The surprise MOU announced at the Paris Air Show by specialty firm Doric Leasing for 20 Airbus A380s does little to build confidence in the aircraft’s long-term sales prospects.
Doric finances A380s for the airlines already operating them, such as Emirates and Singapore. There are several other special purpose companies that have also financed the behemoth, but no legacy operating lessor has ordered the airplane since International Lease Finance Corp. was a launch customer-and ILFC swapped these in favor of the more marketable A320 family.
The backlog, through June, of firm orders looks like this:
|Hong Kong Airways||10|
Source: Airbus, June 30, 2013
Virgin Atlantic continues to push out its A380 order, with entry-into-service now scheduled for 2018, and according to the Bloomberg article even this future date seems iffy.
Kingfisher’s order, of course, is as good as gone. So, probably, is the Hong Kong Airways order unless the Chinese government for some reason steps in and reassigns them to other carriers within China mainland. The government, as Readers will recall, previously curbed HKA’s growth.
One could argue about the quality of a couple of the other customers as well.
Airbus previously said it has open slots in 2015 and that it will reduce the production rate slightly. The Doric order helps, but hardly supports the business plan. Including this MOU, and the shaky orders above, Airbus has now sold 282 A380s since its launch in 2000.
Boeing, of course, has done far worse with the 747-8I. Just 40 orders have been placed, including VIPs, with a current backlog of 24. Boeing has a mere 12% of the Very Large Aircraft (Passenger) market.
We’ve previously written that launch of the Boeing 777-9X, nominally at 407 passengers (vs a nominal 467 for the 747-8I and 525 for the A380) will threaten the viability of both VLAs. The 9X should have the same seat-mile costs without the capacity risk.
This undoubtedly is why Airbus is now offering a coach configuration of 11 abreast vs the roomy 10 across. This adds about 40 more seats to the airplane, lowering seat mile costs in the process but squeezing passengers in the process.
The Airbus business case relies on the obvious fact that current airports basically can’t grow and new ones basically aren’t being built, therefore the VLA is the only way to grow traffic at highly constrained airports.
We believe there is merit in the argument, but continued fragmentation by smaller, very long range aircraft continue to nibble away at the VLAs.
Airbus’ only hope of selling 630-650 more A380s over 20 years (essentially its forecast of 50% of what we believe to be a highly inflated projection of 1,300 VLA-Ps) is to maintain its near-monopolistic market share of this sector. We see this lopsided share continuing. We don’t see the 747-8I increasing its market share; rather it will be squeezed between the 777-9X and the A380. Airlines tell us the 747-8I is too costly in the configuration they would prefer. We believe the 747-8I will remain a niche within a niche sector.
And we think Airbus will be hard-pressed to hit 630 sales by 2031. But neither do we expect Airbus to discontinue the airplane in the foreseeable future.
We think Airbus needs to develop an “A350-1100” to match the size of the forthcoming 777-9X, but our market intel tells us Airbus worries this would cannibalize A380 sales. But it would be the better bet.
Airbus also faces an aging A330 line that needs either replacing or an extreme makeover by 2022; and the prospect that Boeing will be coming forward next decade with replacements for the 757 and eventually the 737.
Some hard decisions need to be made by Airbus, particularly as Tom Enders drives the company to be more commercially-focused: prestige of having the world’s largest airplane, or a new strategy to fill product gaps and to meet, or beat, Boeing with new designs.
We think the answer should be obvious.