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Revelation
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Airbus threatens to sue airlines

Fri Jun 05, 2020 8:15 pm

STC said everything is on hold with regard to orders, AAB said it would weigh current deferrals when considering future business, now Faury strikes back:

Faury told Politico that some airlines, which he did not identify, had refused to take calls at the height of the crisis, but that he hoped for a compromise.

“It will remain, I hope, the exception because we always try to find a different route than going to court,” Faury said.

“But if and when airlines - and it’s happening - have no other choice than fully defaulting and not proposing something better than nothing, or are not willing to do it, then (lawsuits) will happen.”

Industry sources said such public warnings are rare in the tight-knit aviation market and could backfire.

Apparently some unnamed airlines are non-plussed about getting "dozens of default notices" from Airbus.

I understand there is a need for posturing, but it seems there should be a better way to work through the current crisis.

Ref: https://www.reuters.com/article/us-airb ... 0001d17696
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airportugal310
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:26 pm

Aviation may be very "tight-knit", but if you're a deadbeat...you're a deadbeat. Live up to your end of the bargain, or suffer the consequences.
“They bought their tickets, they knew what they were getting into. I say, let 'em crash.”
 
Ishrion
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:27 pm

Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?
 
889091
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:35 pm

Damned if you do, damned if you don't. I don't envy his role.

Push too hard and the airline(s) may just go belly up - liquidators are called in and presto, a whole bunch of cheap second-hand frames suddenly become available, eating into your order books. Too soft, and your cash flow starts to trickle.

The EU is planning to open its borders on 15 June 2020. All we need is a similar situation that happened to QR in Greece a few days ago and we'll be back to square one.
 
cschleic
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:45 pm

Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


Then that leaves who as a supplier?
 
kaitak
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:46 pm

What happened to QR in Greece a few days ago?
 
889091
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:52 pm

kaitak wrote:
What happened to QR in Greece a few days ago?


https://simpleflying.com/qatar-airways-greece-ban/

Mentioned in post #55 in the following thread:
viewtopic.php?f=3&t=1446453&start=50
 
MIflyer12
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:52 pm

We will see how enforceable are the relevant purchase contracts in what legal jurisdictions. This could be good - but probably not quick.
 
xwb777
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 8:58 pm

Airlines has placed orders when the economic conditions were right and they want to deffer and cancel them when the economic cinditions are bad. If they (the airlines) are not allowed to cancel and deffer, how can they afford to pay for the airplanes.

This must be a tactical move by Airbus, so the airlines won't cancel and just deffer orders.
 
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Revelation
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 9:23 pm

MIflyer12 wrote:
We will see how enforceable are the relevant purchase contracts in what legal jurisdictions. This could be good - but probably not quick.

That's part of why I think the airlines are angry. They realize legal remedies take a long time to develop, so they're not happy to take reputation damage by being sued for something that probably won't ever provide relief to Airbus. By the time such a suit could wind through the courts the matter will be resolved by either mutual agreement or by business reorganization or business liquidation. In all of these scenarios Airbus's suit for failure to meet contractual obligations is not going to do anything other than cause unwanted reputation damage. Above we're already seeing the word "deadbeat" thrown around. It might eventually be appropriate, but it seems very premature right now.

xwb777 wrote:
Airlines has placed orders when the economic conditions were right and they want to deffer and cancel them when the economic cinditions are bad. If they (the airlines) are not allowed to cancel and deffer, how can they afford to pay for the airplanes.

This must be a tactical move by Airbus, so the airlines won't cancel and just deffer orders.

I've read here that over time airlines wanted to put less money down at order time because no one wants to see large amounts of money sit around for long periods of time, and the deep order backlogs made this worse. It kind of became a positive feedback loop: less money down made it easier to order more which made for deeper backlogs and so on. The cost was the vendors made it more and more difficult to get out of contracts.

As above, I guess we'll see how enforceable those contracts are.

One point the article makes is that it's going to get worse before it gets better because the industry is still gliding along on contracts with financing established pre-covid. If those contracts get suspended or broken it will probably be a while before the financiers want to re-enter the market.
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wedgetail737
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 9:37 pm

cschleic wrote:
Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


Then that leaves who as a supplier?


QR could get airplanes from COMAC or Russia. Or maybe use some used IL-96's or IL-86's...LOL!
 
889091
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 9:41 pm

Revelation wrote:
MIflyer12 wrote:
We will see how enforceable are the relevant purchase contracts in what legal jurisdictions. This could be good - but probably not quick.

That's part of why I think the airlines are angry. They realize legal remedies take a long time to develop, so they're not happy to take reputation damage by being sued for something that probably won't ever provide relief to Airbus. By the time such a suit could wind through the courts the matter will be resolved by either mutual agreement or by business reorganization or business liquidation. In all of these scenarios Airbus's suit for failure to meet contractual obligations is not going to do anything other than cause unwanted reputation damage.


I'm no lawyer, but I wonder if Airbus' legal dept had anything to do with it? It could very well be that Covid-19 or not, they didn't want to set a legal precedent for not asking the airlines to cough up the dough. Otherwise, it may be difficult to enforce it in future, post Covid-19.
 
davidjohnson6
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 9:50 pm

If airlines believe they won't be sued for failing to honour a contract, then they start to treat firm orders as options. The moment that an aircraft manufacturer wins in court against an airline, the firm-order-is-an-option approach will stop

Large airlines are not like vulnerable widows or orphans - they have access to high quality legal advice, and are fully aware as to what they are doing when placing large aircraft orders and the associated consequences for failing to pay on time. Yes, there is a bit of room for haggling when times get tough, but barring a legal bankruptcy event, one has to pay up in full and on time
 
MIflyer12
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 10:51 pm

davidjohnson6 wrote:
The moment that an aircraft manufacturer wins in court against an airline, the firm-order-is-an-option approach will stop


That depends on the reach of that court, and what fraction of upcoming deliveries are to be adjudicated in that jurisdiction.

If Airbus were to win in a U.S. Federal court, and has lots of orders governed by U.S. law, yes, a court win by Airbus could be a deterrent. But so far it's just hot air - it doesn't even sound like they've filed a claim yet.
 
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lightsaber
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 10:58 pm

889091 wrote:
Revelation wrote:
MIflyer12 wrote:
We will see how enforceable are the relevant purchase contracts in what legal jurisdictions. This could be good - but probably not quick.

That's part of why I think the airlines are angry. They realize legal remedies take a long time to develop, so they're not happy to take reputation damage by being sued for something that probably won't ever provide relief to Airbus. By the time such a suit could wind through the courts the matter will be resolved by either mutual agreement or by business reorganization or business liquidation. In all of these scenarios Airbus's suit for failure to meet contractual obligations is not going to do anything other than cause unwanted reputation damage.


