A380 to be a Future Headache

[Guptar]

An email going around at the moment. Thoughts anyone?

Airbus Future Headache: Emirate's Dumped/Retired A380s Posted on May 6, 2014
StrategicAero Research
Emirates A380 Retirements Will Force Asset Value Plunge
Second Hand A380 Market Non-Existent
Emirates 777X Impact On Gas-Guzzling A380
Continued A380 Wing Angst
For all the gimmickry that Airbus aligns with the A380, the impending countdown to the arrival of the 777X at Emirates delivers some unwelcome news.

Putting aside the commercial superiority of the 777X family, the Emirates hold on the A380 order book poses questions as to how the second hand market will cope with near-zero demand for used A380s.

Emirates will be handing back two-dozen A380s to Doric/Amedeo as well as expediting the retirement of the overweight and several-times-over-rewired A380s as it inducts more of the type around the time the 777-9X also enters their fleet in 2020.

Amedeo’s dubious order for 20 A380s is already in jeopardy because Emirates doesn’t want them and Amedeo has failed to place even asolitary unit elsewhere.

Once these ageing A380s come out of Emirates fleet where will they go? Who will buy them? Will Airbus further underwrite a depreciating asset and thereby kill off interest in new-build A380s?

And then there is the leasing market in general after ILFC ditched the A380 order, except the Amedeo order, no leasing firm has ponied up to this toxic airplane.

Letˉs cut to the chase the possibility of the A380 getting new engines is nil. Such a move would kill any interest in the loss-making jet and would also compound Airbus' financial capability to put a lid on the continued cost escalation to this $27bn-plus disaster. If Airbus does make the stupid move to give the A380 new engines, who exactly will stump up the cost?

Pratt & Whitney has no new large engine to offer. Its GTF engines are proving troublesome, GE will not be partnering with Pratt to provide an updated GP7200 engine and Rolls-Royce has eyes on new engines at the start of the next decade, which by all accounts would be too late for the A380.

Emirates savvy in commanding the near 50% of the entire A380 backlog speaks to its desire to access Europe (or threaten to dangle A350 and A380 orders) as well as making the most of its frequency-based model to use Dubai as a global transit nexus that could frankly be served with any large, long haul airplane the A380 has no exclusivity here.

Current A380 operators and customers have found that filling the A380 is not easy and even on the rare flights that they have filled, they are not profitable.

Malaysia Airlines, Thai Airways, British Airways, Air France, Qantas,
Lufthansa, Korean Air, Singapore Airlines, China Southern Airlines all have succumbed to John Leahy Kool-Aid that it takes an A380 to compete with an A380 nonsense, only to discover that they have slowed, not sped up A380 deliveries and in the case of Virgin Atlantic, have continually deferred it until they can fathom what to do with an obsolete airplane post-2018.
Airbus has spent over $1bn trying to fix the wing cracks already.
Emirates is feeling the strain here as the biggest victim to this design flaw that is compounded now by the metal fatigue in the wing spars this will impact operational life, cycles and values.

Emirates was shrewd to conduct sale-leaseback deals to cash in on the then high value exclusivity of the A380 back in 2008 because so few examples were in service at that time.
Fast forward to today, Airbus is struggling to even give them away because airlines are wising up to the fact that the A380 has old technology engines, it not a money spinner even if you fill it (yield is king, not capacity) and that the limitation of use restricts deployment.

While the 777-9X will deliver a mortal wound to the A380, it is actually Airbusˉ biggest customer (Emirates) that is shaping up to be its biggest nightmare with its biggest flop of an airplane and there is nothing Airbus can do about it.

That no one is even discussing this inevitability points to an abject understanding of how fatally flawed the entire A380 program and process was when it was launched back in 2000.
Emirates will be dumping A380s as Airbus railroads the program into yet another brick wall.

[Squawk7700]

Me thinks the new 747 is headed for the same fate!

[FGD135]

That "email" should be read as just a load of Boeing sales pitch.


Those retirements are still many, many years away. You need a crystal ball to know what the state of the markets will be then.


The writer makes it sound like he has a crystal ball. He doesn't. He is a fool.

[Squawk7700]

There is a detailed article of a similar vein in The Age today. It all makes sense and is pretty obvious really.

