Airlines

Disgruntled Airline Speaks Up About Boeing 787 Payout


A LOT Polish Airlines Boeing 787 Dreamliner lands after a certification flight April 5, 2013 at Paine Field in Everett, Washington

Photograph by Stephen Brashear/Getty Images

A LOT Polish Airlines Boeing 787 Dreamliner lands after a certification flight April 5, 2013 at Paine Field in Everett, Washington

While the 787 Dreamliner’s flying woes may dominate headlines, the payments Boeing (BA) makes to soothe disgruntled buyers of the new plane are typically handled in much quieter fashion. But the first European customer for the 787, LOT Polish Airlines, is taking its demand for compensation public.

The issue surfaced after an earnings conference call last week in which Boeing Chief Executive Officer W. James McNerney declared settled all the customer-payment requests from the 787′s three-month grounding. “There were some instances where we had obligations to customers, and those have all been satisfied,” McNerney told investors and reporters during the July 24 call. “And you can see by our quarterly results that there was no significant impact to our operations as we work with our customers to remedy the situation. He added: “We think they are all behind us now.”

The Polish airline begs to differ. “Maybe this did not have any impact on the profit side of Boeing, but in fact we were not satisfied at all financially,” LOT spokesman Robert Moren says in a telephone interview conducted on Monday. “Those [costs] are not probably gigantic money for Boeing, but for us—while we are in the process of restructuring—it’s quite substantial.”

LOT is scheduled to receive its fifth 787 in Warsaw on Tuesday. Airline officials met with Boeing executives earlier this month to submit claims arising from the January grounding, which rendered useless two new 787s already operated by the airline while Boeing redesigned the lithium-ion battery system that was suspected in a January fire aboard a Japan Airlines 787 parked in Boston.

Boeing spokesman John Dern says the company remains in “close contact” with its customers, “but the details of those discussions are private.”

LOT has resumed flights with its 787s and plans to deploy the plane on all four of its long-haul markets—Beijing, Chicago, New York, and Toronto—by Aug. 10. Moren said that the airplane has proven popular with passengers and sales are higher than on other models, even though the 787 still has reliability issues that are being remedied slowly. “We take this as a childhood-age sickness, it will go quickly away,” he said. “The Dreamliner will become a profitable aircraft for LOT.”

Payments by airplane manufacturers for such new-plane issues always come with a certain amount of legalistic haggling, veering into the public domain only when it potentially serves the interest of a financially squeezed airline. In March 2012, for example, Boeing reacted swiftly to deny a statement from the Indian government that the company had agreed to pay $500 million over 787 delivery delays to Air India. “We don’t comment on deals that we’ve done, but I can tell you that we’re not writing anybody a check for $500 million,” said Jim Allbaugh, then-president of Boeing’s commercial airplanes unit.

Sometimes the “mitigation” payment may be cash—Reuters reported that All Nippon Airways (9202:JP), the first 787 customer, was seeking some from Boeing this spring—but it might also come in the form of a discount on a future purchase or a break in a lending deal though Boeing Capital, the Chicago-based company’s financing unit. United Airlines (UAL), the only U.S.-based 787 operator, has also sought payments from Boeing over its delayed planes but has generally avoided discussing the matter publicly.

Still, it’s hard to deny the importance of the 787 for LOT, which received its first in November 2012 and composed a dramatic news release to mark the occasion. “Our dream has come true,” the carrier said. “The day of November 15, 2012 will be imprinted in the history of our company as a landmark moment–the symbol of our many years’ work and pursuit of change.” Eight months later, it’s also a pursuit of money.

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $132.78 USD
    • 1.08
    • 0.81%
  • 9202:JP
    (ANA Holdings Inc)
    • $274.7 JPY
    • 0.60
    • 0.22%
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