AIR - Air NZ.

[Beagle]

Some good news http://www.nzherald.co.nz/business/n...ectid=11954881

[Fatboyj]

Holy shmolly that pic of 1st class is going on my bucket list! I want to link the photo here but I can't!!.

[RTM]

Holy shmolly that pic of 1st class is going on my bucket list! I want to link the photo here but I can't!!.

Yep...would be great to join the mile high club...dreams are free !

[winner69]

Engine looks a bit of mess

https://www.stuff.co.nz/travel/trave...ged-787-engine

Sounds like more than just a little rattle

Comments have renamed Dreamliner as Nightmareliner

[Robomo]

They won't pay for reputational damage.
Some of the flights are delayed a long time affecting a lot of downstream travel plans.
Cancelling the flights is worse.

For the 4 day period 7 - 10 December Air New Zealand have announced 3 return flights (6 sectors) are cancelled (Perth, Osaka, Houston) and varying delays up to 7 hours on 12 flights. Considering that the widebody fleet of 26 planes fly about 50 sectors every day the cancellation rate of 6 of 200 sectors is minimal and forward notice of delays will give most people reasonable time to consider what to do. ANZ will have to accommodate some people I guess and possibly book others on different connecting flights. Of course, that's why we all have travel insurance isn't it?

It looks like there will be some inconvenience to 10% of the travelling public, which is not much more than you get when Auckland Airport is closed with fog. The non-reaction of the Share Market supports this. I rang my broker 15 minutes after the news came through yesterday and he was not aware of any concern from any clients.

[Beagle]

Those on here that think I am nothing but a cheerleader for this stock are in for a big surprise with this post which is as best I can state it my objective summary of where things are at. I am sure more information will come to light in due course but just so people know, seeing as I have been a big supporter of this stock this is as I see it right at the minute.

In my opinion this is a very serious issue. Looking through what's been made publicly available including a print edition report in the Herald on Saturday and comments from AIR's chief operations and standards officer Captain David Morgan, a behind the paywall article on NBR in Friday's edition basically querying why AIR aren't grounding their Dreamliner fleet with some apparent comment from Rolls Royce and having considered the effect this had on ANA when they grounded their entire fleet of 50 Dreamliners and the time taken to overhaul those engines this is an amalgam of what's been reported.

There have been six incidents worldwide on early model Trent 1000 engines. There are variously reported between 300 and 400 of these "early model" engines in service.
Rolls Royce have engineered a new fan blade design which they began installing from late 2016 in these engines and have been retrofitting to earlier engines.
The issue is with an alloy medium stage compressor fan blade that has had a special coating applied to it but that coating is starting to come off and has lead to corrosion issues affecting the integrity of the blades.

AIR's engines will have to be sent to a RR service center in Singapore for retrofitting on the new blades a process that takes just over a month. The ANA program which covers all 100 engines has been reported to be taking up to 3 years. RR have stated they regret the effects upon AIR caused by this problem. I would speculate that seeing as they have no spare engines there is some chance that AIR may be able to recover some of the lease costs incurred if they can find alternative aircraft to cover those out of service.
RR claim the worst effects will be on AIR over the next few weeks gradually abating through to mid 2018.

AIR have nine planes with these early model engines so a total of 18 engines to be retro filled with new fan blades. The most recent two additions to the fleet both have the new fan blade design. It is clear this process will take some time and AIR are scrambling to find replacement aircraft.

In my opinion it is also clear that two incidents in one week on a fleet of 18 engines is a very serious situation. Statistically for AIR with only 18 of these early model engines to have had two engine out incidents out of a worldwide 6 incidents is unfortunate.

AIR have stated that "at this stage" there is no effect on profit guidance and they are focused on securing replacement aircraft..

My opinion:-
The two engines that have experienced incidents have clearly been seriously affected, (photographs supplied in the media speak for themselves) and will require a major overhaul which will take longer than the standard fan blade replacement program. From a public relations point of view I think it is likely that at this stage both AIR and RR are downplaying the seriousness of this issue and its impact upon AIR. They don't want to worry the public and RR don't want to expose themselves to too much liability.
1. Whether AIR can find replacement leased aircraft on acceptable terms at short notice is a key business risk.
2. Whether RR will meet those lease costs is another risk.
3. There is the downstream effect of passengers expecting to turn up to see an AIR aircraft and inflight IFE system and getting something else, this is minor and something that cannot be mitigated other than through very good public relations which is something I am sure AIR will try and do.
4. There is regulatory and safety risk. AIR may be required to ground its fleet of older engines Dreamliners
5. If there is another incident they may elect to ground the fleet even if not forced too.
6. The replacement fan blade program and overhaul of the two affected engines could take longer than anticipated seeing as there are limited service facilities and all other airlines are scrambling to replace the fan blades on their early model engines.

None of these risks appear to have been priced into the shares which actually went up last week despite two serious engine out issues on consecutive days.
What happens this week, next or any other week in the near future if there's another engine shutdown mid flight ?

It doesn't really make sense to me that the share price has gone up when the company risk has also gone up so I reduced my stake this morning. I think its an extremely well managed company and is a very attractive hold but right at the minute I have taken some risk management step's of my own until such time as the effect of the rectification of these engine problems is better understood.