[ACMS]

Mmmmmmm, did anyone in the know really expect anything else.....:D

The Dugong is a Dog.

[swh]

As usual with "StrategicAero Research", it not worth the effort reading. The language used gives it away as not being a sensible assessment.

The 77X will be used as replacement frames for the 77W, they have not address how the 777s will be disposed of. The big assumption is Boeing can deliver on what they have promised, they failed on their two recent projects, the 787 and the 747-8.

Almost all ultra long haul flights EK is replacing the 77W with the A380, it carries more payload, further, with 15-20% lower seat costs. EK have stated many times over they are happy with the A380, and placed a large follow on order for them last year.

Emirates is paying Doric US$1,260,341 and £360,136 per month for the first 10 years for the A380s, and then US$432,749 and £455,058 for years 11&12. Doric purchased the A380s for US$245 million each, with a valuation at the end of the lease of US$139 million. They are making good money from them. The public prospectus for the Doris issue are on the internet for anyone to see. http://www.dnairtwo.com/investors/DoricProspectus.pdf .

BA just reported they are getting 95% load factors on their A380s, other airlines have made similar comments about getting good load factors.

Airbus has not spent over $1bn trying to fix the wing cracks, they made an accounting entry ("charge") in their books before they commenced the fixes.

A380s are not being rewired, that is all finished. They are presently carrying out the wing AD on 9 aircraft at the moment, Air France 3, Qantas 10, Singapore 9, Emirates 2, Korean 2, Lufthansa 1, Malaysia 3, Thai 2 to go.

The chances of the A380 getting a neo treatment is very good, seen it on the DC-9, 737, A320, 747, 777, A330.

P&W is looking at a mid sized twin GTF later this decade, they have their hands full with 13 different GTF engines for the E-Jets, CSeries, MS-21, MRJ, and A320neo.

[1a sound asleep]

The only way the A380 was going to be successful is with a 600+ pax load running 95% load. Never going to happen.

The A380 is the A340 of 2020. Sad but true. The 777-9X makes the A380 look like a financial dinosuar.

The A380 is a magnificent passenger plane but it makes sense for very few airlines

[swh]

1a you are clueless, you don't need 600 pax on an A380 to make money, and unlike a 777X, airlines are making that money today, not waiting 6-10 years.

[donpizmeov]

Article is written by an ex EK 777 driver. Might explain his favouring the john deer.

The don

[haughtney1]

The litmus test of any commercial aircraft program is simple, is it a commercial success or not? For EADS the 380 has been and will continue to be a financial and commercial disaster, it has however pioneered a few notable technologies for further development on more viable and more likely successful airframes. For the majority of its operators the jury is still out, EK will tell anyone who will listen how wonderful it is, and on the basis of their order book you would have to agree, other operators don't appear to share EK's enthusiasm.
The 777 program was the last Boeing commercial aircraft program that met or exceeded its objectives, it has sold somewhere north of 1100 airframes, it has collectively revolutionized the way airlines have structured their network frequency in both passenger and cargo traffic all whilst being developed from a 767 replacement up to a 747-400 successor. It will continue to be the benchmark on which all other 2 engine wide body airframes are assessed against and it will be around for a long time to come.
On purely a commercial basis, unless something changes drastically the 380 will quickly become a footnote in aviation history, not because its not a good aeroplane or passenger carrier but because it has so far proven to be not versatile enough to appeal to a wide range of airline customers.
The facts are the facts and are available for all to see.

[donpizmeov]

Haughtney has made some excellent points. It must be depressing to be flying the 777 at EK and see all your good destinations go to a commercial failure.

The don

[haughtney1]

Haughtney has made some excellent points. It must be depressing to be flying the 777 at EK and see all your good destinations go to a commercial failure.

The don

No Don, you agree with me? say it ain't so :}
For EK the 380, as you and I both know, works well into certain destinations and is used as a flagship on other routes to add prestige and improve brand awareness using the "wow" factor.
It is however very much a niche airframe, and it is unlikely in its present form to gather anymore significant orders. In the wider context Airbus have got the very large aircraft concept consistently wrong over the past 15 years, in EK service however its the perfect fit on a large hub to large hub basis.
BTW, you can keep LHR, MEL, BNE, SYD, and JFK……and enjoy Dallas :ok:

[swh]

haughtney1,

Why is the 737max bigger than the DC-9 or earlier 737s, why is the 787 bigger than the 767, why is the 777X bigger than the 777, why is the 747-8 bigger than the 747-400 ? Is Airbus the only ones to build larger aircraft ?

