An announcement today adds another dimension to last November’s mid-air explosion involving a Qantas Airbus A380 superliner equipped with a Rolls Royce Trent aircraft engine that could have resulted in a large loss of life without the actions of a well-trained flight crew.

Qantas announced today that is has reached a 95 million Australian dollar ($100 million USD) confidential settlement with Rolls-Royce to cover the airline’s disruption costs.  Readers may recall our previous Supply Chain Matters February commentary regarding monetary quantification of the engine failure incident caused by a suspected manufacturing defect.  With this announced settlement with Qantas, the Rolls-Royce costs are now at $190 million, including nearly $90 million in 2010 direct costs incurred by Rolls in directly dealing and responding to this one incident. A statement from Rolls-Royce indicates it expects “some small additional costs” in 2011.

Rolls currently holds a 65 percent market share among the combined Boeing 787 Dreamliner, Airbus A380 and A350 programs.  Airline customers continue to favor a ‘power by the hour’ model where carriers lease engines from a manufacturer and pay for operational use.  Innovation and technical engineering must therefore be balanced with engine reliability and near zero defects in quality.  In this new era of powerful social media, airline passenger perceptions of safety and reliability also play a more important role in passenger selection of air carriers and aircraft flights.  Our research arm authored a research insights report reflecting on the social media impacts for Rolls Royce and other aircraft engine manufacturers. The report is titled:  Rolls Royce: Another Evolving Lesson in the New Social Aspects of Risk Management for Supply Chains, and can be downloaded free with user registration within the Supply Chain Matters Research Center.

During the Paris Air Show being held this week, there have been numerous financial media articles indicating that repowering of aircraft models have become a new and more influential buying criteria for airlines that continue to be focused on lowering both fuel consumption and operating costs. Unstated and perhaps another consideration are the operational disruption costs brought about by engine malfunction. Airline carriers are already burdened by disruption costs caused by natural disasters such as recent severe earthquakes, volcanic dust clouds or increased occurrence of severe weather. Add to this dimension newer aircraft composite materials such as carbon fiber, considerably larger aircraft, and the man-made costs related to ongoing reliability and performance add a newer, less-tolerant dimension of disruption.

Bob Ferrari