Airbus-Qatar Plane Dispute Reaches UK Court

Airbus suspended the contract in January in retribution for Qatar's reluctance to accept bigger A350s, alleging a breakdown in ties resembling a corporate divorce battle.

Qatar has grounded 23 A350 aircraft, citing safety concerns over holes in a layer of lightning protection revealed by cracked and leaking paint.

It has said that it would not accept additional deliveries unless the reason is publicly revealed, and is suing Airbus for compensation that has slowly increased to more than $1 billion.

The world's biggest aircraft manufacturer has admitted quality issues with the planes but maintains that the damage is well within safety margins, stressing that European authorities deem them airworthy and other airlines continue to operate them.

Airline leaders contacted by Reuters expressed no agreement with Qatar's reservations about the A350's airworthiness, but expressed rising anxiety about the extent of the disagreement, which has disrupted a wide industry consensus on safety and spawned a trail of detailed files.

"This is detrimental to the industry. Both parties must resolve the matter outside of the courts and reach an agreement "Reuters spoke with the top executive of one Airbus client.

Numerous industry heavyweights have volunteered to arbitrate, but there has been little evidence of progress so far, despite the fact that neither party has completely closed the door to conversation and Airbus has stated its desire for a "amicable" resolution.

Thursday's hearing will be the first in-person confrontation after online procedural sessions due to COVID-19 constraints.

'PERILOUS GAME'

Statements submitted in advance of the unique hearing provided fresh insight on industrial planning and hitherto secret specifics of aircraft talks.

The issue has also shed light on the sensitive relationship between France, where Airbus is headquartered, and one of its closest Gulf allies, at a time when Qatar's position as a gas producer has risen to the fore as Europe strives to wean itself from Russia.

To determine whether to grant Qatar's injunction request, a court will consider which party stands to lose the most if the A321 contract is terminated and the plane's uniqueness in its category. This is the crux of Airbus's sales battle with rival Boeing (NYSE:BA) in the market's busiest segment.

Airbus has outsold Boeing by a factor of four at the premium end of the single-aisle aircraft market, and Chief Operating Officer Christian Scherer said last year that the A321neo has "unmatched capabilities (and) operating economics."

Airbus, on the other hand, said in pre-filed court documents that Qatar Airways might replace the canceled A321neos with the competitor Boeing 737 MAX, which it provisionally purchased in December, or with Airbus planes available via leasing firms.

The case also illustrates the risks involved as leasing firms navigate an uneven recovery while waiting for lease rates to return to pre-pandemic levels.

According to market sources, Airbus informed the court that leasing firms are seeking homes for 80 A320s and 48 A321s in 2023 – an unusually high amount a year before delivery.

"It indicates that lessors anticipate the lease market will improve and are delaying placement of aircraft bought before the epidemic - but this is a risky game," aviation consultant Bertrand Grabowski said.

Qatar Airways, for its part, provided previously unreleased information about the A321neo's product aspirations, including pedal controls for seats and bathrooms taken from the opulent A380 superjumbo. These facts are often zealously kept until airlines feel comfortable disclosing them in a highly competitive travel business.

Following the high-profile hearings at London's High Court this month, the two sides are headed for a possibly tense encounter in June at the airline industry's major annual event, which has been moved to Qatar due to China's travel restrictions.

Willie Walsh, the International Air Transport Association's president, said on Wednesday that he did not anticipate the issue to detract from the meeting's emphasis on the consequences of the Ukraine crisis.