I'm no lawyer, but I wonder if Airbus' legal dept had anything to do with it? It could very well be that Covid-19 or not, they didn't want to set a legal precedent for not asking the airlines to cough up the dough. Otherwise, it may be difficult to enforce it in future, post Covid-19.

I believe you are correct in that Airbus is setting legal precident.

Neither Airbus nor Boeing can ramp down to zero. If they tried, half the vendor supply chain would go bankrupt and then no manufacturing of aircraft. This is true of the engine vendors as all need specialty casting vendors who need enough product to stay in business.

So Airbus must discuss differals but still deliver dome aircraft to fund continued production.

The issue is the airlines cannot accept a fraction of the orders, yet. It was noted by Revalation that low deposits enabled mega orders.

The reality is any airline that fully honors previously agreed pricing is at a disadvantage. There is no avoiding a step down in aircraft pricing, new or used, for the next 5 years. Fully honoring the contract will bankrupt most airlines.

The airlines that recently bought fleets and cannot return the aircraft to leasors or have large previously negotiated orders are going to be at a competitive disadvantage.

Buy popcorn in bulk. This is still the opening act.

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enilria
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 11:01 pm

Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


Their future fleet is Sukhoi?
 
MIflyer12
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 11:16 pm

lightsaber wrote:
889091 wrote:
Revelation wrote:
That's part of why I think the airlines are angry. They realize legal remedies take a long time to develop, so they're not happy to take reputation damage by being sued for something that probably won't ever provide relief to Airbus. By the time such a suit could wind through the courts the matter will be resolved by either mutual agreement or by business reorganization or business liquidation. In all of these scenarios Airbus's suit for failure to meet contractual obligations is not going to do anything other than cause unwanted reputation damage.


I'm no lawyer, but I wonder if Airbus' legal dept had anything to do with it? It could very well be that Covid-19 or not, they didn't want to set a legal precedent for not asking the airlines to cough up the dough. Otherwise, it may be difficult to enforce it in future, post Covid-19.

I believe you are correct in that Airbus is setting legal precident.


Maybe a lawyer can answer this, but where does failure to enforce a contract provision now (or, let's say short term: less than 18 months) make one unable to enforce such provision in the future?
 
frmrCapCadet
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 11:34 pm

There are and will be a lot of lightly used planes available. Airlines, A and B, supply chain are all in jeopardy. But Ts and Is need attention.
Buffet: the airline business...has eaten up capital...like..no other (business)
 
MR27122
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Re: Airbus threatens to sue airlines

Fri Jun 05, 2020 11:50 pm

Force majeure? Last Global pandemic = 1918 Spanish Flu....not many airlines around circa 1918.

C19 possibly precedent setting, 'cause it's gonna happen again.

Problem is interdependence---A&B need airlines & vice-versa, so this ain't go to a court, it will be settled to the satisfaction (in my opinion) of the customers (airlines).

Epic times!
 
Opus99
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 12:01 am

why do i feel like this has something to do with QR saying if Boeing and Airbus don't delay till at least 2022, they will lose them as a customer
 
JayinKitsap
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 12:08 am

Law prefers consistency, choosing to not enforce contract requirements for one does set precedent for another to sue to get out of that contract requirement, so it is much better to enforce the contract. If the current contract is unenforceable it is time to sit down to negotiate a contract change that is fair to both parties. Often in bankruptcies that same negotiation occurs, except in the US Chapter 7 case where the entity basically vanishes into vapor. The lender gets the plane back but no money, but if the OEM hasn't delivered it just gets the prior payments.

Often a solution if the airline is a going concern and has decent prospects, but no cash is for the OEM to arrange a financial lease, like what Boeing Capitol does, so the airline can accept delivery. But if the airline already has a desert full of planes not in service there are few good choices.

The OEM's have seemed to move the payment at signing to a payment applied when parts begin to be purchased. The first turbine casting needs to be paid for by then, but this date is probably 30 to 36 months before delivery. There are progress payments due at contract milestones, if a milestone is not paid for, the most agreeable answer is for the OEM to idle the order, letting others that have paid pass by, until paid and it enters the production plan. It is the value already put into the frame that is the real club by the OEM on the airline. Loosing the $20M already paid gets one's attention. Not getting sufficient early payments allows the airline to more easily walk away.

Look at the Air Bridge Cargo, V D recent situation. V D disappeared at the delivery date with no contact, then finally after meeting more than a month after finally said they cannot pay for the plane and cancelled the contract. (A similar less dire was happening with 3 77F's at the same time.) VD basically wrote off all the deposits and Boeing resold the plane for what it could get. Most NTU's are in a similar situation. Well VD is now having regrets and went to court to get Boeing to honor the contract VD broke. The judge denied any relief for VD.
 
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lightsaber
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 12:39 am

JayinKitsap wrote:
Law prefers consistency, choosing to not enforce contract requirements for one does set precedent for another to sue to get out of that contract requirement, so it is much better to enforce the contract. If the current contract is unenforceable it is time to sit down to negotiate a contract change that is fair to both parties. Often in bankruptcies that same negotiation occurs, except in the US Chapter 7 case where the entity basically vanishes into vapor. The lender gets the plane back but no money, but if the OEM hasn't delivered it just gets the prior payments.

Often a solution if the airline is a going concern and has decent prospects, but no cash is for the OEM to arrange a financial lease, like what Boeing Capitol does, so the airline can accept delivery. But if the airline already has a desert full of planes not in service there are few good choices.

The OEM's have seemed to move the payment at signing to a payment applied when parts begin to be purchased. The first turbine casting needs to be paid for by then, but this date is probably 30 to 36 months before delivery. There are progress payments due at contract milestones, if a milestone is not paid for, the most agreeable answer is for the OEM to idle the order, letting others that have paid pass by, until paid and it enters the production plan. It is the value already put into the frame that is the real club by the OEM on the airline. Loosing the $20M already paid gets one's attention. Not getting sufficient early payments allows the airline to more easily walk away.

Look at the Air Bridge Cargo, V D recent situation. V D disappeared at the delivery date with no contact, then finally after meeting more than a month after finally said they cannot pay for the plane and cancelled the contract. (A similar less dire was happening with 3 77F's at the same time.) VD basically wrote off all the deposits and Boeing resold the plane for what it could get. Most NTU's are in a similar situation. Well VD is now having regrets and went to court to get Boeing to honor the contract VD broke. The judge denied any relief for VD.

What leverage the airlines have is lost if they cease being a blue chip customer.

I do wonder what deposits will be lost? There is a need to sit down. Airlines must not go bankrupt, if possible. Airbus (and Boeing) must preserve the supply chain.

