 sweair : I am sure it will be settled as there are at least 2 frames that could be delivered very soon and more in the next couple of months. Maybe it ends wit
53 neutronstar73 : I say Boeing tells India to go **** themselves and stop blaming others for their problems. I seem to believe there are other airlines that had to suff
54 Stitch : QF are said to have received about $300 million in compensation for the 787 delays and they had twice as many on order. Now, QF have been allowed to c
55 Delimit : Correct me if I am wrong here: this figure is over and above the contracted compensation. Boeing has already paid what they agreed to in the late fram
56 PlaneAdmirer : They aren't considering ordering C-17's just because. They serve a necessary function or they wouldn't be considering them in the first place.
57 Post contains images rotating14 : This almost like a driver suing a car manufacturer for the car crushing his legs in an accident while speeding in the rain. If and when Boeing coughs
58 Post contains images casinterest : You saw how well that worked out for McDonald's right?
59 sweair : What is the list price of the 787?
60 manny : Sorry AI is not desperate. If they were desperate they would not be managed so poorly. Plus its state owned airline that is being backstopped by the
61 Post contains images rotating14 : Could AI be asking for the compensation on behalf of the Gov't of India??
62 Post contains links 817Dreamliiner : According to the boeing website: 787-8 193.5 million 787-9 227.8 million http://www.boeing.com/commercial/prices/index.html
63 sweair : So a billion would buy about 5 788s..not a bad deal getting 27 and paying for 22 :=)
64 HAWK21M : On what basis......
65 trex8 : I don't know how the budgeting process works in India but given at least its reputation for decades for delays, even corruption and political interfe
66 gingersnap : Simply put, tell AI to go stuff themselves. That was actually confirmed to be untrue last I heard.
67 pnwtraveler : If AI delays too long I could see AC taking some of the orders that aren't yet built. I think they are taking the same GE engines.
68 rotating14 : Of it being a state owned airline? I doubt the Gov't of India would let it drown in its own financial misery hence the funding it provided.
69 SonomaFlyer : AI doesn't have the leverage nor the precedent to stick to this crazy demand. Boeing is actually in a good bargaining position but at the same time, w
70 sweair : AI has more to lose if the deal get canned. I don't think Airbus would be very eager to have them as a customer, as they probably have followed this c
71 Post contains images KELPkid : As I understand the process of airframe fincancing, the first metal isn't even cut (or the first composite isn't even baked ) until the airline has a
72 rotating14 : Did UA ever settle on a settlement?
73 SonomaFlyer : I haven't dug up UA's disclosure to see if its listed yet but they are concluding a large narrow body order with Boeing. Either the settlement takes
74 flylku : Indeed. And those carriers will have an aircraft against which AI cannot compete!
75 flightsimer : Would buy 5 of today's 787... I believe it was airindiawho recently released the cost to buy theirs a few months back it it was only I!n the low 100m
76 qualitydr : Apparently this sort of money-grab is common in India. For instance, the terrible disaster at Bhopal (now almost 30 years ago) led to a settlement bet
77 strfyr51 : OOOH Good!! Maybe we can get some 787's at a good price minis the depaosit and devopment costs. that shouls save $30M per copy. Let Em Cancel!!
78 cloud4000 : Remember AI is owned by the Indian government. If AI persists things can get out of hand politically. It would lead to a row between US and India. Hop
79 fxramper : The only reason CO isn't flying 3x EWR-India is AI crap EWR-FRA-BOM-DEL-whatever route. Their 777 parked outside B terminal looks pathetic. I'd love t
80 ltbewr : I wonder if there are mediation/arbitration clauses in these contracts, perhaps before an international board sitting in Geneva, Switzerland would de
81 Post contains images lightsaber : Yes, that is the logic. Since AI could train ex-IA pilots on the 787, I would think they would want them to get around the strike... But politely, as
82 neutronstar73 : Little known fact: that compensation that was awarded in the infamous "hot coffee case" was significantly reduced on appeal, so it worked out okay fo
83 brahmin : Arbitration/Mediatiion in Geneva, Switzerland ! That is one of the most corrupt places in the world. They have been harboring criminals of all sorts
84 manny : Please let us know how you really feel!
