More trouble for A380 Program ?
 

http://www.bbc.com/news/business-37362488



Singapore Airlines drops Airbus A380 plane

Singapore Airlines has decided not to keep the first A380 it leased, delivering a fresh setback for Airbus' super-jumbo plane.
Singapore Airlines was the launch customer for the two-deck jet in 2007.
The airline has decided not to renew the A380 plane when the ten-year contract expires next year.
The news comes after Airbus more than halved its delivery target for the A380, raising fears it could slip back to making a loss from the aircraft.
A Singapore Airlines spokesperson said: "Our first five A380s are on 10-year leases, with options to extend. The first expires in October 2017, and we have decided not to extend it.
"For the other four, decisions will be made later."
But they added the airline had orders for five separate A380s with Airbus, which will start being delivered in the second half of 2017.
The A380 only began breaking even for Airbus last year.
In July, Airbus said it would still avoid losing money on the jet in 2017 with as few as 20 deliveries, but gave no further guidance.
Analysts says that big aircraft like the A380 and Boeing's 747 series have fallen out of favour.
Smaller jets can be more profitable as they are easier to fill and are cheaper to operate, analysts say.

I wouldn't read too much into this - Singapore is known to keep a young fleet, dumping airframes when they're due for heavy maintenance and getting new ones.
Singapore previously had stated they intended to take delivery of the A380's currently on order. I wouldn't be the least bit surprised if Singapore simply replaced some 10 year old A380's with new ones, keeping the same number of operational A380s.
However I expect the leasing company may be getting seriously nervous - at the moment there doesn't appear to much interest in taking second hand A380s.

I agree with tdracer, SQ don't like heavy maintenance. Back in the day that is how they managed to keep the "youngest fleet in the air"

SQ keeps a young fleet back in the cabin as well... :D

So financing new 380s will be the challenge!

Unless SQ want's to dish out the cash themselves, but they will most certainly not want to sit on something unsellable 10 years later.

Makes sense to buy new to replace End of Lease old ones. Presumably the original leasing plan was because they weren't sure if they wanted to use them in the longer term, and now they are ready to buy.

Anyone know the difference in 10 years of lease payments, vs purchase outright?

I wouldn't say it means more trouble but for a while now the news coming out of Toulouse is that they are very much planning to reduce the rate of production, and it already having an effect on the subcontractors.

Fairly typical article/take on the situation in French language here:

Faute de commandes, Airbus diminue de moitié la production de l?A380

Regardless of what SQ do I don't think Airbus management is expecting everybody to start renewing hulls at the ten year point......

According to Aviation Week, the leasing company bought the aircraft from Sing in a sale and lease back deal for $197m in 2007, and Sing pays $1.71m a month for it. Over the 10 year term that's a total of $205.2m. OK, on the face of it $7.2m is a very low return on investment for the lease co, but if it ends up going off to the desert and parts-recovered, I suspect the end result won't be the worst ever. Sing on the other hand is replacing it one-for-one, and might end up paying a not too different amount for a brand new, more efficient airframe that is years away from a cabin refit and heavy overhaul at a time when it arguably doesn't need extra VLA capacity.

I was under the impression that SIAs first (few?) were a bit heavier and a little more troublesome than the rest so could be a motivator also

The first ones especially will be full of after market mods. The new ones (hopefully) will be fully configured with the latest fixes and will not require updating.

7.2 0n 197 in ten years about 0.4% of ROI per year: Does not even cover inflation. And if most of the whales go to Mojave after only 10 years and only a few new ones a ordered, the spare parts will not be of a huge value.

Spin it however you want, the 4-holers are doomed and will never bring back the investment. Maybe for the more ruthless companies like EK and SQ on their initial batch, but lessors and investors learn quick!
Financing for new models will only be possible through the ignorant European taxpayer, no one else in their right mind would put their dollar on them no more.

Shame that the best plane in the air from a pax point of view faces these problems-the T7 is a complete dog compared to the 380 but of course it is efficient , not the first time its happened but probably will be the last.

On the other hand none of the newer designs work that well on v high density restricted hub routes. Is it purely down to the extra cost of ownership/maintenance and overall fuel burn that means fours can never match twins even if they get bigger ?

MH frames are in the market for at least one year without much luck.

SQ may very well drop pending A380 orders for A350s.

I don't think any lessor/airline can afford to sink additional $5+ Million to redo entire interior on top of deferred heavy maintenance of a used A380 and still make money.

Premium heavy SQ/EK cabins are not appropriate for most airlines in secondary market (if there is one for A380)

With just 300 frames, I doubt there will be huge demand for parted out components. Airbus and its supply chain is counting on at least making money on parts. Its not a A320 with 1000s of frames flying around.

Sardine cans??

I think you'll find they will be redelivered off a heavy check: 12 Year done early so they won't be avoiding heavy maintenance. They will take all five of the new ones.

I've got a question. If Singapore does not like heavy maintenance and gets rid of their aircraft at around the 10 year point when heavy maintenance comes due, owning the airplane makes little or no sense unless they can be assured they can sell the airplane at the 10 year point. So why would Singapore replace 5 leased airplanes with 5 owned airplanes if in 10 years they won't be able to sell them? Especially considering that at that point the design will be 20 years old and even more obsolete than the 10 year old airplanes they are getting rid of.