I personally believe neither Airbus nor Boeing cut production enough. There will be far too many aircraft on the market. I expect many a vendor to have to declare CH11. Some will have to break contracts.

Lightsaber
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Varsity1
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 12:52 am

cschleic wrote:
Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


Then that leaves who as a supplier?


The used market.

It would be worse for Airbus and Boeing if airlines like QR started unloading their fleets onto the used market. Values would fall like a brick.
"PPRuNe will no longer allow discussions regarding Etihad Airlines, its employees, executives, agents, or other representatives. Such threads will be deleted." - ME3 thug airlines suing anyone who brings negative information public..
 
S0Y
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 1:11 am

I think it will all get resolved without the nuclear option of court.....but A and B are going to have to cut production rates by a lot more than we have seen to date before this gets fixed. Its just a matter of time.
 
smartplane
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 1:20 am

lightsaber wrote:
JayinKitsap wrote:
Law prefers consistency, choosing to not enforce contract requirements for one does set precedent for another to sue to get out of that contract requirement, so it is much better to enforce the contract. If the current contract is unenforceable it is time to sit down to negotiate a contract change that is fair to both parties. Often in bankruptcies that same negotiation occurs, except in the US Chapter 7 case where the entity basically vanishes into vapor. The lender gets the plane back but no money, but if the OEM hasn't delivered it just gets the prior payments.

Often a solution if the airline is a going concern and has decent prospects, but no cash is for the OEM to arrange a financial lease, like what Boeing Capitol does, so the airline can accept delivery. But if the airline already has a desert full of planes not in service there are few good choices.

The OEM's have seemed to move the payment at signing to a payment applied when parts begin to be purchased. The first turbine casting needs to be paid for by then, but this date is probably 30 to 36 months before delivery. There are progress payments due at contract milestones, if a milestone is not paid for, the most agreeable answer is for the OEM to idle the order, letting others that have paid pass by, until paid and it enters the production plan. It is the value already put into the frame that is the real club by the OEM on the airline. Loosing the $20M already paid gets one's attention. Not getting sufficient early payments allows the airline to more easily walk away.

Look at the Air Bridge Cargo, V D recent situation. V D disappeared at the delivery date with no contact, then finally after meeting more than a month after finally said they cannot pay for the plane and cancelled the contract. (A similar less dire was happening with 3 77F's at the same time.) VD basically wrote off all the deposits and Boeing resold the plane for what it could get. Most NTU's are in a similar situation. Well VD is now having regrets and went to court to get Boeing to honor the contract VD broke. The judge denied any relief for VD.

What leverage the airlines have is lost if they cease being a blue chip customer.

I do wonder what deposits will be lost? There is a need to sit down. Airlines must not go bankrupt, if possible. Airbus (and Boeing) must preserve the supply chain.

I personally believe neither Airbus nor Boeing cut production enough. There will be far too many aircraft on the market. I expect many a vendor to have to declare CH11. Some will have to break contracts.

Lightsaber

A & B face a triple wammy.

One. Orders cancelled and / or deferred, milestone payments missed / deferred including delivery settlement.
Two. Demands from customers with firm orders to re-price.
Three. Customers with accrued retrospective credits opting to take as cash, even though that results in a discount / lower value.

Airbus legal action will be in response to the above, including court confirming OEM ability (included in T&C's) to freeze retrospective credits so customers cannot convert to cash and withdraw whether on cancelled / deferred deliveries or already delivered aircraft, allow application to due / overdue milestone payments, and reverse retrospectively, credits earned on already delivered aircraft, and the ability to withhold parts and services for the existing fleet.

A & B standard T&C's allow the above, but legally untested.

And it's not just the OEM's and customers between a rock and a hard place. Pre-shipment financiers will argue if an OEM agrees to defer delivery with a customer, they still want their finance repaid as if delivered on the originally agreed dates. But post-delivery finance is almost impossible to arrange. So the pre-shipment financier will want the OEM and / or customer, and / or post-shipment financier to take them out.

In normal times, that's exactly what would happen, with usually the OEM (air frame and engines) and post-shipment financiers coming to the party. But these are not normal times, and industry liquidity has already been stretched by MAX and some pre-COVID deferred deliveries.

So legal action is more than a threat. And for now Boeing will be happy for Airbus to take the lead. Airlines consider it's OK to withhold refunds from customers, but watch them go ballistic when they can't cash in their OEM credits.

Action by engine OEM's will be interesting, especially where the customer has negotiated direct with the OEM. For example, customers deemed delinquent, can have engine services withdrawn globally from approved service agents.

Some otherwise very reputable airlines might be about to find out what it's like to run an airline in Iran, however a lot of discussions to be had before that happens. But first rule of discussions, is talk to your suppliers / creditors.
 
jetwet1
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 2:27 am

davidjohnson6 wrote:
If airlines believe they won't be sued for failing to honour a contract, then they start to treat firm orders as options. The moment that an aircraft manufacturer wins in court against an airline, the firm-order-is-an-option approach will stop

Large airlines are not like vulnerable widows or orphans - they have access to high quality legal advice, and are fully aware as to what they are doing when placing large aircraft orders and the associated consequences for failing to pay on time. Yes, there is a bit of room for haggling when times get tough, but barring a legal bankruptcy event, one has to pay up in full and on time


The problem with that is, at least for non public airlines, they are in a position to tell Airbus (or Boeing for that matter), back off or we will never buy another aircraft from you, the question is, is any manufacturer willing to take that risk ?

Is the manufacturer willing to take that risk for a state owned airline like QR ? I doubt it, but only the Airbus execs and attorneys know for sure.

I just don't see them risking billions in future earnings for a few hundred million now, for smaller airlines, that it a far easier choice.
 
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flee
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 2:38 am

Airbus had better get used to the new normal - aircraft demand will not recover for at least another 5 years (unless oil prices rocket) as airlines will now prefer to use existing equipment longer. One thing will be for sure in future - Airbus will definitely tighten contract terms on future sales.
 
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FrenchPotatoEye
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 3:05 am

cschleic wrote:
Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


Then that leaves who as a supplier?


The Mr Akabar does say very strange things sometimes.

On topic, Is the Airbus backlog ready to shrink and cut Europe jobs if the airlines collapsing and can't take neo's?

Possibles.
 
iamlucky13
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 3:17 am

Varsity1 wrote:
cschleic wrote:
Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


Then that leaves who as a supplier?


The used market.

It would be worse for Airbus and Boeing if airlines like QR started unloading their fleets onto the used market. Values would fall like a brick.


How would that benefit Qatar? It doesn't resolve the contract problem and it doesn't win the case for them in court. Should they then rebuy when travel picks up again? Sell low, buy high?

