Odds and Ends: A380 cost, American’s engine order, ‘war on Boeing’

A380 cost: Flight Global reports that Air France–a launch customer of the Airbus A380–just concluded a lease deal for one of the giant airplanes for a rental of $1.8m per month.

For an airline of Air France’s credit, lease rates are typically on the 0.80% range and sometimes as low as 0.72%. This, then, infers a purchase price of $216m-$230.4m.

American Airlines: It was announced Monday AA split its engine order between CFM (for the Airbus A319) and IAE (for the A321). Given American’s large CFM-powered Boeing 737 fleet, some might think CFM should have won the entire engine deal. But the IAE V2500 is viewed as the better engine for the larger A321–more thrust and lower fuel burn–and American follows Lufthansa Airlines in splitting the engines for the smaller and larger Airbus family.

Aviation Week has an article that provides some other interesting information about the leases for the Airbuses.

Pratt & Whitney: Does the American deal mean PW has a good change of placing the GTF on the A320neo order by American? PW’s buyout of the Rolls-Royce share of IAE certainly gives PW the ability to do a “global” deal involving V2500 and GTF engines, something CFM has been able to do for CFM56 and LEAP engines from inception. While Rolls-Royce was involved in IAE, there was no incentive for RR to be flexible on V2500 sales that might lead to GTF transactions. Now PW can wheel and deal all it wants.

War on Boeing? Aviation Week has a speculative piece that US airlines have declared “war on Boeing.” This think-piece relates to the Air Transport Association suing the US Export-Import Bank over plans to finance 787s ordered by Air India, a financial and management basket-case.

While AvWeek raises some interesting points, we’re told this has more to do with a dispute between Delta Air Lines–instigator of the ATA action–and India. We think Boeing is merely getting mugged in the process and that this is not a “war on Boeing.”

Turboprops: Jets always draw the most attention but Aspire Aviation has a long piece about turboprops, specifically the Q400 vs the ATR series, that merits reading. Turboprops are slowly regaining favor in some quarters.

The Beauty of it: From Randy Tinseth’s blog, here is a photo that is just a beauty, from the Dubai Air Show:

36 Comments on “Odds and Ends: A380 cost, American’s engine order, ‘war on Boeing’

    • US and European airlines finally seem to be waking up to addressing the issue after 24 carriers, including Air France, EasyJet, Lufthansa, Virgin Atlantic, American Airlines, Delta Air Lines, United Airlines, JetBlue and Southwest Airlines, recently forged an alliance and called for a 20 percent cap on aircraft deliveries financed with ECA-backed loans, higher export credit premiums and fees to neutralise any interest rate advantage they yield, lower maximum loan-to-value ratios and restrictions on ECA-backed loans to airlines or lessors based in high-risk countries. Boeing for its part has gone on record as supporting the 20 percent cap as ‘reasonable.’

      http://www.worldfinance.com/news/special-reports/1728-export-credit-guarantees/

  1. $1.8 million for AF isn’t bad. IIRC, a couple of years ago, EK paid about $1.6 million/month for leasing their A380’s. IIRC also, it was $1.2 million for their B77L’s – but I’m not as sure as that as I am for their A380’s.

  2. I agree, the AF lease rate of the A-380 at $1.8M per month is a good deal for AF. Now the question is did Airbus build, sell. lease the airplane for less than it costs to build it?

    • The answer is known. It is ‘no, they didn’t’. A 380 production will turn into positive cashflow in either 2014 or 2015, according to Airbus. I forgot which of the two.

      • Andreas, So, it (the A-380 program) will begin making a profit in 3-4 years from now? I thought they spent about E12B to E20B Euros on the program.

  3. To the Reader in Arizona who purported to be “Frank Lorenzo,” really, you didn’t think we’d double check that?

    Also the political remarks you made have no place on this forum.

    Your Comment went to Trash.