Rule of thumb is monthly lease rates amount to ~1% of the airframe purchase price, over a 10 year lease the leasing company will have recovered their initial investment, a second term lease or sale at residual value is just an added bonus. Of course actual deals will hover around both sides of this number, depending on which side is in a beter negotiating position.
Same reason. If they can obtain cheaper financing than a leasing company (and to my knowledge SQ is sitting on a fairly large amount of free cash), then over a 10 year period they can write off the asset value to zero with a smaller overall cost than if the same aircraft were leased. All beancounting stuff.

KenV

A Residual Value Guarantee would be essential. SQ is very smart at negotiating purchase agreements with manufacturers whereby the latter agrees to facilitate disposal/take back on special terms against a future acquisition.

At what point do airbus try and re-launch the A380F?

(Majority of 747's recent production has been freighters... )

Also, how possible/economic is it to convert them to freighters?

Airlines may be smart but lessors are no dumb. Doric will never do what it did with EK A380 again, never. EK may have to finance their pending deliveries.

Not unique for A380, with Delta's announcement that it purchased a used B777 for $10 Million, lessors are scrambling what to do with all B777 lease returns and what should be the lease rate factor for new ones. Delta probably bought just a frame without engines for parts, but such news worries Wall Street.

Traditional way of financing and maintaining planes will be history very soon. Gone are the days frames are good for 30 years and once initial problems are sorted out in a year, they are rock solid. Big players take brand new and hand them down to others after 12 years.

With Export Credit agencies and fuel efficiency third world no longer buying used planes. They can get brand new planes cheaper.

Build quality(not safety) of new types is poor. Too many prolonged teething issues (ie., troubled childhood) and early aging, faster technology obsolescence, less resale potential and less resale values.

I am thinking airlines will go power-by-hour on engines and pay-by-fly-hour for frames. Let manufacturers and lessors deal with technical issues without hurting airlines bottom line.

If engine has an issue and need to be fixed, airline won't pay frame charges either, let engine manufacturer pay to frame owner/lessor.

Probably never. At least based on analysis I've seen, the A380 does not pencil out to be a good freighter, and loading freight on the upper deck would be problematic. Plus it would be near impossible to do a 747 type nose door due to the flight deck location.
What might work would be some sort of combi - freight on the main deck and passengers up stairs - but combis have fallen out of favor, and the latest regulations regarding cargo fire would make certification of a combi difficult.

Would be interesting to see the math on the cost of converting it to a freighter, but i would think the efficiency of the 777 even in freighter standards would make more sense then 4 engines.

I think Airbus is stalling as long as they can to see where the market takes the 380. Think about it, huge growth coming especially in the Asian region, and as we know, governments around the world are always in "reaction mode" so airport expansion in regards to runways/slots etc wont match growth for some time. Maybe there is a hope for a few more orders especially if they can pitch a a 380neo option, maybe add a few rows but with the a350 doing well and the 7X due soon, it'll be tough to sell 4 engines.

I remember back when Singapore first tookoff their a380 maiden flight, everyone was amazed at how many seats the a380 could carry, what most forgot is that airlines make very little on economy seats. WOuld be interesting to see what Emirates does regarding their 10 year maintenance costs....

All good points....

Reading the latest on Boeing looking to extend the range of the 737 as SLF fills me with horror, I *hate* small narrow bodied stuff even for short haul, the idea of spending 8+ hours in one sounds truly horrific.

I'm no real fan of the 777, it's nothing like as nice from a passenger perspective as the A380, less room, more noise, etc etc. which when you're doing 20+ hours on one is important (LHR/SYD).

Not been on a A350 yet to compare... maybe that's as good?

was not blown away by the 787, it's OK, but it's no A380.

Wasn't Willie Walsh saying that IAG might be interested in additional second hand A380s if the price was right (or was he trying the beat the price down with Airbus)? Could be a home?

He might have said it for all sorts of reasons but doing so now would mean a major change of fleet plans.

Probably Edd China said Willie Walsh no means no, don't buy crap and ask him to sort it out.

In any case BA is rationalizing its network, I don't think WW will pickup any whales willy nilly.

One of the main (Airbus) argument to launch the A380 was that the increase in demand for travel, in an environment lacking airports expansions , and slots in those, would " naturally" favor VLAs . This has not come as fast as Airbus had forecast , but it will come , also in Singapore.
The other was not to leave Boeing alone in that market and possibly force them out of the VLA business. That they apparently succeeded .

As someone in Toulouse recently said : the fat lady as not stopped singing yet...

Despite the claims that the airports need expansion, it might be easier to take steps to maintain runway acceptance rates in IMC by for example using RNAV/RNP procedures to GBAS-GLS rather than ILS and to increase acceptance rates by really monitoring wake turbulence rather than using default worse case WTC separation minima.

Then the VLA aircraft must be economic making as much profit as the standard wide-bodies - they aren't and they don't. Relying on poor airport performance and low runway acceptance rates to force acceptance of uneconomic aircraft is not really the right way to go.