A compromise has to happen. The rumored airlines refusing to take calls from people they owe money to aren't making their position any better.

S0Y wrote:
I think it will all get resolved without the nuclear option of court.....but A and B are going to have to cut production rates by a lot more than we have seen to date before this gets fixed. Its just a matter of time.


They'll probably do a mix of cutting rates and building up an inventory of airplanes that are deferred for delivery. If the hopes that the industry is back to 2019 levels in 2 years come true, then backlogs will be growing again, but the manufacturers will still need time to ramp up.

Boeing's current ramp up plan for the MAX recovery reportedly does not have them reaching their 2018 production rate again until the end of 2022. At that point, the industry will be getting close 1000 in service 737's shy of where the pre-grounding forecast put it.
 
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smithbs
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 4:18 am

iamlucky13 wrote:
Sell low, buy high?


Isn't that how QR does business? Sorry, couldn't resist.

I would fully expect Airbus and Boeing to be modeling their business for the foreseeable future. A couple months ago, a model for future business would have been impossible to create, but I would expect that at this point Airbus and Boeing are working off of some firmed up models, probably with several paths forward (from moderately pessimistic to moderately optimistic). Such models are likely driving the staffing decisions being made lately. Perhaps the models are showing Airbus that these legal moves with customers are necessary?
 
strfyr51
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 4:33 am

Airbus might be cutting off their Noses to spite their FACE! Airbus let carriers make orders with less money down and lower progress payments. They have nobody to blame but themselves! Boeing only builds bespoke airplanes. They require Progress payments even for the undelivered 737Max's on their ramp. If the airlines don't take delivery or refuse delivery? Then Boeing will sell them for the remainder owed them plus any changes the airline requests., United,American, Southwest Delta and British Might well get a killing on airplanes ordered and Cancelled. And at damn good price too.
 
Waterbomber2
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Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 5:01 am

lightsaber wrote:
889091 wrote:
Revelation wrote:
That's part of why I think the airlines are angry. They realize legal remedies take a long time to develop, so they're not happy to take reputation damage by being sued for something that probably won't ever provide relief to Airbus. By the time such a suit could wind through the courts the matter will be resolved by either mutual agreement or by business reorganization or business liquidation. In all of these scenarios Airbus's suit for failure to meet contractual obligations is not going to do anything other than cause unwanted reputation damage.


I'm no lawyer, but I wonder if Airbus' legal dept had anything to do with it? It could very well be that Covid-19 or not, they didn't want to set a legal precedent for not asking the airlines to cough up the dough. Otherwise, it may be difficult to enforce it in future, post Covid-19.

I believe you are correct in that Airbus is setting legal precident.

Neither Airbus nor Boeing can ramp down to zero. If they tried, half the vendor supply chain would go bankrupt and then no manufacturing of aircraft. This is true of the engine vendors as all need specialty casting vendors who need enough product to stay in business.

So Airbus must discuss differals but still deliver dome aircraft to fund continued production.

The issue is the airlines cannot accept a fraction of the orders, yet. It was noted by Revalation that low deposits enabled mega orders.

The reality is any airline that fully honors previously agreed pricing is at a disadvantage. There is no avoiding a step down in aircraft pricing, new or used, for the next 5 years. Fully honoring the contract will bankrupt most airlines.

The airlines that recently bought fleets and cannot return the aircraft to leasors or have large previously negotiated orders are going to be at a competitive disadvantage.

Buy popcorn in bulk. This is still the opening act.

Lightsaber


Airbus already set a legal precedent in Japan with Skymark.
What they did with Skymark is nothing short of disgusting.

The problem is that Airbus itself have learned nothing from the Skymark bankruptcy.
They have not solved the core problem of financing, ie what do we do when a large customer has liquidity problems, or worse even, what do we do when all customers have a liquidity problem.
Airbus should have partnered with one or several large banks that would provide back-up financing and would be backed by state guarantees in scenario's like these.
Something like: the aircraft stay with Airbus as collateral, the bank provides deferred leasing guaranteed by the state in case the customer airline fails, the bank and state get the aircraft if the airline goes bankrupt before the aircraft is delivered.

I also think that the Airbus production strategy has been very wrong so far.
When you have backlog of 8-9 years of production and a weak competing product you can't reduce the production rate. That is foolish.
You produce at full rate and deliver it when the airlines can take delivery. Aircraft cost relatively little to produce compared to their sales price, it's the development cost that makes them cost what they cost.

We haven't even started to see the consequences of this crisis.
Most airlines wil be bankrupt by the end of this year, and who knows what will happen to Airbus.

Over in the Lufthansa bailout thread everyone was talking about it like LH is the holy grail and should be saved at all cost.
In a few months, when big industries like Airbus, Siemens, Thyssenkrupp start failing, we'll see how much of a holy grail LH is.
We haven't even started to scratch the surface of this crisis.
 
Confuscius
Posts: 3710
Joined: Wed Aug 29, 2001 12:29 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 6:00 am

If an airline has a small order and can't pay, they're in a lot of of trouble. If an airline has a huge order and can't pay, the manufacturer is in a lot of trouble.
Ain't I a stinker?
 
gloom
Posts: 451
Joined: Thu Jun 30, 2016 4:24 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 6:05 am

Waterbomber2 wrote:
They have not solved the core problem of financing, ie what do we do when a large customer has liquidity problems, or worse even, what do we do when all customers have a liquidity problem.


Actually, I feel they learned their lesson. Many NTUs were not a problem for Airbus. Still, this is just my opinion, and I guess we will see all sorts between white and black opinions.

The problem is when all frames are suddenly a threat. This is one in a generation (well, actually lately one in a decade) case, and as such, you never can get ready for this. Neither Boeing, nor Airbus were. Otherwise, they wouldn't make it till today, as cost of accumulating cash would affect everyday ops.

Waterbomber2 wrote:
Most airlines wil be bankrupt by the end of this year, and who knows what will happen to Airbus.


I guess it's not a "airline" problem. They're simply first affected.
There will be many other air-market companies following, from A&B and their supply chain, thru MROs and airport support companies, to leasors.

Sure, once airlines go bankrupt, all other are affected. But there are other companies to save as well. You can't just force Airbus or Boeing and make them sponsor airlines, only because airlines are in dire need now. If A or B go down (even one of them), the result will be probably as bad, if not worse. It's only the effect will come later. We're not talking an airline here, 2 or 3 percent of total market for the big ones. We're talking a producer delivering 60% of newly built airplanes.

Waterbomber2 wrote:
In a few months, when big industries like Airbus, Siemens, Thyssenkrupp start failing, we'll see how much of a holy grail LH is.
We haven't even started to scratch the surface of this crisis.