85 manny : Get your facts straight. The going rate for causing disasters in those times was in billions and they settled for something like few hundred million
86 SonomaFlyer : That must be why folks want to deposit their money there, because Switzerland is soooo corrupt. Please cite me the drug dealers and generals "harbore
87 Post contains images JOYA380B747 : I don't know whether this decision is seconded by everyone at the Government of India, but it sure sounds like the most kiddish decision every made by
88 DocLightning : One begins to wonder if maybe IndiGo might have use for them...
89 qf002 : If Boeing has already paid the contracted amount then they have honoured their contract. AI doesn't have the right to expect a cent more than they ag
90 JoeCanuck : I really don't think Boeing will be cut out of India if they tell AI to insert various amusing items in dark recesses. The GOI may be keen on letting
91 MillwallSean : Sometimes people show how little knowledge and understanding they have about business and the world. This is one of those threads. I wish that we some
92 qf002 : But that negotiation occurred years ago when AI ordered these aircraft. Why should AI expect to get any more money than they agreed they would get wh
93 sweair : Well I have the feeling AI has caused GOI trouble already and that some in the government might be fed up with this airline. If they have such weak fi
94 JoeCanuck : ...and basically what you describe is a cash grab...or an attempt at it. AI needs those planes for not just economic reasons, but the prestige as wel
95 par13del : Based on comments here, compensation has already been paid as per the contract. If we understand correctly, this is additional compensation. My quest
96 Post contains images lightsaber : I'm sure more than a few GE powered 787 airlines will be interested. Heck, perhaps some RR customers would be willing to have a split engine fleet fo
97 tdscanuck : Boeing would say "We have met our contractual obligations. We are not providing any more compensation. You can take the aircraft on the terms and com
98 kanban : wonder which is closer to the down payment plus progress payment numbers.. $500 Mill or $1 Billion????? If the first, could Boeing be saying here's yo
99 trex8 : Depends what you mean by "writing". Congressional notification is 2 years old on the proposed C17 sale. While not a "contract" this would not even ge
100 rotating14 : From what I gather you are saying that AI is justified in asking for $1 billion to then settle for $650 million? Perhaps you have heard of Ryan Air a
101 Post contains images lightsaber : We are in full agreement. But if it part of another negotiation, I'm ok with that. The issue is the when. Pretty soon, if a C17 order does not come t
102 Post contains images phatfarmlines : Classic economic game theory at play here. Problem is, AI is on the losing end of the stick. They are effectively trying to extort money from Boeing a
103 DTWLAX : Can you please explain how did AI's mismanagement play a role in Boeing having a delay with the 787? Boeing would not have had to deal with all this
104 DTWLAX : What you claim as extortion, some may call it business negotiations. Like somebody mentioned in an earlier post, there must be something in the contr
105 XT6Wagon : not really. AI has already been paid quite a large sum of money. They are demanding an even larger number because they need that larger number to stay
106 Stitch : [Edited 2012-06-02 23:45:03 by SA7700]
107 trex8 : there are no lines for P8s and almost none for C17s and very few for Apaches and Chinooks! And military aircraft are often even more customized than
108 imiakhtar : Diplomatically put. We have the excellent operating cost analysis from vin2basketball between the 777 and 787. What no one can put a value on is the
109 vfw614 : Just wondering - any guesses how many 787s in total will Boeing give away for free in the end? Or to put it differently - what will be roughly the equ
110 trex8 : Unless you know what "real" price airlines are paying you could almost double the number depending on what discount was given on the original contrac
111 garpd : And are not all Boeing's fault. AI's Management have proven themselves incapable of running an airline properly. If it wasn't for the GOI, AI would h
112 tdscanuck : Negotiations *precede* contracts. If you don't want to call it "extortion", what would you call threatening a supplier to give you more money that th
113 sunrisevalley : I don't believe Boeing can create a precedent by compensating outside of the terms of the contract. By doing so they leave themselves wide open to a w
114 Post contains images Stitch : Even if they could, unless those costs were part of the original contract, Air India has no right to demand them and Boeing has no obligation to pay
115 Darksnowynight : Operating the 777 isn't the problem. Being AI is. The two factors that point this out are that A. EK, EY, & QR all operate the same types along t
116 InsideMan : While what you say in general is true, I find it amazing how often the best drafted clauses on non-excusable delays and liquidated damages go through
117 ltbewr : I wonder if our State Department and even up to Sec. of State Hillary Clinton will have to get involved. This is a very serious international problem.
