A380 orders boost backlog but future risk remains

The order by Emirates Airlines for 50 more Airbus A380s had been hinted at for some time, and it is certainly welcome for the backlog. This deal, coupled with the MOU announced at the Paris Air Show for 20 from lessor Doric, expected to be firmed up by year end, adds 70 orders to the long-stalled total count, which was 259 prior to either deal (net of three cancellations from Lufthansa Airlines). This now brings Airbus to 329 orders.

It’s still well short of the 650 orders Airbus expects to snare over the next 20 years from its September 20-year forecast. These expectations are on top of the existing order stream, and a figure that hasn’t changed much since its first Very Large Aircraft forecast in 2000.

(The current forecast is for about 1,300 VLA passenger models; Airbus expects to receive 50% of the market. This is before the 777-9X, barely qualifying as a VLA at a nominal 407 passengers, entered the picture. Up to now, Airbus has been capturing nearly 90% of the VLAP market against Boeing’s 747-8I.)

AIN Online beat us to our plan to assess the future risks for the A380, particularly as it heads into the secondary market, with this analysis. We agree with the broad conclusion that there will be little secondary market opportunity for the airplane beginning in 2020 when the first of Emirates Airlines’ behemoths start coming off lease.

One lessor, who is not an A380 owner, says it will cost about $20m to reconfigure an A380 in a typical three-class layout with the usual bells and whistles. Doric Lease, in an interview with Bloomberg, says Airbus needs to standardize configuration to make re-leasing the giant plane easier.

23 Comments on “A380 orders boost backlog but future risk remains

  1. How does the $20m reconfiguring cost compare with the median cost of taking on a 2nd hand 777-300(ER) Scott? Or with the historical cost of taking on a 2nd hand 747?

    On A380 future prospects, would a combi A380 be possible and make sense? To give a PAX stepping stone between 777X and A380, plus addressing the A380s cargo capacity weakness.

  2. Hm. Almost feels like a repeat of what happened when the A350 XWB was announced. The bar was constantly raised. So now we have had, in quick succession, “no new customers in years”, “new customer, but we raise doubt about that customer”, “new customer still hasn’t booked the order, it’s over 12 months since the last order, and Airbus might have to cut production in 2015 from 30 to 25”, “okay, 50 new orders, but from the same mega-customer, still short of 650 orders, and what about the secondary market, anyway”.
    Predictably enough, Richard Aboulafia, who was the man who constantly raised the bar on the A350 XWB at the 2006 Paris Air Show, also features in the AIN article, now casting doubt about the A380. I’m sorry, given his track record over the years, I have a hard time taking him seriously any more.
    In this article, for instance, he comes up with the gem of “There is no secondary market [for the A380]”, which is genius, because it’s true… as there are no second hand A380s out there, and there are not going to be any for roughly another 6 to 7 years at least. As to why there wouldn’t be a secondary market then (which is possible, of course), he doesn’t even bother to explain.
    He then goes on to claim that it’s unlikely EK will have a fleet of 90 A380s at a given time, contrary to what EK themselves had stated – a prediction on Aboulafia’s part proven all the more wrong with EK’s latest order, which brings EK’s A380 deliveries before 2020 (i.e. before they are going to retire even their first few) to over 100.
    You could probably go on an dissect more of Aboulafia’s claims and comments in this manner, but why bother? Point is that he already seems to know the outcome before he even begins his analysis of a given Airbus product. He constantly throws statements out there that are later disproven (or proven irrelevant), and he then just goes on and comes up with the next factoid/claim that shows how the A3** is going to be a failure.

    Of course it’s going to be more difficult to market an A380 to a secondary owner than it is to market an A330 or 773. But there are fewer of them, anyway.
    A few points from my perspective on A380 secondary market prospects and the FUD being spread about these at the moment.
    a) We’re still on the verge of coming out of a global depression. Market conditions in 2020 are not going to be what they are today.
    b) There isn’t going to be a batch of 12-year old A380s becoming available any time soon. Initial deliveries were slow, so between 2020 and 21, there will be only 7 total EK A380s going back to their lessors.
    c) To avoid any surprises – yes, there are going to be a few A380s that will go straight to scrapping as they come off their first lease, i.e. at only 13 to 16 years old. We already see the same thing happening with A320s, 737s and even 777s these days – take 777-200ER line number 28518, straight back to ILFC after its first lease to Singapore Airlines, and then scrapped when it was less than 13 years old, line number 27109 when it was just over 10 years old… So please, everybody, don’t act surprised and don’t see it as a(nother) sign that the A380 is doomed when the first A380 that’s less than 15 years old does get scrapped. It happens.
    d) I’d be curious to know how the quoted lessor arrives at the $20m reconfiguration number, given that no A380 has ever been reconfigured from one airline’s config to another’s, and furthermore considering the quoted lessor doesn’t own A380s.

