UPDATE 5-Qantas extends A380 grounding as probes oil leaks

* Qantas grounds 6 A380s for another 72 hours

* Investigation on Rolls-Royce engines focuses on oil leaks

* Qantas believes A380 failure was material or design issue

* Qantas shares close 2.1 pct down; Rolls down 1.6 pct

* Too early for compensation talks or legal claim

(Updates with analyst comment, updates shares, details)

By Michael Smith and Balazs Koranyi

LONDON/SYDNEY, Nov 8 (BestGrowthStock) – Australia’s Qantas Airways
(QAN.AX: ) has grounded its A380 fleet for at least three more
days as it investigates oil leaks that might have caused the
engine explosion on a Sydney-bound flight last week.

The incident has rattled the global aviation industry, which
is recovering from heavy losses during the global economic
downturn, and has been damaging for Rolls-Royce (RR.L: ), which
makes the Trent 900 engine that broke apart on the flight, which
made an emergency landing in Singapore. [ID:nSGE6A306J]

Rolls shares were down 1.6 percent at 581.5 pence at 1008
GMT in London, extending last week’s 9.7 percent drop, while
Qantas shares in Sydney closed 2.1 percent lower at A$2.80.

“This latest grounding extends the period of uncertainty and
is certainly not good for Rolls stock, which has seen 1.2
billion pounds wiped off its value since the initial blowout,”
said Nomura analyst Jason Adams.

“The market wants resolution on the Trent 900-Qantas A380
issue and clarity on the containment of it. The next step could
be a regulatory body such as the FAA mandating the grounding of
all A380 aircraft with Rolls engines until this is sorted out.”

Qantas said its six Airbus (EAD.PA: ) A380 aircraft would be
grounded for at least another 72 hours after an investigation
found oil leaks on three Rolls-Royce engines that have been
removed from the planes.

“We are working with Rolls-Royce to ensure we have an
appropriate fix to this issue. Our team, Airbus and Rolls-Royce
are working around the clock to ensure that. We are not looking
at any other alternatives,” Chief Executive Alan Joyce told
reporters.

Qantas’s reputation as one of the world’s safest airlines
came under the spotlight, while Rolls and Qantas investors look
at the financial cost of grounding aircraft and compensating
passengers.

“On top of everything, Rolls will probably be on the hook
for some operational losses to Qantas and Singapore, who
grounded flights, as well as incremental costs for the re-work
that may have to be done on some Trent 900s,” said Adams.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For more stories on Qantas engine problems: [ID:nSGE6A706Q]

FACTBOX-Qantas has never had fatal accident [ID:nSGE6A306M]

TIMELINE-Events leading up to A380 incident [ID:nLDE6A31KZ]

For a graphic, click: http://link.reuters.com/fan73q

Slideshow of Qantas plane: http://r.reuters.com/pum73q

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

PREVIOUS PROBLEMS

Singapore Airlines said on Monday it had completed engine
inspections on all its A380s and found nothing of concern.
Germany’s Lufthansa (LHAG.DE: ) has also been conducting tests on
its A380 fleet.

Thursday’s emergency was the third time an A380 with a
Rolls-Royce engine has experienced problems during a flight.

In August, a Lufthansa A380 en route to Tokyo from Frankfurt
shut down one of its four Trent 900 engines shortly before
landing because of a change in oil pressure, and a Singapore
Airlines A380 flight turned back to Paris in September because
of an engine malfunction.

Analysts said if Qantas’s six A380s were grounded for much
longer, it could affect this year’s profit expectations.

“If they’re grounded past two weeks, you’d be a bit
concerned,” said Matt Crowe, an analyst at Commonwealth Bank,
adding there was unlikely to be a long-term impact on passenger
demand due to the incident.

Joyce said Qantas had no plans to change its delivery
schedule for new A380 planes and it was too early to talk about
any legal claim against Rolls-Royce or Airbus.

A second Qantas flight out of Singapore was forced to make
an emergency landing after another problem on Friday, this time
with the Rolls-Royce engine on a Boeing 747-400 jumbo.

Royal Bank of Scotland analysts downgraded the stock to a
hold from a buy, saying 2011 earnings forecasts were
challenging, though a stronger Australian dollar was offsetting
some of the damage. Qantas was one of the only major airlines to
turn a profit during the global economic downturn.

Deutsche Bank said if the six A380s were grounded for six
months this would reduce Qantas’s international passenger
numbers by 378,000 and cut its 2011 financial year earnings per
share forecast by 11.5 percent.

The Australian airline has never had a fatal accident since
it start flying jetliners, a reputation famously mentioned by
Dustin Hoffman’s character in the 1988 movie ‘Rain Man’.

“For all businesses it is imperative that safety is front of
mind when running the business. Qantas has a pretty good track
record, and they probably get a lot of unwarranted attention,”
said Jason Teh, portfolio manager at fund manager Investors
Mutual.

Thursday’s engine failure over Indonesia’s Batam island was
the biggest incident to date for the A380, which went into
service in 2007 and can carry more than 500 people.

Australian air safety investigators said the recovery of a
broken engine disk might be crucial in understanding what caused
the A380 engine failure.

The Australian Transport Safety Bureau (ATSB) issued a
statement and photograph of the broken disk and asked residents
of Batam to hand any parts they had found to police.

Joyce said a huge amount of material had already been
recovered. “All of this is starting to narrow the investigation
back to the oil leak,” he said.
(Additional reporting by Rhys Jones, Michael Perry in Sydney
and Sonali Paul in Melbourne; Editing by Lincoln Feast and Will
Waterman)

UPDATE 5-Qantas extends A380 grounding as probes oil leaks