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Stitch
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 1:43 pm

Quoting BNE (Reply 97):
Good that Qantas finally confirmed the order for the 8 x 787-900. I am a little surprised at how small the order is, I would have expected 20 with a longer lead time between deliveries.

The options each have "confirm or reject" dates attached to them, requiring Qantas to either convert the option into a firm order or lose it (and it's associated delivery position). So they had to confirm these five this year or give them up. Each year has additional options with the same conditions, so we may very well see Qantas exercise those options into firm orders in future years as they come due if the company feels they are warranted.
 
bunumuring
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 1:58 pm

Quoting BNE (Reply 97):
I am a little surprised at how small the order is, I would have expected 20 with a longer lead time between deliveries.
Quoting VH-BZF (Reply 98):
This is truly an amazing effort and turnaround by all at QF. I too have heard that in 10 years time, QF management envisage the QF international fleet comprising of B777-9/8 & B789's. The A380's will still be flying into slot constrained airports from Sydney & Melbourne.

Hey guys,
I too agree with both of these.
As late as last weekend I was hearing that the initial firm order was for twenty, with the number of purchase rights and options exactly the same as what transpired...
I'm very curious about the smaller than expected number. Yes, Qantas usually starts ordering new fleets in small quantities (15x737-800 back in 2001 for example) but then blew that out of the water with it's massive A320 order for JQ/QF Group a few years ago... And the conversion of the last three JQ -8s into -9s for mainline was expected.
Any confirmation of the -10 in the purchase rights/options? Its been suggested to me that QF is planning on having some Dreamliner 10s eventually...
The hint of 777-8X mentioned a few times in this thread is also interesting. IF the -8X can economically make SYD-LHR, perhaps the addition of nonstop SYD-JFK a few times a week may make the business case for a small fleet of these more substantial.
I agree that a QF widebody fleet of A380s (including neos), 777Xs and Dreamliners seems optimal. Add in 737MAXs and possibly CSeries and I would be very happy!
As for routes, San Francisco and Vancouver from Sydney seem to be givens. Where else? Asia? Secondary Dubai flights? Peak transTasman?
Hopefully some transcontinental and golden triangle to begin with...
Cheers,
Bunumuring.
I just wanna live while I'm alive!
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 1:58 pm

Quoting travelhound (Reply 91):
I think QANTAS will eventually commit to the 777 making the A380 the odd child in the fleet. Where the 787 & 777 give QANTAS operational flexibility, the A380 does not!

Strategically the 777 may be the better option going forward!

I'm thinking the 778x is the perfect airplane for the DFW-SYD service,
but who knows, QF loads up on 789's, we could see QF Dreamliners
at DFW down the road
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 2:01 pm

That is a great profit for QF. Congrats to the team down there. Unfortunately, I've only done QF once (a family trip to AKL from LAX), but the service from QF was fantastic - A380s, 747s, and 738s. All well done.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 2:24 pm

Quoting QF2220 (Reply 95):
I think you might have misunderstood that number.

He hasn't, actually. Depreciation expenses are reflected in EBIT and by shifting this year's expenses into last year's accounts, QF has effectively inflated this year's EBIT result by $195m.

This has very little impact on the final cash result (it's one of those figures that turns a $1b underlying profit into a $570 net profit), but QF doesn't provide those figures for individual segments, only the headline (inflated) EBIT result.

Quoting Stitch (Reply 100):
Each year has additional options with the same conditions, so we may very well see Qantas exercise those options into firm orders in future years as they come due if the company feels they are warranted.

QF has pushed their remaining 15 options to FY20 and beyond -- they don't have additional slots available now until the second half of 2019.
 
tortugamon
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 2:28 pm

Quoting qfvhoqa (Reply 62):
While I think $50m is far too low, QF's agreement was far larger than AI's given there were 45 orders, 20 options & 50 purchase rights.

I agree the order from QF was larger and more prestigious but it also was later, for later deliveries, and for a different variant. Just can't see it.

Quoting Karadion (Reply 63):
Especially we're now at around $15 million deferred production cost with the 787-9 which will be well into cash positive territory comes 2017.

Solid points.

Quoting SYDSpotter (Reply 75):
QF did get around ~$300m from Boeing for the initial delays, so I guess this effectively reduces the $/per frame. Although $50m (even factoring in compensation) seems a tad low.

More than a tad in my opinion.

Quoting qf789 (Reply 82):
Around the 10min30sec mark RG asked AJ about non-stop East coast-JFK flights. Though the 789 doesn't have the range he did mention the 777-8X could potentially do it and QF engineers are working with Boeing

Great catch, thanks for posting it. We have heard the 77X come up from AJ a couple times now. They clearly are looking at it. I have a hard time seeing a flight fly over LAX from SYD to get to JFK but I guess anything can happen. It would be the longest flight by a significant margin.

Quoting smi0006 (Reply 89):
I'd say more will be ordered same time next year and the following if the results continue

Exactly. I think they will look at those slots that are expiring and will decide every year whether to increase. I suspect it will be well over 30 aircraft in the end. Not sure we will see the original 50 though.

Quoting Stitch (Reply 92):
And QF cancelled their order in favor of options and purchase rights. So while I am sure QF received a good deal, it was based on at best 2011 market rates, when the average sales price of a 787-9 was north of $110 million.

