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ANA wants Boeing cash, not discounts, for 787 grounding: Source

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ANA wants Boeing cash, not discounts, for 787 grounding: Source

(Reuters) — All Nippon Airways, the biggest customer for Boeing Co.'s 787 Dreamliner, wants the airplane maker to compensate it in cash rather than discounts on future purchases for losses racked up since the aircraft was grounded worldwide in mid-January, said a person familiar with ANA's intention.

All 50 Dreamliners have been idled for two months after separate incidents with the plane's battery at a U.S. airport and on a domestic flight in Japan. ANA operates 17 of those aircraft and has likely been hardest hit by having the plane out of service. The airline has canceled more than 3,600 flights to the end of May.

"ANA would prefer to have the cash," said the person, who asked not to be identified, adding that compensation talks with Boeing had not yet begun.

"This is not something we have disclosed," said ANA spokesman Ryosei Nomura. "Nothing has been decided regarding future talks with Boeing."

Boeing has yet to say if it will compensate carriers for lost revenue from the 787's grounding. Nor has it indicated how it would do this or how much it might pay. Persuading customers to accept discounts on future aircraft purchases would allow Boeing to spread any reimbursement costs over several years. Airlines, though, may see cash compensation as a quicker way to make up for their losses.

Boeing declined to comment on compensation issues. "There's a singular focus on getting the airplanes returned to service. Our customers want that and we're working hard to achieve that," said spokesman Marc Birtel.

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Boeing is reported to have already faced billions of dollars in fees for three years of delays in getting the 787 into service because of problems with a global production system.

Airlines receive a warranty on their 787s, which, while guaranteeing repairs, doesn't obligate Boeing to compensate for lost business. In a proforma of a standard warranty, attached to a regulatory filing on the sale of a smaller type of plane to Southwest Airlines, Boeing typically guarantees its products are free from defects in material and design. Significantly, these include "selection of materials and the process of manufacture, in view of the state of the art at the time of design." Battery experts said Boeing's choice of lithium-ion batteries was current when the 787 was designed.

When dealing with wing cracks on its A380, Boeing's European rival Airbus initially said it would repair parts under warranty and suggested it would not pay for operational losses. It was widely reported to have later bowed to pay compensation on top of this. Tim Clark, head of the A380's largest operator, Emirates Airline, declines to discuss compensation directly, but told reporters this month that Airbus "recognize the commercial distress that has put us into."

While airplane purchase deals tend to be very complex and can involve long-term ties, compromise is common. When Boeing's 747-8 hit snags, for example, instead of cancelling, Hong Kong's Cathay Pacific came away with a good deal on brand-new 777s, air industry sources said.

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After ANA, which has ordered another 66 Dreamliners, the biggest 787 operator is rival Japan Airlines Co. with seven of the jetliners, and another 38 on order. United Continental Holdings Inc.'s United Airlines and Air India both have six.

ANA has not said how much the 787's grounding has cost it to date, though it has said it was losing $868,300 in revenue per plane in the last two weeks of January. ANA has a large cash buffer, having raised $1.8 billion in a share sale last year to fund aircraft purchases and possible acquisitions.

JAL President Yoshiharu Ueki said on Tuesday the 787's grounding could knock 1.1 billion yen ($11.6 million) off the airline's operating profit for April-May.

Without yet having found what caused the battery incidents in January, Boeing last week unveiled a new battery system and predicted the 787 could be back in the air within weeks — a forecast that ANA chief Osamu Shinobe described as a best-case scenario as it remained unclear how long regulators will take to approve Boeing's battery fix.

ANA estimates it may take a month to fit the new battery systems to its 787 fleet — even after Boeing completes certification testing, gains swift regulatory and airworthiness approvals and ships all the parts and equipment to planes parked around the world.

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