    • I get tons of these on my blog, and it won’t get better until the 2012 elections are over. I wouldn’t bother to reply to this spam, I guess a lot of it is automated.

  4. KC135TopBoom :
    Andreas, So, it (the A-380 program) will begin making a profit in 3-4 years from now? I thought they spent about E12B to E20B Euros on the program.

    What is this question about, again? You can’t just possibly miss any occasion to perform your almost-daily Airbus bashing, can you? Do you have any tangible source/calculation to backup what you’re implying?

    • I like the range quoted, anywhere from 12 to 20 billion!! Why not make it even a bigger range?!

      • A billion here, a billion there, pretty soon you are talking about real money! The numbers I see bandied about are 12-15bn EUR. I would be surprised if it was at the lower end.

  5. KC135TopBoom :
    Andreas, So, it (the A-380 program) will begin making a profit in 3-4 years from now? I thought they spent about E12B to E20B Euros on the program.

    I suggest reading the Wikipedia pages on accounting, and reading what I actually wrote, which was a direct response to your question, which was not about the programme.

    No, the program as a whole may never make money. But every individual A380 delivered will start making a profit (i.e. bring in more money than it cost to build them, and I guess the overheads allocated to it) from 2014/15, according to Airbus. At present, every A380 delivered MAY still be adding to the hole the programme is in – or they may already reduce it, depending on how Airbus is accounting for the overheads. I haven’t seen any information that would allow me to judge this. My guess is however that the programme cost is accounted for as overheads, and I would expect that each A380 built now is covering a share, but not all of the overheads. In that case they would already reduce the hole, if at a much lower than needed rate.

    Boeing is in a similar situation for the 787. The key for both OEMs is to ratched up the production rate as quickly as they can, in order to spread the recurring overheads (provision of production facilities, marketing, management, etc.) as well as the sunk cost for development over as many frames as possible. Airbus is in a more difficult situation here, and will always be, because of the lower number of frames they will produce (max rate 4, compared to 10 planned on the 787), i.e. each one will have to take a higher overhead burden as a share of value of the frame in terms of the programme cost, unless we assume that Boeing spent more than twice on the 787 then what Airbus spent on the A380 (which I believe is not the case, the numbers bandied about indicate a 1:1.6 ratio). .

    • Would not the lower rate of production for the A380 not be partially offset by the lower number of aircraft that have a late delivery penalty included (190 vs 800)?

      Also, the possibilty that many of those 800 787s were sold at close to an (originally forecast) break even point, could have a larger and longer negative impact on the 787.

      Of course, without knowing what the A380s were sold for, it is hard to gauge the impact on Airbus. But 190 vs 800 is still a pretty large ratio.

      • I think the delivery penalties are over-rated in terms of their impact. Much of it will be applied as concession on new purchases in any case, I should think. I deliberately did not go into purrchase price. We know the siituation for the 787, but nnot for the A380. But I’m sure if you ordered 10 in 2002 you got a prettty sweet deal too.

        Bottomline is that Boeing eventually expects to build 2.5 units for Airbus 1, and it looks like they have a 1.6:1 programme cost disadvantage. That must put them into a better position, at least fundamentally

      • Lower number of planes is offset by bigger cashflow at delivery. 787 : $76m(+engines?) A380 @220..250m
        Compare on price per kilogramms or seats delivered?

        Boeings accounting has pushed out vast costs into the future.
        ( Remember : profitable from day one 😉

  6. I don’t think complexity in engineering is linear related to weight. 😉

    There is also higher cost to build to consider. And as I said, for the early A380s, I doubt that they realised those numbers. For example, I would doubt that indexation clauses would have been recognised by the airlines for the delayed frames, so if I were correct, Airbus would have to soak up the inflation cost.

    I also don’t intend to compare or say who did worse. Both OEMs are in a similar situation (that is the only point I tried to make), and for both of them the solution is the same – increase throughput rates in order to start filling in the hole, instead of continuing to add to it. That’s really all. Beyond that, we need much more knowledge than we have to be able to answer these questions.