They received the purchase rights when they canceled? I thought the purchase rights and options came with the original purchase. I am surprised to read that.

Quoting BNE (Reply 97):
Good that Qantas finally confirmed the order for the 8 x 787-900. I am a little surprised at how small the order is, I would have expected 20 with a longer lead time between deliveries.

I believe more are coming. I suppose AJ wanted to calm investor's fears of a large capex bill on the horizon. Trying to keep all parties happy.

tortugamon
 
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sunrisevalley
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 2:37 pm

Quoting qfvhoqa (Reply 62):
So a QF config of 40J/21W/200Y would be about right.

What can QF expect from this airplane in 2017. The $64 question is where it will will be in terms of MEW and SFC when they put it into service . If a 1000kg savings is possible in MEW and the SFC is improved by 3% over EIS then the aircraft has the potential to
be a 17hr airplane at max passenger (261-seats) load or just over 29t payload. They need ~17hrs 30 min for DFW-MEL so they are potentially getting close.

Quoting tortugamon (Reply 60):
MEL-LAX (operated by UA 789) is 440nm further than SYD-DXB.

Typical LAX-MEL is 15hrs 30 min. max and SYD-DXB 14hrs 15 min max.
 
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777Jet
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 2:50 pm

Quoting Sooner787 (Reply 102):
I'm thinking the 778x is the perfect airplane for the DFW-SYD service,but who knows, QF loads up on 789's, we could see QF Dreamliners at DFW down the road

Like from MEL or BNE as previously discussed.

Whilst I think MEL is the obvious candidate, DFW-MEL has the range issue.

If range is sorted out, I think MEL-DFW is very likely.

I just wonder how likely BNE-DFW would be?

Quoting sunrisevalley (Reply 106):
What can QF expect from this airplane in 2017. The $64 question is where it will will be in terms of MEW and SFC when they put it into service . If a 1000kg savings is possible in MEW and the SFC is improved by 3% over EIS then the aircraft has the potential to be a 17hr airplane at max passenger (261-seats) load or just over 29t payload. They need ~17hrs 30 min for DFW-MEL so they are potentially getting close.

Interesting insights.
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 2:57 pm

Quoting bunumuring (Reply 101):
I'm very curious about the smaller than expected number. Yes, Qantas usually starts ordering new fleets in small quantities (15x737-800 back in 2001 for example) but then blew that out of the water with it's massive A320 order for JQ/QF Group a few years ago

You pick up a good point regarding how QF typically orders aircraft. Looking at their history of orders (Boeing) they have placed 63 orders for a total of 211 aircraft with only 4 of those orders being in double figures.
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Stitch
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 3:13 pm

Quoting qf002 (Reply 104):
QF has pushed their remaining 15 options to FY20 and beyond -- they don't have additional slots available now until the second half of 2019.

Do they still have their purchase rights, then? Those were FY2020-2022.



Quoting tortugamon (Reply 105):
They received the purchase rights when they canceled? I thought the purchase rights and options came with the original purchase. I am surprised to read that.

The original order in December 2005 was for 65 firm (50 for QF and 15 for JQ) with 50 purchase rights. In 2009, they cancelled 15 QF orders, leaving 35 for QF and 15 for JQ. In 2012, they cancelled the remaining 35 QF orders and kept the 50 purchase rights. However, they must have renegotiated those 50 purchase rights into a mix of options (I believe 35) and purchase rights, so that would have likely triggered some pricing changes.

These five frames would also be subject to a decade's worth of price escalation, which averages 3% per year based on the MoUs and purchase contracts I have seen.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 3:15 pm

Quoting Sooner787 (Reply 102):
QF loads up on 789's, we could see QF Dreamliners at DFW down the road

Is there agreement that the 789 can do DFW-SYD with loads?
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 3:20 pm

Quoting travelhound (Reply 91):
I think QANTAS will eventually commit to the 777 making the A380 the odd child in the fleet. Where the 787 & 777 give QANTAS operational flexibility, the A380 does not!

The A380 (and especially the potential A380NEO) will(CEO)/would (NEO) work great for QF's "trunk" routes such as LAX, etc.

I don't see the A380's going anywhere and I do believe QF will eventually take their A380 orders. Now could they possibly convert them to A350's? Sure, anything is possible I guess.
"Up the Irons!"
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 3:22 pm

Quoting Stitch (Reply 109):
Do they still have their purchase rights, then? Those were FY2020-2022.

Stitch I posted this up thread, this was in todays investors presentation. As mentioned QF have 15 options and 30 purchase rights


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sunrisevalley
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 4:33 pm

Quoting Flighty (Reply 110):
Is there agreement that the 789 can do DFW-SYD with loads?

see reply 106. I say there is . What is put forward there is based on 789 performance data modified within Piano X to match the output of a real life 789 flight plan . I had to fiddle with drag and SFC to get the numbers to jive within about 100kg of actual fuel burn. And with Joyce floating the DFW-MEL possibility gives me additional comfort in the data that is being created by Piano X from the model I am using.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 4:47 pm

Couple of articles regarding how 787-9's will possibly be configured

Seating around 250 (as noted above)
3 class
likely 9-abreast in Y

AJ says the exact mix is "still being worked on, but it will be in line with those used by other premium carriers around the world."

http://www.ausbt.com.au/qantas-boein...=flipper&utm_campaign=home-flipper

http://www.traveller.com.au/qantas-b...-has-planned-for-new-planes-gj3tdb
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ual747-600
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 5:28 pm

I am surprised that only 8 were confirmed and seems extremely tentative and conservative. Is there a schedule of when options and purchase rights must be confirmed and does anyone have any idea of what that would look like? I would think that Airbus would be very pleased by this news as maybe that gives A350 models a bigger opportunity down the road when more slots are available.

