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Qantas finds A380 engine issues, keeps fleet grounded

world Updated: Nov 08, 2010 10:56 IST

Reuters
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Australia's Qantas Airways kept its A380 fleet grounded on Monday after discovering problems on three more of the superjumbo's engines, sending its shares down as much as 4%.

Damage to Qantas' reputation as one of the world's safest after an engine broke apart in flight last week and the near-term financial costs of grounding planes weighed on investors' minds as the airline said it did not yet know when the A380 would resume flying.

If the airline's six A380 planes were grounded beyond a week, it could affect the company's profit forecast for this year, analysts said. Qantas will brief media on the issue at 0500 GMT on Monday.

"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.

A Qantas A380 engine broke apart in flight on Thursday, forcing the world's largest passenger plane to make an emergency landing in Singapore with 459 passengers and crew on board.

Chief Executive Alan Joyce said on Monday, anomalies were found on three Rolls-Royce which were being removed from the planes after inspections found "oil where oil shouldn't be on the engines".

The fleet would remained grounded beyond an initial 48-hour deadline for further checks as a result. Joyce said he expected the issue to be resolved in "days not weeks".

"We're just trying to check what the cause of that would be. These are new engines on new aircraft and they shouldn't have these issues at this stage, so it's given us indication of an area for us to focus into," Joyce told ABC radio.

Downgrade follows
Qantas has chartered an aircraft from British Airways and may look to lease other planes to accommodate passengers booked on A380 flights.

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 have downgraded the stock from a "buy" to a "hold", saying 2011 earnings forecasts were challenging although a stronger Australian dollar was offsetting some of the damage. Qantas was one of the only major airlines globally 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' international passenger numbers by 378,000 and cut its 2011 financial year earnings per share forecast by 11.5%.

Qantas shares were down 2.8% at A$2.78 at 0411 GMT. The stock is down about 2.4% since last Thursday's incident.

Qantas has never had a fatal accident since it start flying jetliners. Its safe reputation was 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 was the biggest incident to date for the A380, which went into service in 2007.

Australian air safety investigators said the recovery of a broken engine disk may 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 called on residents of Indonesia's Batam Island
who may have found the parts of the disk among debris to return it to the police.

"The recovery of that disk could be crucial to a full understanding of the nature of the engine failure, and may have implications for the prevention of future similar occurrences," said the ATSB.