Aircraft delivery delays spark battle over penalties

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DUBLIN, Jan 18 (Reuters) – A battle for compensation is brewing over delays in the delivery of commercial jets, with the Dublin aviation summit turning into a blame game for the worst industrial disruption in years.

Airbus and Boeing are on average delivering new jetliners three to six months late, blaming post-pandemic havoc on supply chains, delegates at two major aviation finance conferences have said.

Powerful leasing companies have lobbied aircraft manufacturers over the delays, with Air Lease (AL.N) executive chairman Steven Udvar-Hazy telling this week’s Airline Economics conference that manufacturers had “grossly misjudged” their production.

Airbus and Boeing have defended their records, saying the situation is the result of a combination of factors, from the pandemic to weak supply chains, and a sudden recovery in travel demand.

The public exchanges reflect battle lines in behind-the-scenes negotiations over whether manufacturers should bear contractual liability by paying penalties even when suppliers are at fault, people involved in the talks said.

With January already marked by new delay notices sent to airlines and leasing companies, experts said millions of dollars of exposure hinged on one word: “forgiveable.”

Aircraft contracts contain dense descriptions of adverse factors that excuse manufacturers for several types of delay, meaning they can avoid paying penalties or “damages”.

Excusable delays include “acts of God,” natural disasters, fires, floods, earthquakes and epidemics, among other examples, according to excerpts from past contracts filed with regulators.

They can give the manufacturer a loophole in case of failure to obtain parts. Wars and strikes are also excusable.

Non-excusable delays include anything outside of this catalog, but are rare, experts say. Only the grounding of the Boeing 737 MAX due to design flaws was treated as a large-scale inexcusable delay, resulting in heavy compensation from Boeing, industry sources said.

As last year’s deliveries fell short of target and doubts mounted over 2023, aircraft manufacturers are again invoking the “excusable delay” clause, buyers said. Airbus and Boeing declined to comment on contractual issues.

But three years after the early spread of COVID-19, as demand surges and China returns to the market, lenders have used their annual summit to argue that enough is enough.

“TOO OPTIMISTIC”

“They are not excusable at all,” Aengus Kelly, chief executive of rental giant AerCap (AER.N), told the Airfinance Journal conference when asked about the delays.

“(Manufacturers) were just too optimistic about what they could produce. They try to blame COVID, but COVID is long gone.”

France ended the COVID-related state of emergency last July. The World Health Organization said last month that there were “still too many uncertainties and gaps for us to say that the pandemic is over”, but added that it hoped to declare the emergency over. in 2023.

Tensions have been exacerbated by ever-shorter deadlines for delays, donors said. Filling the void can mean pulling jets out of storage, which means dealing with maintenance bills and bottlenecks in repair shops.

The amount of damages at stake varies from contract to contract, but one buyer said typical exposure in the event of inexcusable delays could be as high as $20,000 per day for single-aisle jets, capping at 2-3 million dollars per plane.

Even so, it may not mean a financial windfall. Jet manufacturers prefer to offer credits and large buyers have the option of renegotiating previous agreements.

“I think it’s more likely that there is some other form of concession from the manufacturers. That it crosses the line of a damages payment…is part of an overall business discussion,” he said. said Andy Cronin, managing director of the leasing company. Avlon.

“But if it persists, I wouldn’t rule it out,” he told Reuters.

Additional reporting by Conor Humphries. Editing by Sharon Singleton

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