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Stitch
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 5:41 pm

Quoting ual747-600 (Reply 115):
I am surprised that only 8 were confirmed and seems extremely tentative and conservative.

Which might be a prudent policy for QF to follow at the moment.

The 787s will be able to do the same missions the (non-ER) 747-400s are doing across the Pacific and around Asia and QF has relatively young A330-300s that I imagine continue to work well for them and can continue to do so through the end of the decade when they can be re-purposed within the Group as additional 787s are added (most likely 787-10s).
 
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sunrisevalley
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 5:48 pm

The slide in reply 112, the portion headed 747 , what did the detail on "20% lower fuel consumption 1 " say? I am interested what the basis of the 20% was.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 5:58 pm

Quoting sunrisevalley (Reply 117):

Here's the full slide

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mffoda
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 6:06 pm

Quoting RyanairGuru (Reply 24):
I'm sure that Qantas did run the numbers on the A350 to confirm that whichever way they diced it the 787 was the best airplane for them overall.

You must have missed this ausbt piece... Joyce states on "All Accounts", not price or overall.


""We looked at both types of aircraft, on what the relative positions of the A350 and Boeing 787 were" admitted Qantas CEO Alan Joyce at the recent CAPA 2015 Australia Pacific Aviation Summit in Sydney, "and we found on all accounts the 787-9 was the better aircraft for us, for the market that we're talking about and the network that we're talking about."

http://www.ausbt.com.au/qantas-to-bu...=flipper&utm_campaign=home-flipper
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tortugamon
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 6:17 pm

Quoting qf789 (Reply 118):

Thanks for posting this slide. So in their estimation the 789 offers a 20% reduction in fuel consumption per ASK over the 744. Thats pretty compelling especially because dropping the 100+ seats from the aircraft will aid yields as well. So higher yields and lower costs which should bode well for profitability.

I do wonder if the Y customer will like this change as it probably means slightly higher fares in Y and fewer seats available unless they are increasing frequency which I have not heard.

Quoting qfvhoqa (Reply 62):
119-136 seats fit between doors 3 & 4 on other carriers' 789s and NH has 26 staggered J seats between doors 1 & 2. So a QF config of 40J/21W/200Y would be about right.

40J would be an 18 seat drop in J seats vs the 744. UA fits 48 J in their 789s. I would have thought that QF would be higher than 40 on these North American routes.

tortugamon
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 7:35 pm

Quoting ZKOJQ (Reply 8):
They started NZ operations in 2009. Took them long enough!

Well see in 12 months time if there still ahle to make an profit, surely PropStar is going to drain the JQNZ accounts in both Cappex and Oppex?

NZ looks like they are getting ready to create an regional blood bath with JQ on some routes - they dropped AKL-NSN to $49 and PropStar isn't even on sale yet!

Quoting gasman (Reply 19):
I wish Air New Zealand had woken up to this concept, but it's too late for me now. Well and truly switched allegiance.

But while they don't do LAX-JKF, they still have an much broader range of North American Destinations dirrect from AKL-LAX/SFO/YVR/IAH
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 8:45 pm

Quoting qf002 (Reply 104):
He hasn't, actually. Depreciation expenses are reflected in EBIT and by shifting this year's expenses into last year's accounts, QF has effectively inflated this year's EBIT result by $195m.

No, sorry, that is just not right. By taking the impairment last year, it meant that depreciation was not (and could not) be charged this year. I can't see how people can paint this as an accounting exercise to 'inflate' this year's profit. There is a difference between 'inflation' and just not having a charge because it can't be done. This is the latter. Management didn't conspire to charge less depreciation this year.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 9:59 pm

Quoting QF2220 (Reply 122):
No, sorry, that is just not right. By taking the impairment last year, it meant that depreciation was not (and could not) be charged this year. I can't see how people can paint this as an accounting exercise to 'inflate' this year's profit. There is a difference between 'inflation' and just not having a charge because it can't be done. This is the latter. Management didn't conspire to charge less depreciation this year.

I am not trying to suggest there is a conspiracy!

I was simply trying to point out that without the brought forward write-down of aircraft assets in the 2014 financial year QFi would of had additional depreciation expense of $195 million in the 2015 financial year.

To expand the argument a little more, if you can remember back one year the A380's were re-valued on the basis that the Australian dollar (than trading around $1.00US) was substantially higher than when they first purchased the aircraft. If we consider the Australian dollar is now trading at levels similar to or below the levels when the A380's started coming into the fleet the revaluation of these assets, in theory would no longer be required.

As such, I made the post about the $195 million depreciation expense not incurred in the 2015 year.

