Boeing Dreamliner Deal: Compensation is 'notional', to be adjusted for cost escalation

Boeing may have agreed to pay US $650 million as compensation to cash-strapped Air India for undue delay in the delivery of Dreamliners, but it now emerges that half of that amount would be notional and adjusted towards cost escalation.

The balance $330 million would be settled as reduction in the price of each aircraft, to be supplied by 2016, to AI.

Citing the confidentiality clause and commercial interests, both Air India and Boeing refused to talk about the amount of compensation to be paid and the modus operandi to be followed. The Cabinet Committee on Economic Affairs had authorised AI in August last year to settle the compensation package for an undisclosed amount.

The state carrier had placed orders for 27 B-787 aircraft in 2005, with first delivery due in 2008 but arriving in September 2012. The delay of about four years disrupted AI's expansion plans.

Following a Federal Aviation Administration directive on safety issues, its entire fleet of six 787 planes is now grounded.

Civil Aviation Minister Ajit Singh had stated that Boeing was liable to pay compensation for grounding of the aircraft on safety grounds.

A senior ministry official confirmed to The Indian Express that Boeing will pay up to US $650 million as compensation.

"Out of the $650 million, $320 million would be notional and adjusted towards cost escalation, as from 2008, the price of each aircraft has increased. For balance $330 million, AI would get aircraft at a discounted price."

Apart from this, the official said, Boeing has already spent $107 million towards setting up an MRO (maintenance, repair and overhaul) near Nagpur, while $75 million has been earmarked for training purposes. Another $10 million will be spent towards spares and maintenance etc.

The Boeing 787 Dreamliner has been plagued by safety-related problems, prompting the FAA to issue a directive on Wednesday concerning the "potential battery fire risk" in the plane.

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