118 pnwtraveler : You have to remember that these "contracts" aren't a few pages. Contracts this detailed and complicated can make up binders full of information. Pages
119 bestwestern : Boeing are delivering a product late, that is not meeting order promises. Damn right that Air India will squeeze for every last penny of cash, and boy
120 poLot : Ummm....no. If AI doesn't pay up, AI doesn't get the plane. It is as simple as that, no need to sieze any aircraft nor does anyone need to "force del
121 JoeCanuck : I suspect AI, as one of the first airlines to commit to the 787, got one heck of a sweetheart deal on the price of the aircraft. Early adopters usuall
122 flightsimer : As per P-8, India is already in the process of increasing their order, There is one other Country that will be getting them as well but have not offi
123 bestwestern : Indian D of Defence and Air India are both Government entities. Politically bad move for an Indian department to buy a product from a company that wa
124 Ruscoe : That's one of the best "one liners" I've seen on this forum. Ruscoe
125 Post contains images aeroblogger : The A310s are out of service, and the 744s are being used for charters/Gulf routes. Not much urgency at all. The 787s will be used for expansion and
126 JoeCanuck : Of course they do...that's how lawyers get paid.
127 sweair : AI probably wouldn't be able to make a profit from filled A380s..They seem to have more problems than a late delivery, a problem the 788 wont fix.
128 aeroblogger : That is 100% irrelevant to this discussion. Air India is trying to get the best deal possible. That is called business. If they weren't trying to get
129 HAWK21M : True.......both issues are seperate.
130 sweair : Well short term, by burning Boeing they can forget any more business in the future and Airbus will be very vary of them too. Ryan Air should give a h
131 aeroblogger : Comparing Air India and RyanAir is a complete strawman. It is in Boeing's interest to keep Air India's owner, the government of India, happy. Why? Be
132 JoeCanuck : Not all of the GOI is 100 percent behind AI...and like most civilized countries, India will make the best deals on a case by case basis. Just because
133 bestwestern : Air India is more than an airline to the government of India.
134 Post contains images sweair : Boeing is a public business shareholders might just be of another opinion than to give in for AIs demands. As there are plenty of other customers will
135 Post contains images par13del : Have they really or is that their intention? My memory may be fading but the USSR was the largest supplier of military hardware to India for many yea
136 vfw614 : Quite honestly, this all would be pretty much non-news without the "1bn"-headline. If they were discussing, say, 300m or 600m instead of 500m or 1bn,
137 Post contains images AirlineCritic : Now, I think the compensation that AI has already got is sufficient and any further compensation would be, IMHO, unreasonable. I think AI is acting ou
138 poLot : Boeing (nor Airbus for that matter), don't "force delivery" of an aircraft to an airline if they can't pay for it. What you are suggesting makes you
139 COEWR787 : +1 And that is purely an Air India problem. They should be able to make money using 777s in some market or the other. It is incredible that they can'
140 Flighty : While AI may not deserve compensation about the 787 itself, I think they may deserve compensation for Boeing's false statements through the years abou
141 poLot : And they have received compensation, apparently more than what was required for in their contract. It seems now they want even more though.
142 flightsimer : I don't believe Boeing ever lied about the 787. Until the Side-Body Join issue, i truly believe they thought they were on track. Only then once they
143 DLPMMM : This is just the way Indians do business...they will continue to press and negotiate until they are sure that Boeing will not budge any further. They
144 bestwestern : History may say otherwise. Look at the 'no problem' spin before the delay announcements. Of course there is a thing as forced delivery. Happens all t
145 Post contains images lightsaber : Everyone should remember that. That is the big deal. The C17 order is either finalized soon or irrelevant to Boeing. As I noted before, C17 layoff no
146 sweair : Is the 788 substandard? ANA and JAL seem to accept it with no big fuss being made? What would make it so bad in your opinion?
147 Stitch : So far everyone but QF and the Chinese (and QF might have been more due to financial reasons). Like Cargolux and the 747-8F, this deal will happen (a
148 aeroblogger : Huh? Air India has received $0.00 so far in compensation. Not sure where you are getting your facts from? There is little chance of the strike shutte
149 SonomaFlyer : Delay compensation is included into the contracts for commercial aircraft. The "compensation" is normally backed out of what the airline pays for the
150 flightsimer : Its funny, ANA and JAL are taking them as fast as they can it seems and QATAR wants theirs very badly as they have expressed numerous times and im su
151 neutronstar73 : You clearly have no idea what you are talking about. Air India does not HAVE to have an "ace card"; all they need is counsel to tell them what they w
152 Post contains images aeroblogger : Firstly, that's not true - in the case of Air India's contract, Boeing will write AI a check in the compensation amount once negotiations are over (a
153 neutronstar73 : See my reply #151. And lawyers bear no burden if they get it wrong; we merely advise the decision maker. It is up to them to decide on a course of ac
154 aeroblogger : Quite right. Lawyers can be wrong, or even deliberately try to mislead the airline. However, right now they have access to the documents and the curr
155 tdscanuck : Yes, lots of people. Keep in mind that a below standard early model 787 is still, by far, the most efficient airliner at that size that you can get.