On a similar topic, I found the announcement that CAPEX would increase in the 2017-2019 period from the current $0.9-1.0 billion to $1.2-1.5 billion a little interesting.

Considering CAPEX has been in the $1 billion region for the last 2-3 years and in that time QANTAS has brought eight 787's (3 787's are in the 2016 year) into their fleet, they have re-modelled lounges, purchased many 737's and A320's, upgraded interiors and invested in new IT, customer service, etc, etc, I had to ask myself where would the increased need for CAPEX come from??

I can't see QANTAS re-modelling their new lounges or upgrading their aircraft with new interiors again! Considering in year 2016, they will place deposits for 5 787's, buy (have brought) 3 787's, lease two 717's and purchase 1 F100, upgrade the remaining A330's with new interiors and start the 737 new interior program, this current year should be a relatively expensive CAPEX year in comparison to the following years! Most of these programs and aircraft purchases will already be complete!

As such, I have a theory!

I'd suggest QANTAS will accelerate the purchase of the twelve A380's, which will consume additional CAPEX in the 2017-2019 years. This would allow for new aircraft (i.e. 787's and 777X's) to come into the fleet in the 2020 year period without being a major impost on CAPEX requirements.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Thu Aug 20, 2015 11:40 pm

Quoting tortugamon (Reply 120):
Thats pretty compelling especially because dropping the 100+ seats from the aircraft will aid yields as well.

I think the first routes for the 789 will replace less-than-daily 744 services. So while each flight will have less seats, QF should have a similar number of seats overall.

Quoting tortugamon (Reply 120):
40J would be an 18 seat drop in J seats vs the 744. UA fits 48 J in their 789s. I would have thought that QF would be higher than 40 on these North American routes.

UA's 787 J seat is 2-2-2. With QF still introducing the 1-2-1 J seat I can't see them having yet another J seat in 2 years for the 787.
As it is, a 787-9 with 40J seats from a total 250 is 16% business class. QF's original A380 config had 16% J but was reduced to 13% J.
 
tayser
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 1:35 am

Quoting sunrisevalley (Reply 106):
What can QF expect from this airplane in 2017. The $64 question is where it will will be in terms of MEW and SFC when they put it into service . If a 1000kg savings is possible in MEW and the SFC is improved by 3% over EIS then the aircraft has the potential to
be a 17hr airplane at max passenger (261-seats) load or just over 29t payload. They need ~17hrs 30 min for DFW-MEL so they are potentially getting close.

Some distances / pretty pictures / comparisons for reference to sunrise's post:

http://i.imgur.com/jdv5W1l.png

[Edited 2015-08-20 18:37:19]
 
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777Jet
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 1:43 am

Quoting qfvhoqa (Reply 124):
I think the first routes for the 789 will replace less-than-daily 744 services. So while each flight will have less seats, QF should have a similar number of seats overall.

If CASA twin restrictions are not an issue then with SCL / JNB.

A mate of mine who is one of those in the know at QF hinted to me that SYD-HND is the front-runner for the first route to receive scheduled 789 service - the 789 will first replace some 744 operated routes before being introduced into new / re-started markets.
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 1:45 am

Quoting QF2220 (Reply 122):
By taking the impairment last year, it meant that depreciation was not (and could not) be charged this year.

Depreciation is an expense just like fuel -- if you prepay your FY15 fuel bill in FY14 then obviously your profit in FY14 will be much lower while your profit in FY15 will be much higher.

The point I was making is that the impact of that "prepayment" is seen only in the EBIT result and has very little impact on the actual cash result. The problem is that QF only provides EBIT results for individual segments so we have very little guidance on how QFi performed in actual operational terms.

What it comes down to is that if they hadn't done the write-down last year, QFi would have had an additional $195m of expenses on the balance sheet, which would have reduced their EBIT result by $195m. The overall $570m net profit wouldn't have been impacted in a significant way (if anything it would have been higher due to a lower tax bill).

Quoting tayser (Reply 125):
Some distances / pretty pictures / comparisons for reference to sunrise's post:

Still not convinced that DFW-MEL is possible -- maybe they could do MEL-DFW-BNE-MEL? Would provide for most connections in both directions while also providing both MEL and BNE passengers with an easier overall journey than the current one via SYD in both directions.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 1:48 am

Having a bit of a giggle right now as an Aussie expat! Umpteen posters on this thread - now overjoyed- were ripping the hell outta AJ´s strategic decisions only a year or 2 back on multiple threads! thanks for your expertise! Sometimes we may all just not be as smart as we recon! 'AJ woz ere´and got it sorted. I always did believe in the little paddie and had flames & shitstorms thrown at me for it!
Great news for QF, I see mountains of opportunity if they play clever with the ´87!

PS: all of this ´strategic wisdom´ with a lot of blood for former colleagues & mates mind you - but that is how the game is nowadays !

[Edited 2015-08-20 18:53:27]

[Edited 2015-08-20 18:56:29]

[Edited 2015-08-20 18:57:56]
some you lose, others you can´t win!
 
Enobar
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 2:56 am

The talk back and forth about the 'accounting exercise' last year which bulked up a big loss and made this year better are missing the best trick AJ pulled off so far... By taking the massive write down which was magnified by an unusually high $A, they managed to snag themselves a giant tax deductible expense that may not have been there if they continued to amortize the depreciation over an extended period when the dollar dropped off again. Given that our tax system allows you to carry losses forward to offset future profits, Qantas have put themselves in a tax free position for a couple of years..
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 4:16 am

Quoting travelhound (Reply 123):
I am not trying to suggest there is a conspiracy!