EK are driving 5x517 seat A380s a day to LHR with 90% load factors and 64% break even. How much if a profit dive would they take replacing them with the 777X?

Strategic Aero give the impression that EK only lease A380s. EK only own 15 aircraft out of a fleet 217, they own 5xA330-200s, 1xA340-500, 4xA380s, 1x777-200, and 4x777-300ERs. The rest are leased (operating or finance), i.e. 129 of their 777s are leased.

[haughtney1]

Why is the 737max bigger than the DC-9 or earlier 737s, why is the 787 bigger than the 767, why is the 777X bigger than the 777, why is the 747-8 bigger than the 747-400 ? Is Airbus the only ones to build larger aircraft ?

I said VERY large aircraft concept i.e. the 380 in its present form. Yes Boeing build big machines, but even they wouldn't take the leap of faith to develop a new family of airframes in this category, the 747-8 has also been a disaster.

EK are driving 5x517 seat A380s a day to LHR with 90% load factors and 64% break even. How much if a profit dive would they take replacing them with the 777X?

Don't know, and don't care, because it won't happen as this is the specific niche that the 380 was designed for, a congested, popular, slot constrained hub. If a third rwy at LHR ever happens, EK might be able to run 10 380's a day.

Strategic Aero give the impression that EK only lease A380s. EK only own 15 aircraft out of a fleet 217, they own 5xA330-200s, 1xA340-500, 4xA380s, 1x777-200, and 4x777-300ERs. The rest are leased (operating or finance), i.e. 129 of their 777s are leased.

Given the title of the thread, and the general argument made then its worth making the point that its irrelevant if the airframes are leased or owned, we are talking about value (lessors sell airframes as well). Who else in the present environment is going to take these airframes? particularly when EK have no more use for them, whoever it might be, you can be fairly certain it will be at a heavily reduced rate.

I can't personally take issue with the assessment, given the state of the 380 program in terms of its one customer bias and the lack of orders, but I'm merely an interested amateur, its not my money, its just an opinion.

[criticalmass]

FWIW, I was always of the opinion about the only airline that could really make use of the carrying-capacity of the A380 was Japan Air Lines, with a Japanese domestic version seating 625-650 pax used as a replacement for their domestic version of the 747-400. However, the A380 is noticably absent from the JAL fleet.

I just don't see the numbers of A380s in service growing at the rate necessary to ensure it is a commercial success for Airbus, but then again "nothing impedes the progress of science as the right idea at the wrong time".

I guess the 777-9 series is a pretty hard act to follow, and the 787 makes a dandy 767/A330 replacement. My guess is the 747-8 is way too late for the passenger market but will make a fine freighter. I also think the real battlefield will be the 737 Max versus the A320Neo, given the popularity and versatility of the 737-sized airliner.

The A380 is almost too much of a good thing. Wonder how much the freighter conversion will cost?

[swh]

I said VERY large aircraft concept i.e. the 380 in its present form.

Considering they have captured something like 90% of that market since it came into service, I think it has done very well. As well, if not better than the 747.

Given the title of the thread, and the general argument made then its worth making the point that its irrelevant if the airframes are leased or owned, we are talking about value (lessors sell airframes as well). Who else in the present environment is going to take these airframes? particularly when EK have no more use for them, whoever it might be, you can be fairly certain it will be at a heavily reduced rate.

Congratulations you have just won the first prize for being gullible.

The 777X is not replacing the A380 at EK, EK said they have been ordered to replace their 77Ws which start hitting around 15 years in 2020. The 77W is what EK will be dumping with their introduction (and as they only own 4 of these, it will be the lessors trying to place these tired aircraft). Those aircraft will be far behind the economics of the A350, 777X, and the A380.

They are replacing their A380s, with more A380s (ordered 50 more last year at the same time as the 150 777Xs). EK are pushing Airbus very hard for a NEO, and the A380-900.

[haughtney1]

Congratulations you have just won the first prize for being gullible.

The 777X is not replacing the A380 at EK, EK said they have been ordered to replace their 77Ws which start hitting around 15 years in 2020.

