Boeing and Air India at blows over 787 deal

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Indian flag-carrier Air India is at odds  with American aircraft manufacturer Boeing ( BA , quote ) over compensation for the delayed delivery of new 787 aircraft.

Boeing's revolutionary 787 Dreamliner has been fraught with three years worth of delays . Design flaws in the carbon fiber-reinforced plastic model, as well as supply chain mishaps, prevented the aircraft from debuting on time. In addition to "Dreamliner," the 787 has been called the 'hub-buster' because of its ability to fly long, thin routes profitably.


Air India's demands for compensation are not unprecedented . Other 787 customers such as All Nippon Airways and Kenya Airways  have received compensation under similar circumstances. However, Boeing prefers compensation to be done through discounts on other models of Boeing aircraft as opposed to cash payments.

But because Air India is currently in very poor fiscal health , the state-owned carrier would prefer its compensation in cash. This week, Air India received a 67 billion rupee ($1.3 billion) bailout from the Indian government. A cash compensation from Boeing would substantially improve Air India's poor debt profile.

Air India's financial problems reflect the difficulty of operating profitably in the difficult Indian airline sector.

Increased competition from start-ups like Jet Airways, IndiGo, Spicejet, and Kingfisher Airlines have spawned a brutal far ware that has all but bankrupted Kingfisher .

Air India has struggled to adapt from its previous monopoly as India's only international airline, but its lack of dynamism stemming from considerable government bureaucracy has caused the airline to suffer financially.

As it is government-owned, Air India Limited does not trade. Boeing closed slightly higher yesterday.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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