I was simply trying to point out that without the brought forward write-down of aircraft assets in the 2014 financial year QFi would of had additional depreciation expense of $195 million in the 2015 financial year.
Quoting travelhound (Reply 94):
As a side note QANTAS's international operations had a $195 million gain from the write down of aircraft assets in the 2014 financial year.Without this gain international operations would have recorded a profit in the region of $80 million. This part of the airline still has a away to go before it is out of the woods!

I don't want to be one of those posters who dissects another posters words because I agree with your fact that profit this year does not have $195m of depreciation charges that would have been charged if the impairment had not been taken last year.

The impairment could be viewed as catch up depreciation that should have been charged on these assets over time, had management based their depreciation calcs on what was the reality (i.e. the fleet value at that date). If they did this, they never would have considered having the $195m in the results this year. Essentially, the result with the $195m not in it this year is what should have been the case. I think that efforts by anyone to suggest that this is tricksy accounting at work isn't right and I have to jump in and speak up on that! The SMH made that claim and Travelhound, you posted it, so hence my thoughts you were promoting that argument.

Quoting Enobar (Reply 129):
The talk back and forth about the 'accounting exercise' last year which bulked up a big loss and made this year better are missing the best trick AJ pulled off so far... By taking the massive write down which was magnified by an unusually high $A, they managed to snag themselves a giant tax deductible expense that may not have been there if they continued to amortize the depreciation over an extended period when the dollar dropped off again. Given that our tax system allows you to carry losses forward to offset future profits, Qantas have put themselves in a tax free position for a couple of years..

Im less of a tax expert than an impairment one, but I think that the tax depreciation for aircraft is set with regards to the ATO tax deductibility rules and does not match the accounting treatment (it does for most other fixed asset classes), so I don't think that what you say will happen.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 4:30 am

Quoting QF2220 (Reply 130):
Quoting Enobar (Reply 129):
The talk back and forth about the 'accounting exercise' last year which bulked up a big loss and made this year better are missing the best trick AJ pulled off so far... By taking the massive write down which was magnified by an unusually high $A, they managed to snag themselves a giant tax deductible expense that may not have been there if they continued to amortize the depreciation over an extended period when the dollar dropped off again. Given that our tax system allows you to carry losses forward to offset future profits, Qantas have put themselves in a tax free position for a couple of years..

Im less of a tax expert than an impairment one, but I think that the tax depreciation for aircraft is set with regards to the ATO tax deductibility rules and does not match the accounting treatment (it does for most other fixed asset classes), so I don't think that what you say will happen.

I am a tax expert. The Impairment charge was not a tax deduction. The ATO rates and rules govern the tax depreciation of aircraft and it's safe to say that while for Accounting purposes the aircraft had a value on Balance Sheet, for t

Quoting RyanairGuru (Reply 59):
Queue the old debate about the Australia-Germany bilateral

The bilateral limits Australian carriers to just Frankfurt, but this has been supplemented by a new Memorandum. The problem is that nobody on ANet seems to have any idea what it says.
Quoting QF2220 (Reply 85):
An Australian carrier can serve Düsseldorf or Cologne, Frankfurt/M., Hamburg and Munich and to an additional point in lieu of one of the named points. This is from 1996 so unless you're referencing another document, this is it:

http://www.austlii.edu.au/au/other/d....html

In addition to this there were additional notes exchanged in 1998 which are referenced here:

http://webcache.googleusercontent.co...31171/&hl=en&gl=au&strip=1&vwsrc=0

The 1998 notes look like they amend the 1996 by allowing Australia to pick up to 5 points of our choice to serve in Germany without those points actually being named.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 4:59 am

Good job Qantas? How are they doing this in this economy?
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 5:58 am

Quoting QF2220 (Reply 130):
I don't want to be one of those posters who dissects another posters words because I agree with your fact that profit this year does not have $195m of depreciation charges that would have been charged if the impairment had not been taken last year.

My post on the $195m depreciation charge comes more from a management rather than a tax rules perspective.

As Alan Joyce noted in one of his speeches QANTAS "front ended" costs so they had a strong base to work from. I don't have any problem with this. I personally like my balance sheets to reflect the real market value of assets (easier said than done) rather than (sometimes) inflated book values.

Considering QANTAS front ended costs in the previous financial 2014 year, you would expect QANTAS's books to be in the most favourable position to produce profits in the following years. As with the QANTAS presentations, this has been the case with QFi.

I just think we need to preface this result.

It was achieved in very favourable conditions (i.e. falling Australian Dollar, reduced competitor activity, falling fuel costs and lower deprecation costs). This may not be the case in the years to come and as such this unit of the group could well find itself in a loss position in the near future. It is probably the weakest member of the group and operates in the most volatile market.

This years results are good and I'd suggest next years results will be even better. From what I can see (crystal ball) the results in the following years could be impacted by the introduction of the A350 in to the Cathay Pacific and Singapore Airline fleets, the Australian dollar trading at a different level and new competitive threats /changes in market as a result of increased international LCC activity (i.e. Scoot, AirAsia X).