Fully agree. And I have a feeling we'll see a chain where airlines become sponsored by producers, only to have to save producers some 6 months later, etc. Sort of domino effect/chain reaction bancrupcies and struggles.

Cheers,
Adam
 
jbs2886
Posts: 2333
Joined: Wed Apr 01, 2015 9:07 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 6:19 am

While this discussion focuses on Airbus’ choice to make the demands (as an in-house lawyer, legal doesn’t just issue demands without business sign off), I think it would be interesting to consider which airlines.

Earlier I looked at A330 and A350 production and the only real airline that would probably be at issue is Hainan (and related airlines). Airbus mentioned a few dozen letters (?) so anyone have ideas which airlines?
 
jeffrey0032j
Posts: 785
Joined: Wed Jun 15, 2016 3:11 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 6:20 am

jbs2886 wrote:
While this discussion focuses on Airbus’ choice to make the demands (as an in-house lawyer, legal doesn’t just issue demands without business sign off), I think it would be interesting to consider which airlines.

Earlier I looked at A330 and A350 production and the only real airline that would probably be at issue is Hainan (and related airlines). Airbus mentioned a few dozen letters (?) so anyone have ideas which airlines?

I would suspect a particular all Airbus airline with red planes.
 
Confuscius
Posts: 3710
Joined: Wed Aug 29, 2001 12:29 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 6:29 am

jeffrey0032j wrote:
I would suspect a particular all Airbus airline with red planes.


Does it rhyme with Malaysia and/or Indonesia?
Ain't I a stinker?
 
jbs2886
Posts: 2333
Joined: Wed Apr 01, 2015 9:07 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 6:46 am

jeffrey0032j wrote:
jbs2886 wrote:
While this discussion focuses on Airbus’ choice to make the demands (as an in-house lawyer, legal doesn’t just issue demands without business sign off), I think it would be interesting to consider which airlines.

Earlier I looked at A330 and A350 production and the only real airline that would probably be at issue is Hainan (and related airlines). Airbus mentioned a few dozen letters (?) so anyone have ideas which airlines?

I would suspect a particular all Airbus airline with red planes.


Yea Air Asia certainly makes sense.
 
VV
Posts: 1704
Joined: Sat Feb 13, 2016 1:03 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 7:46 am

Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


And then buy from Mitsubishi instead? LOL.
 
blandy62
Posts: 308
Joined: Tue Jul 12, 2016 12:47 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 8:58 am

Ishrion wrote:
Didn’t Qatar Airways say it would stop buying from Airbus/Boeing if they didn’t accept deferrals?


the problem is they can say so, but then what will they buy. the new IL-96 for long haul and the superjet for short haul?
 
AngMoh
Posts: 1042
Joined: Fri Nov 04, 2011 5:03 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 9:48 am

I am not sure why everyone points to QR. Airbus talks about airlines who don't even want to answer the phone, and that is definitely not QR. QR will have very clear demands which are a start of negotiation. There are many smaller and younger airlines who bought A32x on speculative orders. The big boys will make a deal. The small fries are now running away from their obligation.
727 732 733 734 735 73G 738 739/ER 742 743 744/M 752 753 762 772 77E 773 77W 788 A300 A310 A319 A320 A321 A332 A333 A343 A345 A346 A359 A35K A388 DC-9 DC-10 MD11 MD81 MD82 MD87 F70 ERJ145 E170 E175 E190 E195 ATR72 Q400 CRJ200 CRJ700 CRJ900 BAE146 RJ85
 
mxaxai
Posts: 1813
Joined: Sat Jun 18, 2016 7:29 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 10:05 am

jbs2886 wrote:
Airbus mentioned a few dozen letters (?) so anyone have ideas which airlines?

Airbus has hundreds of customers. While it is easy to point at large airlines like Air Asia or QR, there must be many smaller airlines in equally dire situations. There are fewer examples for the A350 (Asiana or Evelop) but many for the A320. Looking at recent deliveries, there are airlines like Druk Air, Freebird, SalamAir or Jazeera Airways that many here have never heard about. There are also others that may be more well known but can still easily face financing diffiulties like S7, Azores Airlines, Air Seychelles or Pegasus. Then we move on to leasing companies, GECAS may have some reserves but there are plenty of small lessors as well (Alterna Capital Partners, Amedeo, ...).
 
jeffrey0032j
Posts: 785
Joined: Wed Jun 15, 2016 3:11 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 10:17 am

mxaxai wrote:
jbs2886 wrote:
Airbus mentioned a few dozen letters (?) so anyone have ideas which airlines?

Airbus has hundreds of customers. While it is easy to point at large airlines like Air Asia or QR, there must be many smaller airlines in equally dire situations. There are fewer examples for the A350 (Asiana or Evelop) but many for the A320. Looking at recent deliveries, there are airlines like Druk Air, Freebird, SalamAir or Jazeera Airways that many here have never heard about. There are also others that may be more well known but can still easily face financing diffiulties like S7, Azores Airlines, Air Seychelles or Pegasus. Then we move on to leasing companies, GECAS may have some reserves but there are plenty of small lessors as well (Alterna Capital Partners, Amedeo, ...).

I would think otherwise. Why go all out to the media to deal with small airlines with a few planes. There has to be customers with significant orders doing this for Airbus to make such a statement. Although IMO this will worsen the relationship with customers, whether or not they are affected or not, especially when their competitor has been churning out news of deferrals and cancellations. Airlines may see Airbus as uncompromising and unhelpful.
 
mxaxai
Posts: 1813
Joined: Sat Jun 18, 2016 7:29 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 10:24 am

jeffrey0032j wrote:
I would think otherwise. Why go all out to the media to deal with small airlines with a few planes. There has to be customers with significant orders doing this for Airbus to make such a statement. Although IMO this will worsen the relationship with customers, whether or not they are affected or not, especially when their competitor has been churning out news of deferrals and cancellations. Airlines may see Airbus as uncompromising and unhelpful.

If it really is 'dozens', we may be looking at 30-40 airlines with 10-20 aircraft each - that's several hundred aircraft. And if only one of them is a high profile case, this may set a precedent for other airlines to do the same. Airbus also noted that several customers are not responding at all, so this may be a friendly reminder to get in touch with their sales representative. Just in case they forgot to check their mail for the past three months ...
 
jeffrey0032j
Posts: 785
Joined: Wed Jun 15, 2016 3:11 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 10:31 am

mxaxai wrote:
jeffrey0032j wrote:
I would think otherwise. Why go all out to the media to deal with small airlines with a few planes. There has to be customers with significant orders doing this for Airbus to make such a statement. Although IMO this will worsen the relationship with customers, whether or not they are affected or not, especially when their competitor has been churning out news of deferrals and cancellations. Airlines may see Airbus as uncompromising and unhelpful.

