Air India, Boeing Compensation Dispute May Delay Dreamliner Delivery
First Published Tuesday, 29th May 2012 12:30 pm - © 2012 Dow Jones
-- Indian minister says to take Dreamliner delivery after deciding on compensation
-- Ministerial panel to decide on compensation, minister says
-- Delivery of Dreamliner more than three years behind schedule
(Rewrites throughout, adds comments from Air India spokesman, analyst in 13th, 14th, 16th, 17th paragraphs, background, context in 3rd-5th, 11th, 12th, 15th, 18th paragraphs)
By Santanu Choudhury and Nikhil Gulati
Of Dow Jones NEWSWIRES
NEW DELHI -(Dow Jones)- A long, public spat between Boeing Co. (BA) and Air India Ltd. is threatening to delay the delivery of the 787 Dreamliner jet to the national airline, just days before the first aircraft is scheduled to land in New Delhi.
Indian Civil Aviation Minister Ajit Singh said Tuesday that Air India won't take delivery of the planes until the carrier and Boeing agree on a compensation amount for the delay.
The timing of Singh's statement came as a surprise to industry analysts as his ministry said last week that the "first Dreamliner would come to India by end of this month as scheduled." Dinesh Keskar, Boeing's senior vice president in charge of sales for Asia-Pacific and India for commercial airplanes, also said earlier in May that the first 787 jet will be delivered to Air India toward the end of May, and the second in June.
A delay in the delivery of the Dreamliner will be another setback for loss-making Air India, which is currently struggling to maintain its flight schedule due to a protest by some pilots. The carrier has posted consecutive losses for the past five years, due partly to higher fuel and interest costs and intensifying competition on local as well as overseas routes.
Air India is also forced to fly on unprofitable routes across India and is burdened with an inflated workforce. These issues have forced the carrier to utilize government aid to run its operations.
The issues at Air India mirror those of the broader airline industry in India where all expect one airline--IndiGo--are incurring losses.
More than 300 pilots at loss-making Air India have struck work since May 7 in protest over training programs to fly the Dreamliners. The protesting pilots claim the airline's decision to let pilots from the erstwhile Indian Airlines also train on the long-haul planes would hurt their career prospects.
Air India flew international routes and Indian Airlines served mostly domestic destinations before they were merged in 2007. Air India employs about 1,500 pilots, of which 500 fly on international routes. Flying longer routes translates to more money for pilots.
"We have to decide on a compensation mechanism before taking delivery of the Dreamliner," Aviation Minister Singh told reporters.
Air India "has worked out a compensation package and is seeking a legal opinion on several steps on how to take it forward," he said.
Singh declined to disclose the compensation that Air India plans to seek from Boeing, but said a panel of ministers will consider the compensation that Boeing will need to pay. He didn't say when the ministers' panel would meet.
"We have to discuss options like arbitration and where to take this arbitration in case Boeing refuses to pay this compensation," Singh said.
He said however that a team of pilots from Air India has been sent to the U.S. to fly the first Dreamliner to India.
Boeing didn't immediately respond to an email seeking comments.
Air India, which ordered 27 Dreamliner jets in January 2006, is one of the first airlines to get the aircraft. The planes were part of a $15 billion contract for 111 planes placed with Boeing and Airbus in 2005 and 2006.
K. Swaminathan, a spokesman for Mumbai-based Air India, said the airline management conveyed the final compensation amount to the civil aviation ministry after a board meeting Monday.
"We are awaiting their decision... it is difficult to say how much time all this will take," Swaminathan said. He declined to disclose the compensation that Air India is seeking from Boeing.
Prashant Sukul, joint secretary in India's civil aviation ministry, said in March that Boeing offered to pay up to $500 million in compensation but the ministry asked for more. However, Jim Albaugh, chief executive at Boeing Commercial Airplanes, denied that claim.
Kapil Kaul, South Asia chief executive of industry consultancy Centre for Asia Pacific Aviation, estimates Air India to get a compensation amount equivalent to the cost of two Dreamliners, totalling $200 million to $250 million, which may be increased by a little more.
Kaul said however that such a compensation figure would lag Air India's expectations and that geopolitical factors could also influence the amount of compensation that the airline would receive from Boeing.
The Dreamliners to Air India will be delivered from Boeing's new assembly plant in North Charleston, South Carolina. The Chicago-based company opened the second plant to speed up production of the Dreamliner, deliveries of which are more than three years behind schedule.
-By Santanu Choudhury and Nikhil Gulati, Dow Jones Newswires; +91-11-4356-3305; email@example.com
--Anirban Chowdhury in Mumbai contributed to this article.