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Rolls Royce Pays $100 Million To Settle Engine Disintegration

Wed, 06/22/2011 - 4:39am
Kristen Gelineau, Associated Press

SYDNEY (AP) — Australia's flagship carrier Qantas said Wednesday it has reached a 95 million Australian dollar ($100 million) settlement with engine maker Rolls-Royce over last year's mid-air disintegration of a superjumbo engine, which temporarily forced the grounding of its entire fleet of A380s.

Qantas CEO Alan Joyce said the terms of the agreement are confidential, but that the settlement's profit and loss impact would amount to a 95 million Australian dollar ($100 million) boost to the airline's bottom line.

Joyce said the settlement marks an end to the legal proceedings Qantas launched against Rolls-Royce in the Federal Court of Australia in December.

In November, a Rolls-Royce Trent 900 engine on a Qantas A380 disintegrated shortly after takeoff from Singapore, forcing the plane to make an emergency landing.

The engine explosion was the most significant safety issue an A380 had ever faced since it began passenger flights in 2007, and prompted intense scrutiny of Rolls-Royce engines. The jet landed safely, but the incident forced the temporary grounding of 20 A380s with Trent 900 engines, operated by Qantas, Singapore Airlines and Germany's Lufthansa.

The Australian Transport Safety Bureau's interim report on the incident said a manufacturing defect in an oil pipe deep within one of the engines led to an oil leak, which sparked a fire. The fire caused a disintegration of one of the engine's giant turbine discs, sending pieces of it shooting through the plane's wing.

The fallout from the engine emergency cost Rolls-Royce 56 million pounds ($91 million) in the 2010 financial year, a spokesman for the London-based company said in a statement. Rolls-Royce said it expects "some small additional costs" in the 2011 financial year.

"Qantas is a valued customer and we are pleased this matter has been resolved," the statement said.

The settlement will help Qantas recover from the millions it lost following the incident. The airline was forced to temporarily ground its entire fleet of A380s for a series of inspections, and Joyce said the plane damaged by the explosion won't return to service until February.

"Qantas and Rolls-Royce have had a long and successful commercial partnership spanning several decades," the airline said in a statement. "Qantas looks forward to a continued strong relationship with Rolls-Royce on the basis of the settlement announced today."

The compensation payment helped boost the airline's expected underlying pretax profit for the year to June 30 to between AU$500 million and AU$550 million, up from AU$377 million a year ago.

Despite the positive profit forecast released Wednesday, the airline has come under intense financial pressure from a series of natural disasters. The disasters, including a massive earthquake in New Zealand earlier this year, cost the airline AU$185 million, Qantas said.

Meanwhile, a massive ash cloud from an erupting Chilean volcano has forced the cancellation of scores of Qantas flights this month. As of Monday, the disruptions have cost the airline AU$21 million, Qantas said.

Qantas shares rose 0.8 percent to AU$1.84 in afternoon trading.

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