If it really is 'dozens', we may be looking at 30-40 airlines with 10-20 aircraft each - that's several hundred aircraft. And if only one of them is a high profile case, this may set a precedent for other airlines to do the same. Airbus also noted that several customers are not responding at all, so this may be a friendly reminder to get in touch with their sales representative. Just in case they forgot to check their mail for the past three months ...

Possible, although I still believe such public negotiation tactics are directed to high profile airlines who may or may not have outspoken leaders. As for not checking the mail, the chances of it happening is low, especially in such cases where reminder letters are probably served if there was no response. And then lawyer letters may come after that, which are usually registered mail that can be tracked.
 
eurotrader85
Posts: 157
Joined: Wed Oct 24, 2018 8:45 pm

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 12:23 pm

jetwet1 wrote:
davidjohnson6 wrote:
If airlines believe they won't be sued for failing to honour a contract, then they start to treat firm orders as options. The moment that an aircraft manufacturer wins in court against an airline, the firm-order-is-an-option approach will stop

Large airlines are not like vulnerable widows or orphans - they have access to high quality legal advice, and are fully aware as to what they are doing when placing large aircraft orders and the associated consequences for failing to pay on time. Yes, there is a bit of room for haggling when times get tough, but barring a legal bankruptcy event, one has to pay up in full and on time


The problem with that is, at least for non public airlines, they are in a position to tell Airbus (or Boeing for that matter), back off or we will never buy another aircraft from you, the question is, is any manufacturer willing to take that risk ?

Is the manufacturer willing to take that risk for a state owned airline like QR ? I doubt it, but only the Airbus execs and attorneys know for sure.

I just don't see them risking billions in future earnings for a few hundred million now, for smaller airlines, that it a far easier choice.


How are they in a position to tell Airbus, or Boeing for that matter, that they will never buy an aircraft from them again? People here are trying to make this out like it is a typical supplier with a customer(s) that are struggling and where they need each other in equal amounts. A and B are a duopoly who supply nearly all the aircraft in the world-we can forget COMAC etc. You want to buy a plane in the future-whether that’s 2023 or whenever? You will have to go back to them. Which makes QR/AAB’s comments all the more laughable (even more so that they will get bailed out by the Qatari govt anyway so why do they care about new fleet liabilities?). Airlines have a contract with a more powerful supplier, and that supplier is absolutely right to start flexing its muscles when the counterparty is in breach. As davidjohnson6 says, there can be a bit of haggling in tough times but the commitment is what it is, and Airbus and Boeing are right to push this on people when they are in breach of contract. Airlines will come and go, I’m willing to bet the manufacturers will still be there.

People are saying Airbus are not doing enough to slow their production down, you think they haven’t woken up and realised there might not be enough planes going out the door this year? You think they are not right now on the phone to every supplier doing their best to negotiate down their supply contracts? Of course they are, but we are talking many many suppliers and hence a slowdown of the juggernaut, that is the conveyor belt of aircraft will take time and is difficult, which is why there is only two of them on the planet, and the barriers to entry of the market are high, and why they hold so much power in this.

Don't get me wrong, I realise that it is extremely tough at the moment for airlines, but they are not the only ones who are struggling at the moment, and they don't have any right over anyone else to walk away from contracted agreements.

AngMoh wrote:
I am not sure why everyone points to QR. Airbus talks about airlines who don't even want to answer the phone, and that is definitely not QR. QR will have very clear demands which are a start of negotiation. There are many smaller and younger airlines who bought A32x on speculative orders. The big boys will make a deal. The small fries are now running away from their obligation.


mxaxai wrote:
jbs2886 wrote:
Airbus mentioned a few dozen letters (?) so anyone have ideas which airlines?

Airbus has hundreds of customers. While it is easy to point at large airlines like Air Asia or QR, there must be many smaller airlines in equally dire situations. There are fewer examples for the A350 (Asiana or Evelop) but many for the A320. Looking at recent deliveries, there are airlines like Druk Air, Freebird, SalamAir or Jazeera Airways that many here have never heard about. There are also others that may be more well known but can still easily face financing diffiulties like S7, Azores Airlines, Air Seychelles or Pegasus. Then we move on to leasing companies, GECAS may have some reserves but there are plenty of small lessors as well (Alterna Capital Partners, Amedeo, ...).


All very good points, I would even go further to say there are some names which are in the ‘big boys’ league as we put it. You only have to look at the length of time it is suddenly taking some airlines to go through the flight testing of their new A350 deliveries to know they are playing and playing for time before finally flying it out of TLS. I assume we can expect the same for Boeing deliveries.
 
Waterbomber2
Posts: 1208
Joined: Mon Feb 04, 2019 3:44 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 12:52 pm

eurotrader85 wrote:
jetwet1 wrote:
davidjohnson6 wrote:
If airlines believe they won't be sued for failing to honour a contract, then they start to treat firm orders as options. The moment that an aircraft manufacturer wins in court against an airline, the firm-order-is-an-option approach will stop

Large airlines are not like vulnerable widows or orphans - they have access to high quality legal advice, and are fully aware as to what they are doing when placing large aircraft orders and the associated consequences for failing to pay on time. Yes, there is a bit of room for haggling when times get tough, but barring a legal bankruptcy event, one has to pay up in full and on time


The problem with that is, at least for non public airlines, they are in a position to tell Airbus (or Boeing for that matter), back off or we will never buy another aircraft from you, the question is, is any manufacturer willing to take that risk ?

Is the manufacturer willing to take that risk for a state owned airline like QR ? I doubt it, but only the Airbus execs and attorneys know for sure.

I just don't see them risking billions in future earnings for a few hundred million now, for smaller airlines, that it a far easier choice.


How are they in a position to tell Airbus, or Boeing for that matter, that they will never buy an aircraft from them again? People here are trying to make this out like it is a typical supplier with a customer(s) that are struggling and where they need each other in equal amounts. A and B are a duopoly who supply nearly all the aircraft in the world-we can forget COMAC etc. You want to buy a plane in the future-whether that’s 2023 or whenever? You will have to go back to them. Which makes QR/AAB’s comments all the more laughable (even more so that they will get bailed out by the Qatari govt anyway so why do they care about new fleet liabilities?). Airlines have a contract with a more powerful supplier, and that supplier is absolutely right to start flexing its muscles when the counterparty is in breach. As davidjohnson6 says, there can be a bit of haggling in tough times but the commitment is what it is, and Airbus and Boeing are right to push this on people when they are in breach of contract. Airlines will come and go, I’m willing to bet the manufacturers will still be there.