It all honesty it will probably be another five years of restructuring and continued investment before this unit of the QANTAS group becomes stable.

Time will tell!
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 6:33 am

Quoting Sydscott (Reply 131):
In addition to this there were additional notes exchanged in 1998 which are referenced here:

http://webcache.googleusercontent.co...31171/&hl=en&gl=au&strip=1&vwsrc=0

The 1998 notes look like they amend the 1996 by allowing Australia to pick up to 5 points of our choice to serve in Germany without those points actually being named.

Do you know that there were notes exchanged, or are you interpreting that from the Flight Global article? I've had a look through the notes to 2001 and am not seeing any notes after the 1996 ones. Is it possible that FG is reporting them late?

What this article is saying seems to be consistent with the register of available capacity, so Ill probably defer to the 1998 notes existing somewhere.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 6:42 am

Quoting travelhound (Reply 133):
As Alan Joyce noted in one of his speeches QANTAS "front ended" costs so they had a strong base to work from. I don't have any problem with this. I personally like my balance sheets to reflect the real market value of assets (easier said than done) rather than (sometimes) inflated book values.

Just to check, do you see the impairment as a front ending of the costs? Becase I don't. I see it as a back ending of costs that were not incurred when they should have been.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 7:05 am

I'm not an accountant but to the untrained eye it looks like both. The book values were inflated due to not depreciating assets over a natural time frame, but the decision to dramitically write down in one go rather than spread the cost over several years front loads the correction.

If I've misunserstood that I'll go back to my air fares and let the grown ups talk 
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81819
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 7:26 am

Quoting QF2220 (Reply 135):
Just to check, do you see the impairment as a front ending of the costs? Becase I don't. I see it as a back ending of costs that were not incurred when they should have been.
Quoting RyanairGuru (Reply 136):
I'm not an accountant but to the untrained eye it looks like both. The book values were inflated due to not depreciating assets over a natural time frame, but the decision to dramitically write down in one go rather than spread the cost over several years front loads the correction.

I'd agree and say a combination of both!

For the A380's the cost would have been front ended. For the 747's, associated spares and maintenance facilities the costs were probably more back ended.

At the end of the day QANTAS's fleet valuation woes were probably more related to a fleet asset management strategy that relied too much upon two new aircraft types coming into market. As we all know the aeroplanes (A380, 787) were late and as such QANTAS had to upkeep a fast becoming obsolete fleet of old aircraft.

Interestingly, many of the old 747's were involved in sale and lease back deals around the 2007/8 period. I am not sure of the terms, but the aircraft register showed some of the owners being in locations like Toowoomba. Alan Joyce has shown a clear preference for owning older aircraft (allows for a more flexible fleet), so I'd suggest these 747 sale and lease back deals ultimately weren't in the best interests of QANTAS.

At a guess QFi is probably still 3-4 years behind on its fleet development strategy.

If we use the leasing company majors as a guide they tend to sell large parts of their old fleets to second tier lessors. The reason, they are constantly managing their asset base. In my opinion QANTAS has been very poor at managing their aircraft assets.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 7:26 am

Quoting QF2220 (Reply 134):
Do you know that there were notes exchanged, or are you interpreting that from the Flight Global article? I've had a look through the notes to 2001 and am not seeing any notes after the 1996 ones. Is it possible that FG is reporting them late?

What this article is saying seems to be consistent with the register of available capacity, so Ill probably defer to the 1998 notes existing somewhere.

In terms of reference for the 1998 notes, they exist because the Dept of Infrastructure and the DFAT searches I've done both reference 1996 and 1998 "Memorandum of Understandings". I also found a reference to Exchange of letters dated 17 September 1998 and 5 November 1998" between Australia and Germany in relation to Air Services. The treaty links also state:

"In force Supplemented by MoUs of 1998 and 1996"

I've asked the National Library to do a search for the 1998 one's which is where I got the web link from. They don't have anything imaged in their databases for it because the 1998 exchange was not put before the Parliament so it was not put into Hansard anywhere and does not appear in legislation or departmental reports. They suggested I ask the National Archives so I've sent them an email this arvo to see if they have actual text for the 1998 one's. The problem with the 1998 one's was that at the time they happened there was a delegation/Ministerial meeting which covered a range of topics so all of the documents might be locked up under the 30 year rule with other Cabinet documents.
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 7:59 am

Quoting Sydscott (Reply 131):
I am a tax expert. The Impairment charge was not a tax deduction. The ATO rates and rules govern the tax depreciation of aircraft and it's safe to say that while for Accounting purposes the aircraft had a value on Balance Sheet, for t

Correct, the accounting impairment is backed out for tax purposes. The aircraft will be continued to be depreciated for tax purposes over their useful life as stipulated per the ATO (which I believe is ~ 10 years). Which I believe QF has in the past criticised as being too long a period. I think Singapore has tax rules where aircraft values over 3 years, which means SQ can realise a tax benefit (and hence cash) over 3 years vs 10 years for QF.
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qf2220
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 9:30 am

Quoting Sydscott (Reply 138):
In terms of reference for the 1998 notes, they exist because the Dept of Infrastructure and the DFAT searches I've done both reference 1996 and 1998 "Memorandum of Understandings". I also found a reference to Exchange of letters dated 17 September 1998 and 5 November 1998" between Australia and Germany in relation to Air Services. The treaty links also state:

I know the MOUs are considered confidential between the parties (I asked the Dept in an email and thats what they said) but surely we should be able to find the letters. Unless as you say they are linked up with the other confidential docs.

