AA7295
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AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 4:12 am

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!
 
brahmin
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 4:14 am

AI is asking for compensation for Boeing's inefficiencies.
AI inefficieny is a different matter and not relevant to this.
 
Spacepope
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 4:15 am

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
 
AA7295
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 4:19 am

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]
 
fghtngsiouxatc
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 4:20 am

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.
 
XT6Wagon
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 4:40 am

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
 
wedgetail737
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 4:58 am

I'm sure Boeing can find new customers to take up AI's 787's should the deal with India go south.
 
PHX787
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 5:03 am

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.
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vin2basketball
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 5:05 am

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.
 
brahmin
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 5:10 am

Quoting fghtngsiouxatc (Reply 4):

If Boeing does this, they can forget all defense deals.
 
flightsimer
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 5:14 am

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.
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scouseflyer
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 6:49 am

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!
 
laca773
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 6:51 am

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.
 
bennett123
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 6:52 am

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.
 
Burkhard
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 7:17 am

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]
 
PlanesNTrains
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 7:43 am

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.

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boeingfever777
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 9:16 am

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.
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EK413
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 9:39 am

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
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na
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 9:56 am

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.
 
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scbriml
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 11:20 am

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.
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na
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 11:27 am

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.
 
nomadd22
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 11:37 am

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.
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tdscanuck
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 12:30 pm

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.
 
cmf
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 12:36 pm

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.
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mikefad
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 12:41 pm

East Asians are expert negotiators. If they did not demand, then they would never receive any compensation. It is only a starting point, no?
 
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garpd
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 12:46 pm

Quoting mikefad (Reply 24):
If they did not demand, then they would never receive any compensation. It is only a starting point, no?

They already received a lot of compensation and from why I read here, apparently far more than contracted for.
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flybyguy
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:11 pm

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 tactic by the Indian gov't to cover the losses from AI's shortcomings. Boeing is between a rock and a hard place now. If they don't give the $1 billion all other orders civilian and military will be cancelled for spite. The Indian parliament with surprising efficiency may even use legal methods to make importing Boeing aircraft by other private carriers more difficult.

I'm almost certain that similar "negotiations" by Akbar Al Baker are on the horizon.
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PlaneAdmirer
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:12 pm

Quoting nomadd22 (Reply 21):
There's a thing called precedent.

   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 in line.
 
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Mortyman
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:20 pm

Norwegian would proabably be interested in these birds too ...
 
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lightsaber
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:21 pm

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. I'm certain Boeing will be willing to pay a little more to smooth things out, but it is unreasonable to expect the compensation AI/GOI is demanding.

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.

Thank you. That is what matters, the contract amount.

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

That creates an issue then for dealing with AI is there is unlimited liability incurred. As also noted by tdscanuck, defense deals are usually tied to the other side's interests too. Penalties outside the contract encourage the other side to also come up with penalties.

Quoting tdscanuck (Reply 22):
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.

In many ways, that is what is going to go to arbitration. Will an Indian company keep its part of the contract? The GOI needs to worry about how to promote growth and not scare away investors.

Quoting mikefad (Reply 24):
It is only a starting point, no?

Not when other business is threatened. It is not expert negotiation. Not when such negotiation is alienating foreign investors and calling question to other GOI policies:

" But many economists and investors say weak leadership and muddled policies have failed to curb government spending and alienated many foreign investors.

Slowing corporate investment, stubbornly high inflation and high fiscal and trade deficits have led to comparisons with India's 1991 balance of payments crisis, a watershed moment in the country's history that led Singh, then finance minister, to drive through transformational economic reforms.

Critics of Singh's fractious Congress party-led coalition government say it needs a crisis to break the policy paralysis that has stalled major reforms, such as allowing foreign supermarkets into the retail sector and reducing costly fuel, food and fertiliser subsidies."

http://www.reuters.com/article/2012/...-economy-gdp-idUSL1E8GV5NB20120531

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DLPMMM
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:25 pm

Quoting PlaneAdmirer (Reply 27):
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 in line.

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 last minute to try to get every last penny possible, and will continue to try to negotiate till the very brink. They only stop negotiating when it costs them money.

I have had negotiations there that continued with new demands constantly till I told them that my terms were firm, and any aditional time spent negotiating would be deducted from their technical support time...the negotiations were then finished 10 minutes later.
 
jetblueguy22
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:25 pm

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 the plane and put it in service. If I was Boeing I'd say fine, you don't want it, I'm sure someone would be thrilled to get theirs a little early.
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qf002
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:34 pm

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 nothing because its already been paid), then telling AI to take it or leave it.

AI probably already got an excellent price on the aircraft at order (as did so many others reportedly), and have already been compensated as the delays have continued.

From AI's perspective, they can either get these planes and whatever Boeing offers, or get nothing at all. They're trying to play hardball, but there doesn't appear to be much for them to play with...
 
sweair
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:47 pm

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 frames out in the rain for many years now. How well does an aircraft handle that kind of storage? Almost 3 years outside storage..
 
brahmin
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 1:50 pm

Would AI be having attorneys on a contingency basis from USA advising them ?
 