    • OK,
      gains from scaling and losses from increased complexity seem to be balanced
      for a first order estimation.
      Cost per kg of target object is a valid metric in space related things.

      • You see, in an application where major cost overruns are caused by cable trees (Kabelbaeume), I somehow don’t think that kind of approximation holds. 🙂

  7. Did some research and found some interesting numbers:

    Note: I don’t know the number of frames on lease, but at least this will give some interesting insights:

    EK’s B77L (s) lease: $1,128,000/month for 10 years.
    SQ’s A380(s) lease: $1,713,418/month for 10 years + 2 year extension at same rate.
    TG dry lease of B77Ws from Jet Airways: $1million/month.

    Unfortunately I still can’t find EK’s A380 lease rates.

  8. Thanks for linking the Aspire article on turboprops. It is interesting to.
    Two remarks:
    1: Turboprops are hardly faster than jets on overall time, only on very short routes. But the time difference is usually quite low. When flown below 300nm it is hardly relevant. The ATR suffers more because it cruises at ~290kts TAS, ~50kts slower than the Q400 and ~100kts slower than jets.
    2: Comparing hourly maintenance cost for ATR and Q400 is slightly misleading, because the ATR flies slower. DOT Form 41 need to be taken with great care.

    But the article is good. In the 50-70 seat market the TPs can gain market share, especially because the current jets (esp E170) are often not optimized for <500nm routes.

    • But from a passenger perspective they are THE HORROR, to quote Col. Kurtz. My worst this year was one a Q(ha!)400 from DUS to STN on Air Berlin. The headache lasted all evening.

      • Andreas :
        You see, in an application where major cost overruns are caused by cable trees (Kabelbaeume), I somehow don’t think that kind of approximation holds.

        Hehe. that was extraordinarily peinlich.

        Still wondering how that happened. they new about the differences in Catia versions.
        A softwareframework for fixing that exact issue was in place. _Only that fix was a failure._
        Even sabotage would be a valid explanation here. ( though I think we could go with Napoleon here: don’t attribute to malice what can be sufficiently explained by incompetence.) Nonetheless there is a slight stink attached.

        I have yet to see a cost estimate with a clause and provisions
        for having the project go pear shaped. 😉

      • posting above should have gone elsewhere.

        My first and last ride in a turboprob was Hamburg .. Berlin on a BEA ?Viscount? I think 😉 ( Oil leaking from outboard engine )
        They are advertising noisecancellation for modern turboprops.
        Does that work ( on the inside ) in a satisfactory way?

        • The Q400 is pretty quiet and a lot more vibration-free than earlier Dash-Turbo props. But they still aren’t as good as a jet. But they are better than the DC-7B we rode in last May. Though the rhythmic vibration of those four big pistons made it easier to sleep than on a jet.

  9. andreas :
    Question then is, which batch did thhat plane belong to? When it was ordered and with how many other frames? I also have doubts that that is really what EK paid.

    Given EK was an early customer of the A380, and back in 2000, list prices for A380’s were about $240-$250 million, add launch customer prices of 45%-55% (like LH and the B748I) and its easy to see what EK paid for a number of its frames.

  10. Hi Andreas,

    Kabelbaeume in english is either wiring harnesses (North America) or wiring looms (UK).

    I personally believe the CATIA issue for the A380 was a bit of a red herring. It certainly could have been part of the problem but differences in CATIA versions should not lead to double or triple geometry in the same location or wiring bundles (harnesses) being too short. That is definition and configuration control, amongst other things.

    • I agree. CATIA was probaably just a convenient scapegoat for a management clusterscrew.

  11. Just read this in our local newspaper :
    Airbus added ~4000 to the workforce this year
    and targets another 8000 for 2012.
    No info on jobtype or regional distribution.

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