Sept. 19, 2016, © Leeham Co. The real (very boring) headline should be: “Aircraft lease reaches end.”
This was the wry comment by Alasdair Whyte of Aircraft Investor last week, reporting on media coverage of Singapore Airlines’ decision to return its first Airbus A380 at the end of its lease term.
The “oh-woe-is-me” series of media stories ignored that Singapore routinely flips its fleet about every 10-12 years. SQ also has five A380s on order that, wonder of wonders, arrive as the earliest models become of age.
It is particularly distressing that one trade publication that should know better jumped on the woe-is-me bandwagon.
The media reports raised questions about the secondary market demand, as well as the primary market demand, for the A380. These are good questions, but they aren’t new and the context in which these were raised is one lacking true nexus.
Airbus hopes used A380s coming to market present an opportunity to create a secondary market than proves the value of the giant airplane to skeptical airlines unwilling to buy new but which might be willing to bring on an A380 at a cheap lease rate.
Airbus has been public about this.
Airbus announced at the Farnborough Air Show it will take production down to 12/yr in 2018. This is public.
British Airways indicated it might be interested in some used A380s, but—at least for now—says it’s not interested in more new ones. This is public.
Malaysia Airlines is publicly trying to find homes for its virtually new A380s (six of them), as it restructures following the MH370 and MH17 disasters.
Lessors to Singapore and Emirates Airline are looking into transition costs, including interior reconfiguration and new liveries. This, too, is public.
Yet media—including that trade magazine—went into hand-wringing mode over Singapore’s announcement that it’s going to return the first A380 that will hit the secondary market.
As Alasdair Whyte wrote, The real (very boring) headline should be: “Aircraft lease reaches end.”
So what is the demand for the A380?
Aside from currently dismal, this remains a matter of debate.
Airbus, in its 2016 Global Market Forecast (GMF), forecasts a 20-year demand of 1,480 VLAs, including freighters (which make up a small portion of this).
This figure hasn’t varied all that much since Airbus launched the A380 in 2000. The number went from a high of 1,700+ to a low of 1,200+.
The data’s relative consistency is controversial. In some quarters, it’s even subject of derision.
Boeing’s Current Market Outlook pegs the number at a mere 540, including about 300 freighters. Even the dearth of demand for the 747-8I and -8F, even these figures seem generous.
Japan Aircraft Development Corp. (JADC) puts the figure at 668 in its 2015 forecast, issued in March. (JADC is on a fiscal year.) JADC is partly owned by Mitsubishi, which is a supplier to Boeing and which is developing the MRJ regional jet.
Airbus and Boeing define the VLA sector as 400 seats and more. This definition should put the 777-9, at 407 in three classes, into VLA. Boeing, however, keeps this in the large, medium wide-body sector.
“One of the challenges is no matter how we define airplane categories, some will cross into others over time,” Boeing wrote LNC in an email. “We’re really looking at it from the addressable demand.
“Even though 777-9 is about 400 seats, we included it in the medium wide-body category because it will address the market slightly above it, as well as the market below it.”
The prospective development of the 777-10, at about 450 seats as currently envisioned, puts it squarely in the VLA sector. The 777-10 clearly kills the 747-8I and clearly threatens the A380.
Airbus figured it would capture about half the VLA Passenger market, or 600-650 sales. (In fact, it’s capturing 90% or more.)
A lawsuit filed in 2010 by Rolls-Royce against Pratt & Whitney over patent infringement shed some light on Airbus’ expectations. RR is one of two engine suppliers for the A380. PW, in a joint venture with GE Aviation, is the other. RR revealed in the lawsuit that Airbus expected to sell 650 A380s over the life of the program (as opposed to 20 years).
So far, sales are a little more than 300, 16 years after launch.
An A380neo, if it proceeds (a highly doubtful prospect at the moment), will give new life to the huge jet. Boeing finally admitted, in its second quarter 10Q financial filings with the Securities and Exchange Commission, that terminating the 747-8 program is a reasonable possibility.
Doing so—something LNC believed has been in the cards for years—means Airbus would have a monopoly on the old competitive level, between the A380 and the 747. But if Boeing proceeds with the 777-10, life for the A380, whether ceo or neo, will become markedly more difficult.