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Polot
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:10 pm

Quoting sweair (Reply 33):
How well does an aircraft handle that kind of storage? Almost 3 years outside storage..

If preparations were made for it (which I'm sure they were), then pretty well. After all, planes spend their entire lives outside.
 
babybus
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:14 pm

Quoting qf002 (Reply 32):
From AI's perspective, they can either get these planes and whatever Boeing offers, or get nothing at all. They're trying to play hardball, but there doesn't appear to be much for them to play with...

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 to be compensated.

Surely there are airlines in the world that would take those 787s without needing compensation?
and with that..cabin crew, seats for landing please.
 
sweair
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:15 pm

Quoting poLot (Reply 35):
If preparations were made for it (which I'm sure they were), then pretty well. After all, planes spend their entire lives outside.

Yeah surely they must have climate control in the cabin etc? Otherwise it will start to collect moist and other unpleasant things.
 
sstsomeday
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:18 pm

Quoting XT6Wagon (Reply 5):
Doesn't matter their losses, what matters is whats in the contract.

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?
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sweair
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:21 pm

Quoting SSTsomeday (Reply 38):
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?

How would they manage without any new frames?
 
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Stitch
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:21 pm

Quoting SSTsomeday (Reply 38):
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?

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 disadvantage to their foreign competitors who will eventually be using 787s and A350s.
 
COEWR787
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:32 pm

Quoting Stitch (Reply 40):
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 disadvantage to their foreign competitors who will eventually be using 787s and A350s.

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 specifically mentioned in that AFAIR?
 
sstsomeday
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:35 pm

Quoting Stitch (Reply 40):
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 disadvantage to their foreign competitors who will eventually be using 787s and A350s.

Interesting; I did not know that. So it seems that Air India is simply looking for compensation beyond their contractual agreement. Boeing will have to decide how much the sale is worth to them; Perhaps a compromise can be reached. This could be just a preliminary bargaining position on the part of AI. First ask for the moon and see how much you ultimately get
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XaraB
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:39 pm

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 penalty clauses in the contract tied to lost revenue, as this would bankrupt nearly every contractor or supplier at the first minor mishap. Instead, penalties (for not delivering on time) are calculated at a given percentage per day/week, capping at an agreed percentage of the entire contract value. This is regulated in the contract, and is never visible to the public, for good reasons (good customers get better terms).

Thus, if the capital-intensive airliner industry is comparable to the offshore industry, it is impossible to rationalize any compensation claims from perceived lost revenue, and we will never have access to the documents governing such claims.

At $120mill per plane (if correct), AI's total contract value (27 planes) would amount to about $3.2 billion. $500 mill compensation would equate to a compensation cap at approx. 15%, which is fairly normal in other businesses. A claim of $1 billion would equate to approx. 30%, which is on the high side. An agreement somewhere in between (if there are disputes about serious breach of contract) is not uncommon, and would not be unique to AI.

Unless they have already been compensated according to these clauses, which some other members state. In which case AI are off their rockers...
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sweair
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:41 pm

How many 787s would a billion buy?
 
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garpd
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:45 pm

Quoting babybus (Reply 36):
If Boeing were unable to honour their contract with AI then AI have every right to be compensated.

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 been a cap on compensation and it seems generally agreed 5% of contract worth is the cap point.

$1B is well beyond that 5%.
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trex8
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:46 pm

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 MPA version of the P8 and more P8Is, a few hundred million over the five hundred which Boeing is supposedly willing to pay will be in Boeings overall longterm interest.
 
SonomaFlyer
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:49 pm

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 declares victory and we move on to the next controversy.

AI absolutely needs these a/c given their current fleet issues and costs. Whether this airline is salvageable given the poor management structure is another story. Aggressive protectionism by the Indian government can only go so far to shield AI from its own mistakes.
 
sweair
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 2:52 pm

Quoting trex8 (Reply 46):
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 MPA version of the P8 and more P8Is, a few hundred million over the five hundred which Boeing is supposedly willing to pay will be in Boeings overall longterm interest.

Add 10 C17 as well. I guess GOI has quite nice bargaining position here, a lot more than 27 787s are at stake.
 
goacom
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RE: AI Wont Accept 787 Without $1 Billion Compensation

Fri Jun 01, 2012 3:06 pm

Quoting sweair (Reply 48):
Add 10 C17 as well. I guess GOI has quite nice bargaining position here, a lot more than 27 787s are at stake.

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 would want to compromise their requirements based on an unrelated civilian commercial dispute. Furthermore, barring Boeing from future military sales would implicitly impose higher costs for the airforce due to the elimination of a significant vendor from the bidding process.

Boeing should stick to its guns. My position on AI is pretty clear. It should be privatized or be let to die. The status quo of incompetent bureaucrats running an airline makes no sense.