Thanks for the personal observation SWH, trouble is, where did I SAY the 380 was being replaced with 777's?

As for a 900 series A380, Bob Hope, Soap on a rope, no hope, it just isn't going to happen. As for a re-engined 380, not likely either given the original airframe when put into service offered single digit CASM savings, and with only one customer the costs associated with integration and certification won't make it worth EADS's while, no matter how much TC pushes them. If they had sold 300-400 frames I'd see a case for it, but not at them moment, merely continual incremental improvements will be the order of the day.
Unless there is a glut of new orders, the 380 program is as dead as disco.

Considering they have captured something like 90% of that market since it came into service, I think it has done very well. As well, if not better than the 747.

90% of f*£k all is still f**k all.

[swh]

Thanks for the personal observation SWH, trouble is, where did I SAY the 380 was being replaced with 777's?

What do you think the "the title of the thread, and the general argument made" is referring to ?

As for a re-engined 380, not likely either given the original airframe when put into service offered single digit CASM savings, and with only one customer the costs associated with integration and certification won't make it worth EADS's while, no matter how much TC pushes them.

EK say the A380 has around a 20% lower CASK over the 77W, the 77X does not match the current A380 numbers (EK say 18% better than the 77W). This is all based on the 777/777X passengers having less space as configured at EK.

The A380 already has achieved its projected sales, Airbus launched it with a business case of only 200 aircraft.

[haughtney1]

Swh, I'm merely commenting on the premise/article, I offered my opinion based on an analytical interest in the subject rather than having a viewing to say one thing is better than the other. Your comment regarding gullibility was neither called for or appreciated.
You can believe what you like regarding where EADS feel the program should be, the facts speak for themselves, the 380 airframe has cost them a boatload (Leahy and Champion are on record saying just as much), it will never recoup its development costs and it will most likely go the way of the L1011, Caravelle, Concorde et al.
Very popular with the passengers, but not it would seem with the vast majority of potential operators around the world.
If I'm wrong I'll happily admit it and everyone will order and operate them, so far it has proven to be a commercial flop for EADS and is in no small part responsible for the renewed effort that has gone into the A350 airframe.

[Less Hair]

Both big manufacturers have had their share of problems with new programs recently.

Wait when China and India get ready for very large aircraft. Maybe Airbus was ten years early with the A380 but there must be a market for big ones with all those growing mega-cities. Interestingly Emirates can make the A380 work to smaller cities like Manchester or Munich as well.

[joy ride]

Interesting to hear the various opinions. It does seem that 4 engine airliners are loosing out to ETOPS twins, but might this change if a 2 holer ever had to ditch mid-ocean due to engine problems?

[pax britanica]

I know that customer satisfaction doesn't count for much in airline thinking but when it comes to comfort the triple is a complete dog compared to the 380. The 380 is much quieter, doesnt have the irritating 'hunting' sensation on the triple with the sense that the fans are always trying to shift up or down a few revs, is much more spacious especially in Y , has much much better cabin conditioning and does away with 'post long haul headache' and is much more stable in terms of ride, 777s seem to me to wallow along yawing gently .

I will be honest and say I have never been a fan of the 777 and always preferred the 74, it is a great piece of engineering in terms of reliability and economy but pax comfort was a retrograde step in my view. No doubt a 77X will have improved cabin conditioning but I wouldn't fancy being down the back of one when it gets a bit bumpy.

[Wally Mk2]

Airbus took a huge gamble to design & build the 380 pretty much like Bill Allen of Boeing did, he went way out on a limb to build the 707 (without a launch customer I believe at first ) then the 747, both would have broke Boeing at the time if not successful & remember at that time the aviation industry was expanding rapidly as against now where it's struggling in some ways. So I imagine that Airbus will perhaps have to wait a bit longer for a decent return on their design but in their favor in the meantime the worlds major dromes are overcrowded now so carrying more people on the one airframe is the way of the future I'd say.
To have 'vision' these days like Allen did all those years ago takes some pretty big gonads!:-)



Wmk2

[swh]

You can believe what you like regarding where EADS feel the program should be, the facts speak for themselves, the 380 airframe has cost them a boatload (Leahy and Champion are on record saying just as much), it will never recoup its development costs and it will most likely go the way of the L1011, Caravelle, Concorde et al.

