News Backgrounder
Market conditions test A380’s appeal to airlines
Just ten years after it first flew and less than eight years since it first entered service with Singapore Airlines, the A380 is about to make an unexpected early debut in the used aircraft market. The big question is: who will buy the plane second hand when Airbus is having trouble selling new A380s?
July 1st 2015
Christoph Mueller, the 52-year-old German who took over Malaysia Airlines (MAS) in May has not taken long to wield the knife. Along with massive staff cuts and route downsizing, he has decided to sell the entire MAS fleet of six A380s. Read More »
In one fell swoop, MAS is creating what until now had not existed - an aftermarket for used A380s - and it may only be the beginning of a trend. It is rumoured that another financially challenged airline, Thai Airways International (THAI), is considering reducing its six-strong A380 fleet.
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And there is a possibility that more A380s might come onto the market as big operators of the aircraft type, for example Emirates Airlines and Singapore Airlines, begin to turn over some of their older A380s.
The MAS decision came at a time when Airbus is finding it hard to sign up new customers for the plane in a market where most airlines are clearly focused on smaller wide-bodies such as the A350, the B787 and B777.
Complicating matters is the availability of newer A380s such as the six cancelled by Japan’s Skymark Airlines last year. Dublin-based lessor, Amedeo, which signed up for 20 A380s last year, has not found customers for any of the aircraft, although its chief executive, Mark Lapidus, believes there is a possibility of two customers signing on this year.
Industry analysts question whether there is a genuine market for used A380s at the present time, or even for most of the new A380s that have become available. Airbus begs to differ.
Asked if Emirates, the biggest A380 operator, could become a competitor when it starts unloading second hand A380s onto the market, Airbus’ ever bullish top salesman, chief operating officer customers, John Leahy, said he didn’t believe so.
“No, I don’t see Emirates as a competitor but these aircraft - used aircraft - I see as a big opportunity, if you take an airplane at its half-life point,” he told media at Airbus’ annual Innovation Days in Toulouse in May.
“Let’s say they are coming back with a value of around $100 million. So $100 million dollars, at the 1% rule a lessor uses, will pay you about $1 million a month. It works. It’s very serviceable.
“Passengers like it. Clean up the interior, repaint it. What’s a B777ER going for right now? It’s going for more than $1 million a month on lease, so we opening up a really unique opportunity here.”
Some operators who have never considered an A380 will look at its rental per month and see that a 777ER is more than an A380 and may decide there are some routes they should try out with the plane, Leahy suggested.
Aviation consultants, Leeham, said MAS will be an interesting hurdle for the superjumbo at a time of mixed fortunes for the aircraft. “The disposal of all six A380s presents an opportunity to test the market for used A380s and a key component to Airbus’ strategy for the aircraft going forward: to allow airlines to try out the airplane without having to spend the huge amount of money required to buy new.
“After experiencing the A380, the theory goes, other carriers will understand how this can spur sales,” Leeham said.
As for potential customers for used A380s, Leahy suggested some of Asia’s low-cost long-haul carriers are a possibility. “Today, some of those operators are doing long-haul with A330s and those markets are doubling,” he said.
“Those markets are getting beyond the six hour flight they were originally designed to fly and [these airlines] start to see interesting business models for flying longer haul A380 routes with a high density seating configuration at a very, very low cost, long-haul market.
“It is not just long haul. Even within the region, if you find you have the passenger demand to suit a high density A380, it actually delivers a very economic proposition, as Emirates has found, not just on ultra-long haul, but on six hours as well.”
MAS is understood to be open to outright sale or lease of its planes. It took delivery of its first A380 in 2012 when the list price was $389.9 million (although airlines pay far less than this price) and has been operating the planes from Kuala Lumpur to London and Paris. Each MAS A380 has eight first class suites, which MAS said at the time were the world’s widest first class beds, 66 lie-flat business class seats and 420 economy seats.
Regardless of the MAS decision, Leahy remained confident sales of new A380s, although there have been no new airline customrs for two years, will pick up soon. “We should have some orders for the A380 this year. There is demand out there for the A380. We have several campaigns underway,” he said.
Airbus has yet to make a decision on an upgraded re-engined NEO version of the aircraft. Emirates president, Sir Tim Clark, has declared an interest in 200 A380neos, but Airbus is reluctant to go ahead with the model for a single customer, no matter how important that client is.
“There’s a lot of demand out there for an airplane we haven’t yet launched,” said Leahy. “To begin, I’ve said publicly it is very hard to persuade our board to do something for one customer, even a big customer,” Leahy said.
“But the fact is that Tim has made it very clear he sees demand for 200, just from Emirates, for that plane. We are not in a position right now to make a statement on launching it.”
While there has been a great deal of criticism about Airbus’ failure to find new A380 customers, Leahy pointed out an A380 is now taking off or landing every three minutes, seven days a week. He said the air travel market is doubling every 15 years and airlines will need it. “It’s inevitable they’ll all be flying more A380s in the future,” he said.
At the Innovation Days, Airbus hinted at production increases in its popular A320 series and said market demand could justify a leap to “more than 60 aircraft” a month. Leahy said anticipated demand already exceeds the existing production goal of 50 aircraft a month by the first quarter of 2017. At the moment it is producing 42 of the single-aisle jets every month.
Fabrice Bregier, head of the plane making unit of Airbus Group, said there has been a debate between sales and production staff about an increase in the pace of production of the single-aisle A320, which is also in the midst of being upgraded.
Also set for a rise in output is Airbus’ newest aircraft, the wide-body A350. It entered service last December with Qatar Airways. Six months on, three have been delivered. Airbus is scheduled to deliver 15 A350s to customers before year end, with the overall production target for the aircraft set at 10 planes a month by 2018.
The Toulouse A350 final assembly line (FAL) is running at different speeds as it adjusts to building the new carbon-composite jet. Enough parts are entering the assembly line to make three aircraft a month, but deliveries are much slower.
The head of Airbus programmes, Didier Evrard, said the production cycle reflects the normal adaption process for a new aircraft, but also is a deliberate strategy to take the time needed to weed out risk. “We are running quite fast at the entrance to the FAL, but the production cycles inside the FAL are still quite slow,” he said.
“We are going to increase the speed and reduce the cycle. In this way, aircraft will be leaving the FAL at a rate which is closer and closer to the rate at which they enter,” he said.