    • There will also be the 5 Singapore AC delivered between 2007-08 and leased by Doric. Were those 12 year leases?

  3. I think secondary users of large planes are often freight operators. Maybe couriers like Fedex and UPS would be interested in cheap passenger aircraft conversions? They almost bought the freighter version new.

  4. Just think about it. Emirates bought the 777x to replace its existing 777s, almost like for like, while it bought another 50 A380s for no other reason than to grow.
    Emirates is telling the world that their goal is to turn every destination into an A380 destination at some point.

    • That’s indeed an astute observation. 🙂

      Also, the continuation of their growth would in that sense mean that 100+ A380-800s would be replaced down the road by larger A380-900X/-1000X VLAs, and likewise, 100+ 777Ws/777-9s would be replaced by a larger aircraft like, for example, a twin engine version of the A388-800, etc.

      • OV-099, I think you can put the idea of a twin engine a/c in the A380 size (or thereabouts) to rest for a while. The thrust reserve for a twin pushes the engine T/O thrust upwards of 210 klbf (3*70 klbf), and the step from the current breed at 115 klbf to those levels is too big to do in one step.

        Problem is, there is no need for an engine at an intermediate thrust (160 klbf), so the step will remain large for time to come.

        Engine design is evolutionary nowadays, the big tech leaps in architecture already being taken, so big steps will not happen unless there is a disruption of some kind (and quads work fine enough to prevent that). Open rotors is such a disruption (possibly).

      • Would a double decker of 380 – 480 seating arrangement work instead of doing a twin A388? This might be an interesting project for Airbus to consider sometime in 2025.

      • mneja, you seem to be assuming that an A380-derived twin would have about the same empty weight as that of the A388. I’m assuming that such an aircraft would be much lighter.

        First, check out this link (pages 22 and 239:

        http://www.akl.tu-darmstadt.de/media/arbeitskreis_luftverkehr/downloads_6/kolloquien/13kolloquium/05druckvorlage_morales.pdf

        As you can see, both the wings and centre fuselage section are very heavy. The wings weigh 45 tonne each while the centre fuselage section weighs 44 tonnes. In contrast, the forward and rear fuselage weigh 24.5 tonnes and 24 tonnes respectively. In fact, the A388 is really the “A318-version” of the A380. This is an aircraft that can be stretched to an overall a length of 100m. The centre section, wings and main landing gear (MLG) are sized for a MTOW of over 650 tonnes in order to accommodate future versions, albeit with some strengthening required.

        What I’m talking about is a twin-engined version of the A380 using the same basic fuselage, but having a much lighter centre fuselage section in addition to being outfitted with an entirely new composite wing that would be smaller and much lighter. Let’s call it the A370-800X.

        The A388 wing has a wing are of 845m2. The A350-1000 wing will have a wing area of some 460m2. An A370-800X could, for example, have a wing with an area of around 610m2 – 620m2, and a wing span of about 78m. It should have an aspect ratio about the same as that of the wing on the 777X.

        How much then would such a wing weigh compared to the metallic one on the A380? I’d guess around 30 tonnes. So, that’s a 30 tonne weight saving right there. Now, add a much lighter center fuselage section, MLG, and twin-engine operations with engines that would be 15 percent more efficient than the current ones on the A388, and you could have an A380 derived twin that could have an OEW around 210 metric tonnes. MTOW would be around 420 metric tonnes instead of the current 560+ metric tonnes MTOWs.

        So, what would be maximum take-off thrust rating for an A370-800X that would have about the same wing aspect ratio as that of the 777-9X?

        Keep in mind that the the 233 metric tonne MTOW version of the A332 has a maximum take-off thrust rating of 72,000 lbs. The 777-9X will have a MTOW of around 350 metric tonnes. Both aircraft have similar wing aspect ratios. Interestingly, the 777-9X will have about a 50 percent higher MTOW and about a 50 percent higher maximum take-off thrust rating. Extrapolating on these data will in a first order approximation indicate that the A370-800X would have maximum take-off thrust rating of between 125,000 lbs and 130,000 lbs of thrust, and not 210,000 lbs of thrust as you were indicating. In fact, 210,000 lbs of thrust is twice that of the 777X. Hence, that take-off thrust rating should be able to power a twin-engined aircraft having a MTOW of around 700 metric tonnes (i.e. 25 percent higher MTOW than the 560 metric tonnes A388 version).