Sounds like a Pyrrhic victory to me....

As an aside, it looks like some German retail investors are getting burned by this SIA decision. Article unfortunately only in German, the gist of it is that some German investment funds bought into the SIA A380s and are now facing, ahem, problems... Link here: Dr. Peters: Singapur Airlines schockt Fondsanleger - manager magazin

A short history of Airbus and finances
 

Most do not realize the game that Airbus has played dating back to the 1990's here is a short version of $$$, sales, subsidy, and related

1) GATT 92 ( 1992) ( now known as WTO ) set up rules for subsidy of LCA ( large commercial aircraft ) - which was really undefined other than probably larger than a piper cub.

2) This allowed nations to give deserving aircraft companies preferential- low cost loans for R&D and intital production

3) $$$ involved were based on projected sales by certain dates, and forgiveness if those targets were not met.

4) While there have been changes and arguments re Boeing and Airbus over the year as to what counts as subsidy, and changes as to ground rules- the basics in 2) still apply

5) Now about the 380. Under 2) it NOW appears that the A380 will not meet the sales goals in the agreed on time frame. Thus a good part of the ' research and early production loans ' will probably never have to be paid back . Whether or not A freighter version would also follow under the initial ground rules for additional ' loans' is NOT obvious to most of the pundits. :ugh:

1. I have not seen any statistics, and i doubt we will ever read a trustworthy one, about the effective capacity increase of VLAs on the most frequently served airports. My own impression (esp. in DXB) is that it is not as spectacular as expected. Biggies seem to take more space and time from push-back to take-off and clog up operations on ground. More importantly the bigger separation between aircraft decreases runway frequencies. If there were only VLAs, it might work, but the mix with medium aircraft is particularly slowing down operations and single aisle aircraft are here to stay.

2. If the 380 was only meant to kill the 747, it has come with a futile cost, the 747 was just as doomed.

I am not working for Airbus and not trying to defend their position(s) just listening to them and working with them on some issues dating back from the A310 " Forward Facing "cockpit for those old enough to remember ...so I followed the discussions around the A380 since the beginning.( around 1990) Jean Roeder was the main spokesman at the time .
on the money :
France was pushing ( they always do) and "economic fallback " in the ( very) long them has always been their vision. Making money came second , at the time at least . Their argument was that the Caravelle and the Concorde never made money but they maintained top knowledge and engineering in Toulouse.

on the Boeing issue :
That was definitively a very strong motivator at the time :
1) for Airbus to be offering a complete range of aircraft ,i.e. to be at pair with Boeing .
2) to replace the 747 with modern technology at something like 15-20% lower operating costs (if my memory is correct, do not quote me on the percentage )

back to the thread : Singapore airlines was the launch customer for the A380, so they have the oldest air frames , replacing them by new ones can be seen as support for the aircraft too.

Well put, always another way to report the same story...

Out of interest, have Singapore airlines got any/many 10+ year old crates in their fleet?

Scuffers: According to this site : https://www.planespotters.net/airlin...e-Airlines?p=3
they apparently have a few 777 which are over 15 years old .

I find myself paying a couple $100 more for the 14hr ride in an A380 over a B777 because I can, and I'm not the only one as the plane is usually full.

There may be a lot of justified hate of the A380 for other reasons but the pax just love them.

I'm sure you are right but as the LoCos have shown sentiment doesn't enter into the equation.

Is there any airport including ATL,ORD and LHR which is not big enough to serve its local population? Answer is no.

Hubs are necessary but Super Hubs are self inflicted pain. Solution is not to force millions unnecessarily transit thru these Super Hubs.

From where I sit (business class on SQ) the A380 is the only way to go. And they charge (and get) a premium for it over the 777-300 on the same route. I think Airbus took the view that they had to compete with Boeing across the product range, and the A380 was both part of that strategy and a very long term punt. Unless the economics really suck, the A380 will ultimately come good. And the stretch version will be much prettier than the original.

I've read several times that the A380 is more expensive to operate than competitors. But I've never seen this demonstrated. So assuming you can fill it, and using someone like SQ or Emirates seat mix as an example, how does the revenue versus cost balance look for an A380 versus a 'new generation' 777 or an A350?

On Singapore's decision to let leased A380's go, why wouldn't they? As someone says above, they got a good deal, the early ones had problems, they can likely get shiny new ones with all the upgrades for a similar rate. Lease or buy? If the calculations are done based on based on zero residual value at the end of the 'term' and they can borrow for less than a leasing company / put up cash then ownership might make sense.

" Unless the economics really suck". Don't think they really suck, but perhaps not good enough verses the 777/A350 etc on many routes.

"the A380 will ultimately come good". How long are you going to give it - we're already 10 years down the road?

"stretch version". AFAIK I think that is still in reality a very much a "might happen, one day project".

I don't work for Airbus but from where I'm sitting right now (near Toulouse) I know a lot of the local subcontractors have already shifted their efforts largely away from the 380 and towards supporting the A350 and the 320 neo.

The 380 is far from dead but I'm not sure many see the production run picking up speed again in the forseeable future.