Quoting Sydscott (Reply 138):
I've asked the National Library to do a search for the 1998 one's which is where I got the web link from.

Keep us posted!

Just a thought, maybe they are not letters in the sense that the 1996 one was? Anyone know what other mechanisms can be used?

OK, now to the impairment issue.

Depreciation is an allocation of the cost of an item to reflect the consumption of the value of that asset over time. It is consumed as it is used and so the $$ paid is taken through the income statement.

There is another concept called fair value. Australian (and International) Accounting Standards try to make sure that the balance sheet is stated at fair value. Cash is cash and so is 99.99% ok. For accounts receivable, you look at those receivables that you think you won't be able to claim and make a provision for them, a bad debts provision, to recognise that you shouldn't recognise the profit associated with that bad debtor when you realise they won't pay.

For Fixed assets, there are two ways to value them. 1, what can you sell them for in an arms length transaction, and 2, what are the cashflows that you can generate from them? Obviously, for QF, the recorded value of the fleet was higher than both 1 and 2, and so they wrote it down to the higher of 1 and 2.

Back to depreciation. If management had, at the time, known what the value of the aircraft would have been at 30 June 2014, they would have been depreciating them harder, reflecting that the consumption of the value of the aircraft. Before, management had been thinking they could consume less value as they thought the future value was higher, but alas, things went against them and they should have been depreciating quicker. Hence the impairment adjustment had to be made to bring the value back to fair value.

And then yes, of course, this reduces depreciation that is recorded in subsequent years, but not because its been 'brought forward' from when it should have been charged, but because it had been put into those years 'in error' based on assumptions that didn't turn out to be correct. So removing it is correcting the assumptions.

I hope that is clear (as mud!!)
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 11:58 am

Quoting QF2220 (Reply 140):
I hope that is clear (as mud!!)

It's actually a little more complicated!

An aircraft is made up of many parts, all of which are valued and depreciated at different rates. For example after 12 years an engine on a 747 may have a depreciated value of 15% of its original cost. When that engine is overhauled the engine is re-valued and depreciated based upon the overhaul cost and the new life expectancy of the engine.

In this example the engine would only be written off once it was determined it was surplus to requirements and/or it had no value in secondary markets.

For the A380's QANTAS decided the aircraft were over valued based upon the fact they were purchased when the Australian dollar was lower. As such they probably used an economic valuation to re-value these aircraft. As there is no established secondary market for these aircraft it would have been difficult to use a market valuation.

We also have to remember that re-valuing aircraft is not as easy as a flick of a pen! Often aircraft are encumbered or there are covenants based upon aircraft valuations. To write down an aircraft can result in a airline being in breach of its financing covenant requirements.

If we consider the 747, its spare parts inventory and dedicated maintenance facilities, there was a fair amount of value in these assets. It was not until the maintenance facilities were closed, aircraft removed from the fleet and (I assume) spare part inventories sold off that QANTAS were able to write down the value of these assets.

If we throw into the mix many of the 747's were still on lease, some of those leases had to brought out and penalties paid, the valuation of the 747 assets may have actually been higher than fair market value simply because of these added costs.

If we throw into the mix new interiors, upgrades to avionics and even a new coat of paint, these assets could have had relatively high values.

I'd suggest just getting to a stage where QANTAS could write down the 747 assets was a very large undertaking in itself.

Generally the markets do not like companies writing down the value of assets. It makes their jobs as analysts a lot more difficult. Markets will generally value a company on a price / earnings ratio with asset values used to determine the final rate. A write down can quickly over value a stock.

If we look at the share price of QANTAS two years ago, the markets valued the company at close to a third of it asset value. In this instance the assets were undervalued as QANTAS as a business was unable to extract an effective return on capital invested. This is why we often hear the term Return on Invested Capital (ROIC).

There are other international accounting rules as a result of the Enron scandal that need to be adhered to. For instance USA based lessors leasing aircraft to QANTAS would value their aircraft differently to that of QANTAS in Australia. As such valuations have to consider multiple factors. It is not a simple affair.

At the end of the day assets have to be properly managed. As I mentioned in my previous post, I don't think QANTAS have a good track record of managing their assets. If we look at the Aviation Partners take over, it was largely based upon extracting as much value out of QANTAS's sleeper assets. If I remember correctly part of the takeover was to be funded by selling off QANTAS's, at the time considerable aircraft assets. They obviously had a higher market valuation at the time or some poor leasing company was going to be dumped with some really expensive old (, but well maintained) aircraft.

I think is is fair to say QANTAS has to a large degree now got its book in order. Interestingly the market is still valuing QANTAS at 75% of its asset value. This suggests QANTAS still has a way to go before the markets value the company on its asset values.

