Qantas Airways Ltd. (QAN) canceled an order for 35 Boeing Co. (BA:US) 787-9s after posting its first annual loss in at least 17 years because of higher fuel costs, labor disputes and rising competition on international routes.
The carrier scrapped the order, worth $8.5 billion at list prices, because of “lower growth requirements in this uncertain global context,” Chief Executive Officer Alan Joyce said in a statement. It reported a loss of A$245 million ($258 million) for the year ended June 30.
The airline, based in Sydney, rose the most in a month on the city’s stock exchange as the cancellation of the Dreamliner jets eased concerns about funding requirements. Joyce has also scrapped overseas services and begun talks on cooperating with Emirates as he tries to revive international operations that lost A$450 million last fiscal year.
“ Qantas is working within the constraints they have to deal with,” said Peter Esho, chief market analyst at City Index in Sydney. “The alternative would have been to raise equity and that wouldn’t have been doable.”
The airline will push ahead with orders for 15 787-8 that budget unit Jetstar is due to start receiving next year. The carrier will get more than $300 million from Boeing because of delivery delays on these planes, Chief Financial Officer Gareth Evans told reporters in Sydney. It will also get back deposits of less than $100 million for the canceled -9s, he said. The cancellation is the biggest so far for Boeing’s new composite- plastic jet.
The carrier rose as much as 3.9 percent, reaching the highest since June 4. It was up 3.4 percent at A$1.21 as of 10:58 a.m. The S&P/ASX 200 index rose 0.3 percent.
The airline was expected to report an annual net loss of A$223.5 million, based on the average of six analyst estimates compiled by Bloomberg. It forecast an annual loss in June, prompting its shares to plunge 32 percent in four days and causing Standard & Poor’s to say it may cut the airline’s investment grade credit-rating.
Qantas’s main flying unit had an underlying loss of A$21 million in the year ended June. Budget arm Jetstar had a profit of A$203 million and the frequent-flier program unit made a profit of A$231 million. The company divided the Qantas unit into international and domestic businesses starting July 1.
The company booked one-time charges of A$398 million in the year as Joyce restructures operations in a bid to return to profit. Labor disputes culminated in the airline grounding its main fleet Oct. 29 to force a showdown. The carrier has cut the equivalent of 2,800 jobs, about 11 percent of its workforce, the CEO said Aug. 8.
The group’s fuel bill rose 18 percent from a year earlier to A$4.3 billion because of higher prices and increased flying.
“Fuel has been the biggest culprit but the European market has been very weak for them too,” Russell Shaw, a Sydney-based Macquarie Group Ltd. analyst, said by phone before the announcement. “That’s not showing any signs of recovery.”
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