    • If we’re talking about Longer Ranged 777s (200LR/300ER) its still 150 777Xs to 130 300ER+200LRs. Obviously the fact that Emirates Chairman has already said that at least some of these 50 will be for replacing current 380s also doesn’t get factored in. But, astute observation, otherwise. 😀

  5. There really is no future risk for the A380 Program. According to Airbus, the risk has been eaten and written off. In 2015, Airbus will break even on a unit basis. I calculate at about 540 Aircraft produced Airbus will have covered the production costs of the program. However, the prospect of building enough planes to cover development costs seems incredibly remote.

    The main goal of Airbus is to make the a380 profitable on a unit basis in 2015. After that, it is all gravy: a hard-won gravy Airbus has already paid for.

    • What about the $4 billion+ RLI Airbus owes soon? Or is that simply “forgiven”?

      • Airbus eats the $4 Billion.

        Point is this: the blood-letting for this program will be over. Actually, the peak blood-letting of this program is well past and Airbus shouldn’t be losing too terribly much right now.

  6. The problematic aftermarket of the A380 is a problem for the owners, companies like Doric. As these have fully “sold” the aircraft to investors, these bear the cost. In 2020 a 2007 A380 will probably face competition of an updated A380. If the A380 does not sell in large numbers and Airbus can fulfill all possible demand right off the line, the business case for a used A380 might become bad. However, getting a 500-600 Pax passenger aircraft for 40Mill + refurbishment still offers an opportunity.
    With increasing fuel prices, pretty low interest rates and ever improving technology the life time of aircraft have decreased. Many B747-400 will not celebrate their 20th year of service but walk directly to the scrapyard. Again, for the OEM no problem.

    If used airlines have much lower prices after their initial lease period, then the investors will demand higher leasing rates, and it will backfire on the airlines.

    An A380 P2F appears rather unlikely to me.

    • “The problematic aftermarket of the A380 is a problem for the owners, companies like Doric. As these have fully “sold” the aircraft to investors, these bear the cost.”

      Not entirely, this is how it works:

      “Dr. Peter Hein, Doric’s managing director, admits the lessor’s A380 program faces “hard questions,” but expresses satisfaction with the aircraft to date. “With respect to our Airbus A380s under management, we only have excellent experience,” he said, before explaining the mechanics of his business.

      “Over the 12-year lease, the debt is fully amortized and the investor(s) [get] more than 100 percent of the equity investment in distributions. The relevant amounts to pay debt service plus distributions result from the contractual monthly lease rents. At Year 12, investors have a positive return already, plus an unencumbered plane with four engines.

      “Investors do not assume that the plane including the four engines will be scrapped, but will create further income. [This] can result from re-leasing to the existing lessees for a couple of years; shorter term leases to other parties; sale of the plane; [or] scrapping. We also act as remarketing agent for third parties and have some recent experience there.”

  7. Pingback: Odds and Ends: 777X site; A380 reconfiguration; 777 flashback; PNAA’s 13th annual conference; A350; MC-21 | Leeham News and Comment

  8. anfromme correct. Even Reuters went with headlines of difficulties and challenges at Airbus. Less then a week ago. Who is this Reuters analyst telling the world the A380 is not that much bigger then the A350 / Dreamliner. Is he blind(ed)?

    http://www.reuters.com/video/2013/11/14/a380-orders-fail-to-take-off-for-airbus?videoId=274529587

    It a strange observation, the A320 “won”, the A330 is produced at record numbers, unexpected, the A350 is going unexpectedly smooth, winning key customers, the A380 keeps unexpectedly performing and selling. The backlog is at an all time record. Every target is beaten. It doesn’t get better much then this.. Still the US main press seems to feel it is a duty to see trouble at Airbus. It’s almost a fixed format.. Amazing.

  9. “It’s still well short of the 650 orders Airbus expects to snare over the next 20 years from its September 20-year forecast. These expectations are on top of the existing order stream,”

    Scott, the GMF speaks of deliveries, thus the 650 in 20 years are the ones to be delivered from now on including the ~140 already ordered and not yet delivered (not on top of current stream). Thus, with the 20 (if firmed up) + 50, Airbus would have 210 of those 650 in the basket.

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