Holders might like to ponder the words "at this stage" no effect on guidance. Its clear that's their "preliminary" view.
I feel seeing I have posted a lot of positive comments on AIR over the years I have a moral obligation to call this situation as I see it and post it on here.
Disc: I am not "short" AIR stock, (still own a modest stake) and am not trying to talk it down but I did significantly reduce my stake this morning. Hopefully everything will turn out okay and AIR and RR will manage this process well and if so I will look forward to taking a meaningful stake again as soon as the business risk has materially diminished.

[BlackPeter]

Those on here that think I am nothing but a cheerleader for this stock are in for a big surprise with this post which is as best I can state it my objective summary of where things are at. I am sure more information will come to light in due course but just so people know, seeing as I have been a big supporter of this stock this is as I see it right at the minute.

In my opinion this is a very serious issue. Looking through what's been made publicly available including a print edition report in the Herald on Saturday and comments from AIR's chief operations and standards officer Captain David Morgan, a behind the paywall article on NBR in Friday's edition basically querying why AIR aren't grounding their Dreamliner fleet with some apparent comment from Rolls Royce and having considered the effect this had on ANA when they grounded their entire fleet of 50 Dreamliners and the time taken to overhaul those engines this is an amalgam of what's been reported.

There have been six incidents worldwide on early model Trent 1000 engines. There are variously reported between 300 and 400 of these "early model" engines in service.
Rolls Royce have engineered a new fan blade design which they began installing from late 2016 in these engines and have been retrofitting to earlier engines.
The issue is with an alloy medium stage compressor fan blade that has had a special coating applied to it but that coating is starting to come off and has lead to corrosion issues affecting the integrity of the blades.

AIR's engines will have to be sent to a RR service center in Singapore for retrofitting on the new blades a process that takes just over a month. The ANA program which covers all 100 engines has been reported to be taking up to 3 years. RR have stated they regret the effects upon AIR caused by this problem. I would speculate that seeing as they have no spare engines there is some chance that AIR may be able to recover some of the lease costs incurred if they can find alternative aircraft to cover those out of service.
RR claim the worst effects will be on AIR over the next few weeks gradually abating through to mid 2018.

AIR have nine planes with these early model engines so a total of 18 engines to be retro filled with new fan blades. The most recent two additions to the fleet both have the new fan blade design. It is clear this process will take some time and AIR are scrambling to find replacement aircraft.

In my opinion it is also clear that two incidents in one week on a fleet of 18 engines is a very serious situation. Statistically for AIR with only 18 of these early model engines to have had two engine out incidents out of a worldwide 6 incidents is unfortunate.

AIR have stated that "at this stage" there is no effect on profit guidance and they are focused on securing replacement aircraft..

My opinion:-
The two engines that have experienced incidents have clearly been seriously affected, (photographs supplied in the media speak for themselves) and will require a major overhaul which will take longer than the standard fan blade replacement program. From a public relations point of view I think it is likely that at this stage both AIR and RR are downplaying the seriousness of this issue and its impact upon AIR. They don't want to worry the public and RR don't want to expose themselves to too much liability.
1. Whether AIR can find replacement leased aircraft on acceptable terms at short notice is a key business risk.
2. Whether RR will meet those lease costs is another risk.
3. There is the downstream effect of passengers expecting to turn up to see an AIR aircraft and inflight IFE system and getting something else, this is minor and something that cannot be mitigated other than through very good public relations which is something I am sure AIR will try and do.
4. There is regulatory and safety risk. AIR may be required to ground its fleet of older engines Dreamliners
5. If there is another incident they may elect to ground the fleet even if not forced too.
6. The replacement fan blade program and overhaul of the two affected engines could take longer than anticipated seeing as there are limited service facilities and all other airlines are scrambling to replace the fan blades on their early model engines.

None of these risks appear to have been priced into the shares which actually went up last week despite two serious engine out issues on consecutive days.
What happens this week, next or any other week in the near future if there's another engine shutdown mid flight ?

It doesn't really make sense to me that the share price has gone up when the company risk has also gone up so I reduced my stake this morning. I think its an extremely well managed company and is a very attractive hold but right at the minute I have taken some risk management step's of my own until such time as the effect of the rectification of these engine problems is better understood.

Holders might like to ponder the words "at this stage" no effect on guidance. Its clear that's their "preliminary" view.
I feel seeing I have posted a lot of positive comments on AIR over the years I have a moral obligation to call this situation as I see it.

Great analysis - and I think a timely notice for SH to manage their expectations and review their portfolios.

Agree as well with AIR being a well managed company, though I hope they learn from this incident that it is not always a good idea to rely too much on new and unproven engines / planes, even if they promise to be more fuel efficient. Too many eggs in one untested basket?

Looks like their "clever move" to buy lots of new (fuel efficient) planes is now coming back to bite them.

[couta1]

The Air SP was heading up regardless of the latest engine issues, the bollie bands were sqeeuzed up tightly last week and the price was always going to head North. PS-Would be different if an Air bird had crashed though.

[winner69]

Is serious when the TAIC and Civil Aviation show concern.

Just as well it’s the A320’s flying up and down the country all day long is what makes most of AIRs profits ....and they still have those 777’s to pull them through on cash cow routes.

Be interesting to see what eventuates ...not a good time of the year for this to happen

At least the pipeline from Marsden Point still working

[iceman]

Good summary Beagle. Thanks. Not sure what to think of it all. I'm booked to fly on one of those machines from Buenos Aires to Auckland next week so watching their announcements with great interest !!