EADS no longer exists, it was changed at the start of the year.

The internal Airbus development costs for the A380 have already been recovered and paid for. The internal A380 development costs were not deferred, they were accounted for at that time they were incurred. A further royalty is paid upon the delivery of each airframe to various governments as repayment of their launch investment. This is different to the way Boeing operates with their Commercial Aircraft activities, they deffer the development and tooling costs (program accounting), for example the current deferred costs for the 787 listed in their last results were around $27.5 billion. Boeing does not repay government investment.

Airbus is on record saying the A380 production will be cash positive next year.

Very popular with the passengers, but not it would seem with the vast majority of potential operators around the world.
If I'm wrong I'll happily admit it and everyone will order and operate them, so far it has proven to be a commercial flop for EADS and is in no small part responsible for the renewed effort that has gone into the A350 airframe.

The A380 never was developed with a business case of thousands of aircraft, nor was it ever envisaged to have hundreds of operators. It was given board approval with a business case of around 200 aircraft. Neither Boeing or Airbus ever showed in their forward projections thousands of aircraft in that market segment, both showed a total market demand for around 1000 airframes over a 20 year period.

People like yourself that say it is failure because it is not selling like a 767, 787, or 777 are distorting the true historical context to fit your agenda. That market segments has a demand, Airbus and Boeing are at odds at how big it will be. Boeing's forecast is for another 620 aircraft worth over 240 billion dollars, Airbus is more optimistic than that.

90% of a pessimistic 200+ billion dollar market forecast is not "90% of f*£k all".

https://theblogbyjavier.files.wordpress.com/2014/07/cmo2014infographic1.jpg

[Wannabe Flyer]

SLF here: spend many miles a month in the air and a lot on Long haul. 777 has become my second home. Flew for the first time last month on a 380 which is almost 5 years post launch. As a Y customer only, i found it a soft and gentle giant, but with so many pax squeezed in for a 12 hour flight it got to me a bit. I think as an SLF once you are inside the aircraft it is comfort for your journey that matters and not the aircraft and this is operator dependent not equipment for the most part. Second is the pricing and if a particular aircraft makes it viable it will survive otherwise not. IMHO opinion from a customer and economic stand point for business people point to point not too crowded and reasonably comfortable interiors matter the most. The 787 seems to be my choice for these routes which are 12 hours or under. Will not fly short haul routes on the 380 as they will be slowly pushed to be the 800 pax shuttle services between the sub continent and the eastern and western hubs being created around them. This unfortunately is the way it seems a lot of the 380 will go as Sub continent demand grows for lower cost travel. European carriers out of the sub continent seemed to have lost the drift but if you are willing to overlook some aspects of service they are a less crowded and better journey westwards now......most use the 787, 777 and 330 on this route with a less dense configuration.

[parabellum]

The A380 already has achieved its projected sales, Airbus launched it with a business case of only 200 aircraft.


Think you will find that the original figure was 269 aircraft but, due to late delivery penalties and re engineering, the figure is now around 500 before they will break even.

[onetrack]

Interesting article in the Sydney Morning Herald that was originally in the NY Times. The article points out the total resistance to the A380 in the U.S.
I would suspect this may be tacit U.S. corporate support of Boeing, though, more than any other factor.
An interesting point is how Emirates claim the 1st class and business classes are the ones making the A380 viable. I guess if any other aircraft could haul half their pax as 1st and business, they'd be pretty viable, too.

Bigger isn't better: Why the Airbus A380 superjumbo is struggling to take off (http://www.smh.com.au/travel/travel-planning/travel-news/bigger-isnt-better-why-the-airbus-a380-superjumbo-is-struggling-to-take-off-20140811-3dihz.html#poll)

Someone is most certainly going to take a serious kick to the cojones when it comes to used A380 resale. They will be worth virtually nothing used, because buyers who can utilise them will be as scarce as hens teeth. The simple fact remains they are a niche aircraft, and their sheer size creates immediate problems and major restrictions on anyone who would even consider taking any on, used - even if it was at a bargain price.

[Luke SkyToddler]

The A380 was never intended to compete with the 777, it was designed to kill the 747.

A mission that it has pretty much comprehensively succeeded in.

The A350, on the other hand, IS designed to kill the 777.

