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Qantas extends A380 grounding, probes oil leaks

Australia's Qantas Airways has grounded its A380 fleet for at least three more days as it investigates oil leaks that might have caused the engine explosion on a Sydney-bound flight last week.

india Updated: Nov 08, 2010 19:35 IST

Australia's Qantas Airways has grounded its A380 fleet for at least three more days as it investigates oil leaks that might have caused the engine explosion on a Sydney-bound flight last week.

The incident has rattled the global aviation industry, which is recovering from heavy losses during the global economic downturn, and has been damaging for Rolls-Royce, which makes the Trent 900 engine that broke apart on the flight, which made an emergency landing in Singapore.

Rolls shares were down 1.6 per cent at 581.5 pence at 1008 GMT in London, extending last week's 9.7 per cent drop, while Qantas shares in Sydney closed 2.1 per cent lower at A$2.80.

"This latest grounding extends the period of uncertainty and is certainly not good for Rolls stock, which has seen 1.2 billion pounds wiped off its value since the initial blowout," said Nomura analyst Jason Adams.

"The market wants resolution on the Trent 900-Qantas A380 issue and clarity on the containment of it. The next step could be a regulatory body such as the FAA mandating the grounding of all A380 aircraft with Rolls engines until this is sorted out."

Qantas said its six Airbus A380 aircraft would be grounded for at least another 72 hours after an investigation found oil leaks on three Rolls-Royce engines that have been removed from the planes.

"We are working with Rolls-Royce to ensure we have an appropriate fix to this issue. Our team, Airbus and Rolls-Royce are working around the clock to ensure that. We are not looking at any other alternatives," Chief Executive Alan Joyce told reporters.

Qantas's reputation as one of the world's safest airlines came under the spotlight, while Rolls and Qantas investors look at the financial cost of grounding aircraft and compensating passengers.

"On top of everything, Rolls will probably be on the hook for some operational losses to Qantas and Singapore, who grounded flights, as well as incremental costs for the re-work that may have to be done on some Trent 900s," said Adams.

Previous Problems

Singapore Airlines said on Monday it had completed engine inspections on all its A380s and found nothing of concern. Germany's Lufthansa has also been conducting tests on its A380 fleet.

Thursday's emergency was the third time an A380 with a Rolls-Royce engine has experienced problems during a flight. In August, a Lufthansa A380 en route to Tokyo from Frankfurt shut down one of its four Trent 900 engines shortly before landing because of a change in oil pressure, and a Singapore Airlines A380 flight turned back to Paris in September because of an engine malfunction.

Analysts said if Qantas's six A380s were grounded for much longer, it could affect this year's profit expectations. "If they're grounded past two weeks, you'd be a bit concerned," said Matt Crowe, an analyst at Commonwealth Bank, adding there was unlikely to be a long-term impact on passenger demand due to the incident.

Joyce said Qantas had no plans to change its delivery schedule for new A380 planes and it was too early to talk about any legal claim against Rolls-Royce or Airbus.

A second Qantas flight out of Singapore was forced to make an emergency landing after another problem on Friday, this time with the Rolls-Royce engine on a Boeing 747-400 jumbo.

Royal Bank of Scotland analysts downgraded the stock to a hold from a buy, saying 2011 earnings forecasts were challenging, though a stronger Australian dollar was offsetting some of the damage. Qantas was one of the only major airlines to turn a profit during the global economic downturn.

Deutsche Bank said if the six A380s were grounded for six months this would reduce Qantas's international passenger numbers by 378,000 and cut its 2011 financial year earnings per share forecast by 11.5 per cent.

The Australian airline has never had a fatal accident since it start flying jetliners, a reputation famously mentioned by Dustin Hoffman's character in the 1988 movie 'Rain Man'.

"For all businesses it is imperative that safety is front of mind when running the business. Qantas has a pretty good track record, and they probably get a lot of unwarranted attention," said Jason Teh, portfolio manager at fund manager Investors Mutual.

Thursday's engine failure over Indonesia's Batam island was the biggest incident to date for the A380, which went into service in 2007 and can carry more than 500 people. Australian air safety investigators said the recovery of a broken engine disk might be crucial in understanding what caused the A380 engine failure.

The Australian Transport Safety Bureau (ATSB) issued a statement and photograph of the broken disk and asked residents of Batam to hand any parts they had found to police.

Joyce said a huge amount of material had already been recovered. "All of this is starting to narrow the investigation back to the oil leak," he said.