Bloomberg News

Air France Delays Airbus A350 Contract Amid Engine Upkeep Spat

November 15, 2012

- Air France-KLM Group (AF), Europe’s biggest airline, said it’s seeking to wrap up the purchase of 25 Airbus SAS A350 planes in the first half of next year as it pushes back a contract amid arguments over engine maintenance.

The airline had announced plans for the purchase of the wide-body aircraft in September 2011, together with an equal number of Boeing Co. (BA:US)’s competing 787 model at a combined list price of about $12 billion. While the Boeing deal has been signed, Airbus is still waiting as Air France negotiates with engine supplier Rolls-Royce Holdings Plc (RR/) over maintenance.

“It’s reasonable to think that the talks on A350s will be concluded in the first half of 2013,” Alexandre de Juniac, chief executive officer of the company’s Air France brand, said today at a briefing.

The French carrier is seeking to win work and preserve jobs at its Air France Industries division, one of a shrinking number of in-house aircraft servicing shops. Like units at Deutsche Lufthansa AG and Singapore Airlines Ltd. (SIA), the Air France business counts on revenue from other carriers to cover costs.

Rolls-Royce, the only engine supplier for the A350, has been reluctant to grant third-party repair rights because maintenance contracts are more profitable than building the actual engines.

Juniac had said in September that commercial negotiations were still going on with Rolls-Royce, without specifying when an agreement might be reached. In January 2012, he predicted the contract would be signed “within weeks.”

To contact the reporters on this story: Andrea Rothman in Toulouse at aerothman@bloomberg.net; Mathieu Rosemain in Paris at mrosemain@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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