People are saying Airbus are not doing enough to slow their production down, you think they haven’t woken up and realised there might not be enough planes going out the door this year? You think they are not right now on the phone to every supplier doing their best to negotiate down their supply contracts? Of course they are, but we are talking many many suppliers and hence a slowdown of the juggernaut, that is the conveyor belt of aircraft will take time and is difficult, which is why there is only two of them on the planet, and the barriers to entry of the market are high, and why they hold so much power in this.

Don't get me wrong, I realise that it is extremely tough at the moment for airlines, but they are not the only ones who are struggling at the moment, and they don't have any right over anyone else to walk away from contracted agreements.

AngMoh wrote:
I am not sure why everyone points to QR. Airbus talks about airlines who don't even want to answer the phone, and that is definitely not QR. QR will have very clear demands which are a start of negotiation. There are many smaller and younger airlines who bought A32x on speculative orders. The big boys will make a deal. The small fries are now running away from their obligation.


mxaxai wrote:
jbs2886 wrote:
Airbus mentioned a few dozen letters (?) so anyone have ideas which airlines?

Airbus has hundreds of customers. While it is easy to point at large airlines like Air Asia or QR, there must be many smaller airlines in equally dire situations. There are fewer examples for the A350 (Asiana or Evelop) but many for the A320. Looking at recent deliveries, there are airlines like Druk Air, Freebird, SalamAir or Jazeera Airways that many here have never heard about. There are also others that may be more well known but can still easily face financing diffiulties like S7, Azores Airlines, Air Seychelles or Pegasus. Then we move on to leasing companies, GECAS may have some reserves but there are plenty of small lessors as well (Alterna Capital Partners, Amedeo, ...).


All very good points, I would even go further to say there are some names which are in the ‘big boys’ league as we put it. You only have to look at the length of time it is suddenly taking some airlines to go through the flight testing of their new A350 deliveries to know they are playing and playing for time before finally flying it out of TLS. I assume we can expect the same for Boeing deliveries.



I think that Airbus and Boeing put themselves in this position.
This is the consequence of selling high value products "built-to-order" as opposed to "off-the-shelf".
Instead of having inventory, they would have backlogs. Airbus and Boeing put all the financial risk on the airlines while airlines waited for the aircraft they needed, while the OEM's boast huge backlogs.

The problem is, when everyone don't want to take up their orders anymore, Airbus and Boeing become empty shells.
They have huge backlogs but no-one wants to take deliveries, everyone wants to renegotiate their orders and the entire production cycle falls apart.
Cash flow dries up anyway and then they have to start threatening to keep cash flowing in.

If Airbus had worked with an inventory system rather than with order backlogs, they would have been able to jump on the MAX situation too and sold more aircraft.


So what would airlines do if they stop ordering from Airbus and Boeing?
Buying aircraft from Airbus and Boeing is not the only option. You can buy or lease from lessors, buy used aircraft from bankruptcies.
All airline CEO's with orders on the books will be reflecting right now whether it makes sense to buy new aircraft at all in the future.
In the long run airlines will buy new aircraft again, but for a while now, it will be a buyer's market.
If you are an OEM and panicking, John Leahy would know what to do.
The stock and bond market doesn't seem to shy away from risk, so perhaps that's where the OEM's should be looking for a solution instead of beating dying horses (the airlines).
 
brindabella
Posts: 620
Joined: Fri Apr 30, 2010 10:38 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 1:16 pm

JayinKitsap wrote:
Law prefers consistency, choosing to not enforce contract requirements for one does set precedent for another to sue to get out of that contract requirement, so it is much better to enforce the contract. If the current contract is unenforceable it is time to sit down to negotiate a contract change that is fair to both parties. Often in bankruptcies that same negotiation occurs, except in the US Chapter 7 case where the entity basically vanishes into vapor. The lender gets the plane back but no money, but if the OEM hasn't delivered it just gets the prior payments.

Often a solution if the airline is a going concern and has decent prospects, but no cash is for the OEM to arrange a financial lease, like what Boeing Capitol does, so the airline can accept delivery. But if the airline already has a desert full of planes not in service there are few good choices.

The OEM's have seemed to move the payment at signing to a payment applied when parts begin to be purchased. The first turbine casting needs to be paid for by then, but this date is probably 30 to 36 months before delivery. There are progress payments due at contract milestones, if a milestone is not paid for, the most agreeable answer is for the OEM to idle the order, letting others that have paid pass by, until paid and it enters the production plan. It is the value already put into the frame that is the real club by the OEM on the airline. Loosing the $20M already paid gets one's attention. Not getting sufficient early payments allows the airline to more easily walk away.

Look at the Air Bridge Cargo, V D recent situation. V D disappeared at the delivery date with no contact, then finally after meeting more than a month after finally said they cannot pay for the plane and cancelled the contract. (A similar less dire was happening with 3 77F's at the same time.) VD basically wrote off all the deposits and Boeing resold the plane for what it could get. Most NTU's are in a similar situation. Well VD is now having regrets and went to court to get Boeing to honor the contract VD broke. The judge denied any relief for VD.


:checkmark:

Insightful.

In a (now typical) problem with a Commercial Tenant, I felt it important to issue the standard non-payment notification.
Of course it will not ever be actioned in the current circumstances, but for the record I felt it important, as the owner, to establish that I took the Lease (Contract) seriously.
My Lawyer was uninterested; natch. :crazy:

As posters above have speculated, I also think that the reality is that these frames will be delivered at greatly-reduced prices.
"Cant get blood out of a stone", indeed!

It may have been mentioned by other posters that I haven't seen, however I perceive that BA may just have received a massive and (totally) undeserved "get out of jail" card.

IE BA stopped the massive production of the MAX at exactly the best time.

AB will most probably find great difficulty on ramping-down fast enough.

Especially, of course, for the massive A320-neo production.


cheers
Billy
 
Gremlinzzzz
Posts: 68
Joined: Fri Jan 24, 2020 4:28 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 1:33 pm

Waterbomber2 wrote:
eurotrader85 wrote:
jetwet1 wrote:

The problem with that is, at least for non public airlines, they are in a position to tell Airbus (or Boeing for that matter), back off or we will never buy another aircraft from you, the question is, is any manufacturer willing to take that risk ?

Is the manufacturer willing to take that risk for a state owned airline like QR ? I doubt it, but only the Airbus execs and attorneys know for sure.

I just don't see them risking billions in future earnings for a few hundred million now, for smaller airlines, that it a far easier choice.