156 sweair : Who would be in line to get those 27 frames if this deal never gets done? JAL and ANA? LAN?
157 aeroblogger : The deal will get done. Speculating over who else will get these frames is a waste of time. It is in both Boeing and Air India's best interest to get
158 NYC777 : Not if AI continues to act like a horses you know what.
159 sweair : I just hope AI wont get a dime more from the currently contracted and agreed deal.
160 aeroblogger : I don't understand this attitude. Air India's lawyers are recommending that they pursue additional compensation based on the contract agreed to (that
161 Stitch : I remember AI had 777-300ERs and 777-200LRs sitting on the ramp at PAE for some six months a number of years back, but in the end they were all deliv
162 DocLightning : Suppose this happens. Let's say that AA decides to take these aircraft (just for example). What options could they change at this point? It's probabl
163 canoecarrier : I did the factory tour at PAE just last week. I seem to remember at least 2 AI 787s on the ramp. Doesn't Boeing at this point have at least 2 payment
164 Post contains images PW100 : Don't want to put a cheap blow, but I do find it somewhat funny that Malaysians A380's were pretty much considered by many here to come as close to a
165 bestwestern : The same way you forcibly deliver a car or an apartment, etc. If payment isn't forthcoming, you get a court order to sieze assets for payment. AI fli
166 golfradio : Companies don't do business on emotions. If the U.S had not embargoed Iran or North Korea, Boeing or for that matter any western business would have
167 SATexan : So let me get this straight. A buyer pays a builder advance money to build a house. The builder sits on the advance payments and 3 years later still
168 poLot : Except it makes no sense for Boeing to seize one of AI's planes just so they can deliver them another plane, so they will never go down that avenue.
169 Darksnowynight : Eventually a lot higher than yours if you keep making statements like that. No valued contributor here takes that at all seriously or attempts to win
170 aeroblogger : Boeing cannot arbitrarily make up rules like this. It has to be in the contract beforehand... Whether there is a deadline for delivery in the contrac
171 lightsaber : It will be interesting to see if that happens. It is more of a possiblity than some accept. I think most likely AI will survive, but contingency plan
172 Darksnowynight : How on Earth would that not be in the contract? That's quite an assumption you're making. Air India, like a few other 787 customers, has received sub
173 JoeCanuck : Lawyers on retainer don't just randomly look for lawsuits. AI went to the lawyers and got them to look for ways to squeeze Boeing for more money. The
174 aeroblogger : I have no clue what is and isn't in the contract. But considering that Boeing already delayed this aircraft by 3 years, a delay of a couple weeks by
175 Post contains images lightsaber : I estimate quite a bit will have to be thrown out. All the seat colors are... unique to AI and would have to be redone. Eveything else has a high val
176 sweair : If this will take more than a few months, would Boeing be able to shift any assembly yet to be done? Or are the interiors timed to every slot in FAL?
177 aeroblogger : That's exactly what I'm expecting. Along with the frames to other airlines scheduled to be delivered this month, June looks to be a great month. Lots
178 SA7700 : This thread has run its course and will be locked for further contributions, as some members can't seem to abide by the forum rules. As per forum rule
Top Of Page
Forum Index

This topic is archived and can not be replied to any more.

Printer friendly format

Similar topics:More similar topics...
A Billion Dollar Delay? AI Says Yes... posted Fri Feb 10 2012 01:07:19 by maxter
AI 787 Has Star Alliance Logo On It posted Wed Aug 31 2011 21:19:19 by 3rdGen
Air Canada Compensation For 787 Delays? posted Fri Dec 24 2010 09:55:05 by The777Man
B-787 Delivery: Miffed AI To Seek $240m Refund Re posted Mon Aug 9 2010 10:04:20 by hawkercamm
AI Skeptical About Its 787 Order posted Sat Dec 12 2009 06:32:31 by Aviationbuff
DL/Boeing - 764ERs As Compensation For 787 Delays? posted Sun Oct 11 2009 19:17:50 by 1337Delta764
LAN 787 Compensation; 77Ls? posted Mon Aug 31 2009 14:31:26 by The777Man
ILFC 787 Compensation Talks posted Wed Mar 25 2009 17:37:42 by PM
Boeing: Delay Compensation & 787 Profitability? posted Mon Jan 12 2009 02:39:04 by Vfw614
Virgin Looks For 787 Compensation? posted Sun Nov 9 2008 03:10:37 by Kaitak