AT LAST! The A350 flies.

Victoria
By Victoria June 14, 2013 13:08

AT LAST! The A350 flies.

I have stayed away from this story this week for the sheer fact that the A350 has taken so very long to get to this point that I thought that something would crop-up and the aircraft would not fly this morning, but it has indeed flown for the first time today. I have been scathing of the A350 program over the best part of the past decade but today is the time to give Airbus the thumbs-up and here is hoping that the aircraft’s progress is swift and smooth from this point on, we are watching.

Yesterday I ran a piece on four engine aircraft, which was based in part on an article on the subject carried in the latest issue of Airline Economics. As suspected I was bombarded with emails from investors in and operators of the 747-400/8 and A380. I was surprised that most of the comments were in total agreement, however. Some of the notes, particularly from highly experienced investors, are well worth an airing here. They point out the flipside to the argument that large two engine aircraft such as the 777 and A330 do indeed have their own shortcomings. One highly-respected player was spot on when he pointed out that very few people in the market are willing to address the running costs of the twin engine giants when comparing the types to the four engine offerings.

“Have you seen [the] invoices for the refurbishment of one of these large engines on the twins? RR, GE or PW, it makes no difference which. These invoices can run to $7m or $8m per engine per shop visit!” Now fact is that all of the top-tier carriers that have ordered these aircraft are protected from these high costs through their power by the hour arrangements with the engine OEMs – But what of the secondary market? Where will the second or third tier carrier that currently flies a B767-300ER or A330 find $7m for one single engine overhaul? By comparison the current average invoicing for a B747-400 engine is probably around $3.5m or maybe $4m.

Also it is well worth noting that the current operators of the large twin-engine aircraft are flying on long routes, and as such, have no exposure to the life limited parts (LLPs) running out of cycles. What happens when some of these aircraft come out of a carrier that has been flying shorter routes? Someone somewhere is most certainly going to be exposed to a shop visit where the LLPs have to be replaced and will cop an invoice for between $10m to $12m. It is fair to state that large twin-engine aircraft economics are dependent on power-by-the-hour agreements that keep their maintenance costs low.

Large twin-engine aircraft investors are at this time kicking the can down the road – So I ask you – is it not the case that an A380 or 747-8 has better secondary market economics than an A330, 767 or dare I say it a 777?

I leave you with a quote from one respondent – “someday, the airlines may be longing for those four engine planes”.

Look out for the July/August issue of Airline Economics to be published in four weeks where I anticipate this subject being the cover story as a follow-on to the Paris Air Show issue. If our assumption that Paris is all about four engines is correct, this should be a big feature.

Also remember that Virgin A340 that Airbus took-back last year – looks like Airbus is negotiating to sell the plane to a Maltese leasing company for less than $20 million. Well done to that lessor on a good deal – No prizes for guessing who they are though. Maybe we should take bets on how long it will take for Airbus or Boeing to take the A340s off of the hands of Qatar Airways as part of an aircraft deal again.

There is no value in the aircraft if it has RR engines on wing – on older aircraft the value is the engine and if that engine has no market then that aircraft has little value. I argue that the A340 situation is in part at least a taster of what is to come with the engine OEMs totally controlling the aftermarket.

In any event I foresee that Airbus is out on a limb with the A340 on the asset value guarantee front. European banks, more than most, have been badly burned on the A340 and they are pressing Airbus to compensate them for losses on A340 deals or do more to find homes for the types. The banks have a point. As we printed last year, Airbus has a conflict of interest on this one having been manufacturer, financier and remarketer on the A340 – remember though that Boeing has been one of the largest traders in the type.

We have done the A340 saga to death over the past three years but if anything changes we will be sure to put it in Airline Economics for you.

Best regards and safe travels for Paris if you are heading there this weekend.

Victoria
By Victoria June 14, 2013 13:08
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