How are they in a position to tell Airbus, or Boeing for that matter, that they will never buy an aircraft from them again? People here are trying to make this out like it is a typical supplier with a customer(s) that are struggling and where they need each other in equal amounts. A and B are a duopoly who supply nearly all the aircraft in the world-we can forget COMAC etc. You want to buy a plane in the future-whether that’s 2023 or whenever? You will have to go back to them. Which makes QR/AAB’s comments all the more laughable (even more so that they will get bailed out by the Qatari govt anyway so why do they care about new fleet liabilities?). Airlines have a contract with a more powerful supplier, and that supplier is absolutely right to start flexing its muscles when the counterparty is in breach. As davidjohnson6 says, there can be a bit of haggling in tough times but the commitment is what it is, and Airbus and Boeing are right to push this on people when they are in breach of contract. Airlines will come and go, I’m willing to bet the manufacturers will still be there.

People are saying Airbus are not doing enough to slow their production down, you think they haven’t woken up and realised there might not be enough planes going out the door this year? You think they are not right now on the phone to every supplier doing their best to negotiate down their supply contracts? Of course they are, but we are talking many many suppliers and hence a slowdown of the juggernaut, that is the conveyor belt of aircraft will take time and is difficult, which is why there is only two of them on the planet, and the barriers to entry of the market are high, and why they hold so much power in this.

Don't get me wrong, I realise that it is extremely tough at the moment for airlines, but they are not the only ones who are struggling at the moment, and they don't have any right over anyone else to walk away from contracted agreements.

AngMoh wrote:
I am not sure why everyone points to QR. Airbus talks about airlines who don't even want to answer the phone, and that is definitely not QR. QR will have very clear demands which are a start of negotiation. There are many smaller and younger airlines who bought A32x on speculative orders. The big boys will make a deal. The small fries are now running away from their obligation.


mxaxai wrote:
Airbus has hundreds of customers. While it is easy to point at large airlines like Air Asia or QR, there must be many smaller airlines in equally dire situations. There are fewer examples for the A350 (Asiana or Evelop) but many for the A320. Looking at recent deliveries, there are airlines like Druk Air, Freebird, SalamAir or Jazeera Airways that many here have never heard about. There are also others that may be more well known but can still easily face financing diffiulties like S7, Azores Airlines, Air Seychelles or Pegasus. Then we move on to leasing companies, GECAS may have some reserves but there are plenty of small lessors as well (Alterna Capital Partners, Amedeo, ...).


All very good points, I would even go further to say there are some names which are in the ‘big boys’ league as we put it. You only have to look at the length of time it is suddenly taking some airlines to go through the flight testing of their new A350 deliveries to know they are playing and playing for time before finally flying it out of TLS. I assume we can expect the same for Boeing deliveries.



I think that Airbus and Boeing put themselves in this position.
This is the consequence of selling high value products "built-to-order" as opposed to "off-the-shelf".
Instead of having inventory, they would have backlogs. Airbus and Boeing put all the financial risk on the airlines while airlines waited for the aircraft they needed, while the OEM's boast huge backlogs.

The problem is, when everyone don't want to take up their orders anymore, Airbus and Boeing become empty shells.
They have huge backlogs but no-one wants to take deliveries, everyone wants to renegotiate their orders and the entire production cycle falls apart.
Cash flow dries up anyway and then they have to start threatening to keep cash flowing in.

If Airbus had worked with an inventory system rather than with order backlogs, they would have been able to jump on the MAX situation too and sold more aircraft.


So what would airlines do if they stop ordering from Airbus and Boeing?
Buying aircraft from Airbus and Boeing is not the only option. You can buy or lease from lessors, buy used aircraft from bankruptcies.
All airline CEO's with orders on the books will be reflecting right now whether it makes sense to buy new aircraft at all in the future.
In the long run airlines will buy new aircraft again, but for a while now, it will be a buyer's market.
If you are an OEM and panicking, John Leahy would know what to do.
The stock and bond market doesn't seem to shy away from risk, so perhaps that's where the OEM's should be looking for a solution instead of beating dying horses (the airlines).
With this off the shelf inventory system, how many jets would you need to produce?
Why would any manufacturer take risk upon themselves, or plan for worst case scenarios like the Max grounding or the pandemic?
And why would Airbus or Boeing not spread risk to customers? The current business model works better than anything you propose.
 
brindabella
Posts: 620
Joined: Fri Apr 30, 2010 10:38 am

Re: Airbus threatens to sue airlines

Sat Jun 06, 2020 1:42 pm

Revelation wrote:
MIflyer12 wrote:
We will see how enforceable are the relevant purchase contracts in what legal jurisdictions. This could be good - but probably not quick.

That's part of why I think the airlines are angry. They realize legal remedies take a long time to develop, so they're not happy to take reputation damage by being sued for something that probably won't ever provide relief to Airbus. By the time such a suit could wind through the courts the matter will be resolved by either mutual agreement or by business reorganization or business liquidation. In all of these scenarios Airbus's suit for failure to meet contractual obligations is not going to do anything other than cause unwanted reputation damage. Above we're already seeing the word "deadbeat" thrown around. It might eventually be appropriate, but it seems very premature right now.

xwb777 wrote:
Airlines has placed orders when the economic conditions were right and they want to deffer and cancel them when the economic cinditions are bad. If they (the airlines) are not allowed to cancel and deffer, how can they afford to pay for the airplanes.

This must be a tactical move by Airbus, so the airlines won't cancel and just deffer orders.

I've read here that over time airlines wanted to put less money down at order time because no one wants to see large amounts of money sit around for long periods of time, and the deep order backlogs made this worse. It kind of became a positive feedback loop: less money down made it easier to order more which made for deeper backlogs and so on. The cost was the vendors made it more and more difficult to get out of contracts.

As above, I guess we'll see how enforceable those contracts are.

One point the article makes is that it's going to get worse before it gets better because the industry is still gliding along on contracts with financing established pre-covid. If those contracts get suspended or broken it will probably be a while before the financiers want to re-enter the market.


:D :D :D

Of course!

it is the classic "pas de deux".

Sales has a really hot one on the line, if only the CFO would relax the deposit rules just a "teensy bit".
The CFO won't budge.
Sales goes to the CEO, who (unusually) supports the CFO.
So now Sales lobby the Board about how the CEO and CFO are totally out-of-touch with the realities of the market place.
And how a better (more "in touch") CEO and CFO would allow Sales to make a fortune for everybody (especially the Board members, one way or another).

Eventually, of course Sales wins, and crappy Contracts are signed to stupendous bally-hoo.

And, of course, when the cold winds blow, the much more strongly-restrictive Contracts are worth zip because the Customer is not gonna pay and the (tiny) deposit puts all the firepower in the defaulting buyer's hand.

Sales? :razz:

Long since retired to the Bahamas with more money than they will ever spend!

"There is nothing new under the sun!".

:D :D :D

cheers
Billy

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