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* H1 underlying profit before tax A$223 mln vs A$202 mln
* Result includes A$125 mln in Dreamliner compensation
* Shares rise 4 pct to 10-month high
SYDNEY, Feb 21 (Reuters) - Australia's Qantas Airways Ltd reported a 10.4 percent rise in first-half profit on Thursday, as a turnaround of its loss-making international operations gathers pace.
The result included A$125 million ($128.63 million)in compensation for delays in delivery of Boeing Co's troubled Dreamliner, part of a package negotiated before the latest series of problems affecting the grounded jet.
Qantas, which has been battling high fuel costs, tough competition and a strong Australian dollar that has dented tourism spending, said the operating environment remained challenging and did not provide full-year profit guidance.
Underlying profit before tax for the six months to December rose to A$223 million from A$202 million a year ago, in line with its guidance and slightly above analysts' average forecast of around A$216 million.
Shares in the carrier rose to a 10-month high in early trade, the biggest gainer in a weaker S&P/ASX 200 index.
Qantas, which reported its first full-year net loss in 17 years last year, has embarked on a broad cost-cutting regime, axing loss-making routes, slashing staff numbers, consolidating maintenance facilities and canceling plane orders.
Chief Executive Alan Joyce also has ambitious plans to tap the lucrative Asian market, spearheaded by an alliance with Dubai's Emirates which is due to receive final approval from Australian regulators next month.
Joyce said all parts of the group were profitable in the six months to end-December, except for the international arm, which reduced losses by 65 percent compared with a year earlier.
"We have now passed a turning point as we continue to deliver the transformation of Qantas," Joyce told reporters.
Qantas cancelled orders for 35 Dreamliners in August last year as part of its cost-cutting exercise, and said then it would receive more than A$300 million from Boeing Co due to delays in delivery.
The carrier still has firm orders for 14 Boeing 787-8 Dreamliner aircraft earmarked for its budget arm Jetstar and has options to order 50 of the new generation aircraft.
The Dreamliner fleet has been grounded for the past five weeks due problems with battery failure, compounding pressures caused by earlier delays in 787 deliveries.
Joyce said Qantas had received no formal notice of any delay to the delivery of the first plane, due in August this year.
"We think the aircraft is still going to be a great aircraft," he told reporters.
Qantas shares rose 4.3 percent in early trade to $1.69, their highest level since April last year and well off an all-time low of A$0.96 last June.