PAL joins Boeing's deferral Bandwagon

As Boeing reveals more deferral discussion from Airlines

NEW YORK -- Boeing announced that 60 aircraft deliveries in 2010 and 2011, 32 of them 787's, have been deferred 1-2 years into the future, and at least another 60 more deferrals are in discussions with cash strapped airlines, among them Philippines flag carrier Philippine Airlines, PAL Holdings Inc (PAL.PS) .

Boeing chief executive Jim McNerney says the deferrals affect all aircraft types and are dispersed across all geographic regions. There has not been a "meaningful" number of deferrals so far in 2009, says McNerney, although he adds there has been at least one or two.

PAL is currently in talks with Boeing for the deferment of its 777 orders slated for delivery in 2010 due to financing problems, rapid drop in air-traffic demand and FAA Category II status which prevents them from expanding their route to their intended North American market.

Philippine Airlines is scheduled to announce a full year net loss on its 2008 operation ending March 31, primarily due to costly fuel hedges and high fuel prices. It already incurred a net loss of $113.8 million for the first half of its fiscal year as compared to its booked income of $22.7 million in the same period a year ago which prompted it to delay refurbishment program of its Boeing 747 and Airbus 34o fleet which should have been all done by now. Its plan to refurbished all A330 is also shelved.

The airline fired recently its Chief Finance Officer, Andrew Huang for the fuel hedging contract mess that cost the airline massive loss in 2008 which derailed its growth plans. He was replaced by Jose Gabriel Olives from Asia Brewery from April 1.

The Boeing Company said that the PAL delivery for 2009 which has already been deferred for 3 months will not be affected as no B777 orders have been cancelled this year, but its next scheduled delivery might be pushed back further. The Company has offered up to $1 billion in financing to bridge a gap for airlines seeking loans from banks amidst a global credit crisis.

However, Jaime Bautista, PAL President, is wary that they may end up with airplanes with no routes to fly to as they are not prepared to enter Europe at this stage when American doors are close for them to expand. Bautista said that having two new planes is manageable as they can find routes easily for them but the third one will be more difficult at this stage of their finances. The airline intends to fly the triple seven to Canada, Japan and Australia for the time being and will transfer the A340 to Los Angeles by November.

"There's more airlines moving orders out than moving forward," McNerney said. For one, Cathay Pacific opted to delay delivery of its triple seven. Singapore Airlines and Emirates Airlines are also talking to the company for the same plan.

Even with more 777 deferrals coming, Corporate President and CFO James Bell said the company is not anticipating a 737 production cut, citing an "oversell" of the 737s and "what we're seeing in terms of deferral discussions with our customers give us reasonable confidence that we'll get through the year without a rate adjustment." The company announced earlier this month that it would slow the build rate for its Everett-built 777.

The company anticipated "someday there may be a softening," McNerney says. "We're working through the over ordered portion of the backlog. We still think we're in good shape on the production rates."

Boeing Commercial has a backlog of more than 3,500 airplanes, but it plans to reduce its work force by 10,000 positions, with more than 4,500 job cuts from its commercial airplanes division to save on cost. The aerospace company reported a 50 percent drop in profit over the same quarter in 2008, due to previously disclosed aircraft production cuts and to lower airplane prices. Boeing's customers are grappling both with declines in air traffic and with finding funding for new airplane purchases. [ATI]