Airbus beats out Boeing for Qantas domestic fleet

Qantas also announced it "has been able to accelerate the repair of its balance sheet and expects to finish the first half of FY22 with a materially better net debt position

(IMAGE: Airbus)

Australian flag carrier Qantas said today (16 December) that it will order new Airbus A320neo and Airbus A220 aircraft to renew its domestic narrow-body fleet. The move is a blow to American plane maker Boeing. Qantas said it will gradually phase out its current fleet of Boeing 737s and 717s.

The airline said it had committed to buying 20 Airbus A321XLR planes and 20 A220-300 jets and had taken purchase options on another 94 aircraft. The agreement is subject to board approval, expected by June 2022 after negotiations with pilots and finalising the business case. The order is in addition to Jetstar’s existing agreement with Airbus for over 100 aircraft in the A320neo family. Part of this new deal includes combining these two orders so that the Group can draw down on a total of 299 deliveries across both the A320 and A220 families as needed over the next decade and beyond for Qantas, QantasLink and Jetstar.

Once finalised, this will represent the largest aircraft order in Australian aviation history. Financial details of the deal are commercial in confidence but represent a material discount from list prices. Today’s announcement follows a detailed review by the airline’s engineering, flight operations, customer experience, network, fleet procurement and finance teams. The airline conducted detailed evaluation of the A320neo and B737 MAX families as well as the smaller A220 and Embraer E190/195-E2s.

Qantas has operated Boeing jets since 1959 and was once the world’s only airline with an all 747 fleet. After the Airbus narrowbody win, the US plane maker will now supply only its long-haul 787 Dreamliners. The deal comes in addition to recent news that Singapore Airlines has agreed to launch the Airbus A350 freighter. Airbus is also said to be close to a deal with KLM for a narrowbody order.

“We are honoured to have been selected by Qantas for its comprehensive single aisle fleet replacement programme,” said Christian Scherer, Airbus chief commercial officer and head of international. “This has been an especially exciting campaign that has pushed the boundaries of technical, operational and financial evaluation, with in addition, a specific focus on sustainability. With the combination of the A220 and A320neo families Qantas is charting a course to operate one of the most modern, sustainable and fuel efficient fleets in the world. All this while offering its passengers the highest levels of aircraft cabin comfort in both the domestic and regional market segments. We look forward to delivering the new Qantas fleets and to working together with this world class airline to ensure a sustainable future for our industry in Australia and beyond.”

The initial firm order concentrates on the larger, single-aisle A321XLR, and the mid-size A220-300 with purchase options for the smaller A220-100. The XLR can carry around 15 percent more passengers on each flight than the airline’s existing B737-800s, making it well suited to busy routes between capital cities like Melbourne, Sydney and Brisbane. Its longer range means it can also be used to open up new city pairs. The small and medium size A220s provide the group with flexibility to deploy these aircraft throughout most of its domestic and regional operations. They could be used during off peak times between major cities and on key regional routes to increase frequency. Both aircraft types will be powered by Pratt & Whitney GTF™ engines and will deliver fuel savings of between 15-20 per cent, contributing to the airline’s broader emission reduction efforts.

Qantas Group CEO Alan Joyce said the airline had called the renewal of its domestic fleet Project Winton after the town where the national carrier was born 101 years ago, because it’s a key strategic decision for the future of Qantas Domestic. “This is a long-term renewal plan with deliveries and payments spread over the next decade and beyond, but the similarly long lead time for aircraft orders means we need to make these decisions now,” Joyce said. “Qantas is in a position to make these commitments because of the way we’ve navigated through the pandemic, which is a credit to the whole organisation. This is a clear sign of our confidence in the future and we’ve locked in pricing just ahead of what’s likely to be a big uptick in demand for next-generation narrow-body aircraft. That’s good news for our customers, our people and our shareholders.”

Qantas updates on balance sheet

Qantas also announced it “has been able to accelerate the repair of its balance sheet and expects to finish the first half of FY22 with a materially better net debt position than it had prior to the start of Delta variant lockdowns in June” The airline said the improvement was made possible by the A$802 million sale of land in Mascot that was not core to the group’s long-term strategy and strong sales that flowed once firm opening dates for international and domestic borders were announced. Based on current forecasts, the group expects net debt to be approximately A$5.65 billion by the end of December 2021.

Liquidity levels continue to remain strong and are forecast to be approximately A$4.2 billion by the end of the current half. This includes cash of A$2.6 billion and A$1.6 billion of undrawn debt facilities. The group has maintained its Baa2 investment grade credit rating.

While the recent boost in travel activity has partially offset the material impact from months of lockdowns, the group nonetheless anticipates a significant loss in the first half. Assuming no further lockdowns or significant travel restrictions, the group expects an underlying EBITDA loss for the first half of FY22 in the range of A$250 million to $300 million. When compared to the prior corresponding period, this reflects stranded costs due to sudden lockdowns and a lower level of aircraft hibernation to facilitate a faster ramp-up based on the national recovery roadmap. Once non-cash depreciation and amortisation costs are included, the 1H FY22 underlying EBIT loss is expected to exceed A$1.1 billion.

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