In other words the $975 million profit was good, but we want to see you keep this up before we give you any more ticks!
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 12:25 pm

Quoting travelhound (Reply 141):
I think is is fair to say QANTAS has to a large degree now got its book in order. Interestingly the market is still valuing QANTAS at 75% of its asset value. This suggests QANTAS still has a way to go before the markets value the company on its asset values.

I'm not sure where you're getting your values from? QF's market cap at the end of today was ~$7.7bn, QF had net assets of $3.5bn at 30 June 15.
Airlines are valued based on a P/E ratio/earnings ratio (EBITDA multiple) and similar measures, net assets only have a small part to do with their valuation (market cap).
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 12:36 pm

Quoting travelhound (Reply 91):
I think QANTAS will eventually commit to the 777 making the A380 the odd child in the fleet. Where the 787 & 777 give QANTAS operational flexibility, the A380 does not!

The A380 is a perfect fit for SYD and MEL to LAX and DXB/LHR, as well as being the best current choice for SYD-DFW. Those are among QF's prime international routes, and I don't see where the 777X would be better except for DFW. It's not as if they can increase frequencies, because at LHR that's very difficult/impossible and it won't help too much at LAX, their flights go back to Australia at similar times.

The A380 still has a role to play for QF, it's been part of their return to profit and nothing suggests they are unhappy with them.
 
bunumuring
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 12:38 pm

Love to know what the Airbus counter-offer to the 787 was...

Bet John Leahy worked hard to do a deal with Qantas... Obviously unsuccessfully, for now!

Cheers,
Bunumuring.

PS: can I place a bet now that Dreamliner #1 or (more likely) #2 will be in a new indigenous colourscheme, designed by Balanarinji Studios, who did the previous indigenous colourschemes as well as the more recent RAAF Hornet colourscheme based on an eagle design? I'm not claiming insider knowledge, but call it a hunch!
I just wanna live while I'm alive!
 
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 12:44 pm

Quoting bunumuring (Reply 144):
PS: can I place a bet now that Dreamliner #1 or (more likely) #2 will be in a new indigenous colourscheme, designed by Balanarinji Studios, who did the previous indigenous colourschemes as well as the more recent RAAF Hornet colourscheme based on an eagle design? I'm not claiming insider knowledge, but call it a hunch!

Would love to see a Wunula Dreaming 787-9
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RyanairGuru
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 1:01 pm

Quoting MrHMSH (Reply 143):
The A380 is a perfect fit for SYD and MEL to LAX and DXB/LHR
Quoting MrHMSH (Reply 143):
I don't see where the 777X would be better except for DFW.
Quoting MrHMSH (Reply 143):
The A380 still has a role to play for QF

      

Sadly I would be surprised if the current 8 orders are delivered, but I would not be in the slightest bit surprised to see the NEO replace the current frames down the track. The A380 is absolutely perfect for a niche at Qantas, and one that the current fleet serves well.

Personally I still don't see any role for the 777 at Qantas. The only markets which the 78J can't serve is the Americas and Dubai. The A380 from SYD/MEL-LAX/DXB and 787s to open new routes to YVR, SFO etc makes perfect sense. Qantas only has about 35 long haul aircraft (if you don't count the domestic 332s), it's fleet is comparatively tiny by global terms. Adding complexity with additional fleet types really doesn't make any sense.
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sunrisevalley
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 1:19 pm

Quoting 777Jet (Reply 126):
If CASA twin restrictions are not an issue then with SCL / JNB.

CASA have adopted ICAO rules for EDTO>180 effective July 1st 2015. QF has years of experience in EDTO operations , this allows them to start at 240-min as soon as the paperwork is approved and the proving flight has taken place. This could be as early as EIS . EDTO-330 would be one year later. But getting the 789 onto the JNB and SCL routes is probably not a priority.
 
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Stitch
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 2:24 pm

Quoting bunumuring (Reply 144):
Love to know what the Airbus counter-offer to the 787 was...

Bet John Leahy worked hard to do a deal with Qantas... Obviously unsuccessfully, for now!

I wonder if just the small size of the order played a role in staying with the 787.

Adding eight A350-900s would have been a fair bit more expensive than adding another eight 787s since QF can leverage JQ's investment in spares, training and maintenance.
 
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ClassicLover
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RE: Qantas Confirm 787-9 + $900 Million Profit

Fri Aug 21, 2015 5:20 pm

Quoting cougar15 (Reply 128):
Having a bit of a giggle right now as an Aussie expat! Umpteen posters on this thread - now overjoyed- were ripping the hell outta AJ´s strategic decisions only a year or 2 back on multiple threads! thanks for your expertise! Sometimes we may all just not be as smart as we recon! 'AJ woz ere´and got it sorted. I always did believe in the little paddie and had flames & shitstorms thrown at me for it!

Also as an Aussie expat, I couldn't agree with you more! I, like you, also had complete faith in Alan Joyce.

I'm happy that the plans have come to fruition. It often requires a foreigner to be the head of a company to really clean out the cob webs. AJ has finally done this with Qantas making it really one airline, by removing all the redundant facilities all over the place, which has needed to be done since the merger with Australian Airlines back in 1993/4. Similar thing happened with Aer Lingus - a foreign head also turned that business around.

Sometimes the locals are far too attached to the airline (and the country, and its politicians!) to be able to see clearly to do what is necessary.
I do enjoy a spot of flying, especially when it's not in economy!

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