Obviously the 777 is a great plane and it's had a fantastic run but at the very least, the A350 looks like it's going to get close to half the market share in big twins from now on.

Considering the 787 debacle, and the A320's dominance in narrowbodies, I'd say the pressure is all on Boeing at the moment, they really need to play an absolute blinder with the B777X or whatever they're calling the refreshed product.

[500N]

Question for you knowledgeable people.


If Qantas wasn't using the A380 for Aus to the US, what other options would it have apart from staying with the 747's they were using.

IMHO, the A380 trips I have done to the US were superb compared to the 747's I was on before.

[Metro man]

If the A380 is successful and makes enough money for an airline during its lifetime, they could possibly afford to simply scrap it instead of selling it.

The A380 is highly successful in its own area, as the B777 has been in its market. The problem is the size of the A380 market is not that great, an airline which can operate a sufficient number of them on the right routes will do well, however the type is not for every airline. Even third world airlines operate the B777 and they are also used by FEDEX as freighters.

For the A380 to make sense an airline needs to be large enough to operate enough of them to have the economies of scale, and fly appropriate routes for the type. There aren't that many airlines like that around.

[OK4Wire]

For the A380 to make sense an airline needs to be large enough to operate enough of them to have the economies of scale, and fly appropriate routes for the type. There aren't that many airlines like that around.

Hard to disagree with that, and there are definite flexability advantages to having smaller aircraft, but let me pose this to you: which is going to be cheaper to run (on a daily basis), 5 777s (10 engines, 15 cockpit crew, 5 nav charges) into LHR or 3 380s (12 engines, 9 cockpit crew and 3 nav charges)?

And yes, I know that there is a lot more to it than that.

[parabellum]

The Americans didn't buy the Concord, in deference to Boeings own SST project.


The Americans didn't buy the A380 in deference to Boeing. Boeing had offered Airbus a joint venture deal on the Future Very Large Aircraft but Airbus turned it down and Boeing then cancelled their plans to build one.


The A380 was intended to replace, (not kill!) the B747, but the B747 had already been replaced by the B777, A330 etc.


When an aircraft is purchased, either by an airline or a leasing company they have the opportunity to buy what is known as 'Residual Value' insurance.
This is intended to cover the difference between the estimated re-sale, (residual), value of an aircraft after a given period, (usually in years), and the actual value at time of sale, if there is any difference. Normally bought in layers, the layer nearest to the original estimated sale value, say, just for example, 1million to 5million below, will be the most expensive. Be interesting to see if companies like ILF took out this kind of cover.


For those interested, some information here; http://www.avitas.com/publications/airfinancejournal/Airfinance%20Forecasting%20Aircraft%20Values%2024-30.pdf

[Hempy]

Which all goes to say that the only people the A380 are going to be a 'future headache' for are those people trying to sell a used aeroplane to a niche market.

To the people who chose unwisely, it's surely a headache already.

The A380 IS like Concorde, sensational at performing a specific role well, useless for anything else. It's not flexible.

[donpizmeov]

I don't know Hempy, EK operate theirs on 1hr sectors to KWI, and 15hr 30min sectors to LAX. They operate them daily to small airfields like Mauritius, Brisbane and Manchester. And 5 timed daily to LHR. What else do you want it to do?

The don

[PPRuNeUser0161]

The A380 has nothing in common with Concord, for a start it hasn't been legislated out of nearly every country in the western world. I think you dooms-dayers are getting ahead of yourself. Most airlines are struggling at the moment and spending up big on a new type is not wise in times like these. But things will change and and when they do Airbus will be sitting pretty for the next 30 years or so having killed off the 747.

Remember the 747 nearly broke Boeing as well.

SN

[Squawk7700]

The new 747 will use less fuel per passenger and be cheaper to operate than the A380 (allegedly), so you never know what might happen... Too little too late for Boeing perhaps?

[parabellum]

having killed off the 747


Think you'll find your time scale is a bit out there Soup Nazi, B747-400 were already being sold, in favour of the B777etc., before the first A380 did a commercial flight.

[kirungi1]

It appears some operators have a better KnowHow of this equipment, so if it doesn't work for you never know it might for, eerrrmm, others ;
Emirates Agrees Loan For 50th A380 (http://news.airwise.com/story/view/1407847690.html)