EXCLUSIVE: A340 briefing report

Victoria
By Victoria December 4, 2013 17:26

EXCLUSIVE: A340 briefing report

The main message from the stage of the A340 briefing day being held today in London, jointly hosted by Airline Economics, Airbus, Rolls Royce and CFMi, is that the A340 is a great aircraft that has a great future but only if the OEMs, lessors, banks and financiers work with the operators and appraisers to eliminate the market perception that this aircraft is no longer an economic solution for operators. The reality is that the low capital cost of the aircraft type. Rolls-Royce’s commitment to lower maintenance costs to equal a big twin “four for the price of two” also plays a part in strengthening the aircraft’s economics (see below for more details on this).

John Leahy, chief operating office, customers for Airbus, opened the event with a detailed history of the A340 family and sought to dispel a few of the untruths and misperceptions about the aircraft type. Chief among these are perceived fuel burn and engine maintenance costs. Leahy noted that compared to a 777-200ER, the A340-300 burns 5% less fuel, with a few less seats this means it has equal fuel burn per seat. Moreover, the maintenance cost on four engines is less than the maintenance cost on two engines for the 777. Although Leahy admits that the A340-600 burns more fuel than the GE90 for example but it is lower in terms of fuel burn than the 747-400, which in the marketplace is a used aircraft alternative that an airline may consider alongside the A340-600. However Leahy also notes that the engine maintenance costs are the same thanks to the four for two price promise (see below) and the airframe maintenance costs are also equal.

To sum up, Leahy notes that the A340 aircraft type provides cost-efficient capacity and is available short-term as a replacement of other aging aircraft as well as providing interim lift before the A350 XWB becomes available. The type is also ideal for charter/niche operators with high capacity requirements – particularly with the extension of seats to 475 – as well as long-haul start-ups, VIP and governments via to corporate jet offered by Airbus.

Andreas Hermann, VP A340 Asset Management, Airbus, presented a deep-dive look at the economics of the A340-500 and -600 with compelling hard facts that compared the economics of the aircraft types to models such as the 777-200LR, 777-300ER and the 747-400. The A340 is currently awaiting approval for configuration with 475 seats, all economy class, but with such a configuration this 8% increase in capacity translates to a potential $5.5 million in extra revenue per year.

When compared to a 747-400 taking into account fuel, maintenance costs, landing fees, passenger and cargo revenue, benefits of commonality and ownership costs, the A340-600 presents a $557,000 per month boost to profits. With the same parameters, Herman, stated that the A340-600 compared to the 777-300ER represents a $433, 000 per month boost to profits. Similarly, the A340-500 has a $216,000 per month profitability boost compared to the 777-200LR. The A340-600 also carries a similar passenger and cargo payload as the 747-400. (More detail on these figures will be contained in the forthcoming issue of Airline Economics).

Later in the session, Dominic Horwood, CCO of Rolls-Royce, confirmed to the audience the engine manufacturer’s determination to support the A340 and the Trent 500 engine type will involve more dialogue with operators to understand their requirements, committing to “think creatively” to find solutions, while also committing to “digging deep” commercially on lowering engine maintenance costs with their 4 for 2 promise. “We want to see this airplane enable more operators to fly long-haul… We want to keep looking after these engines…I accept fully that some of you may feel that we have been inflexible with our service solutions… We understand that we have to adapt,” said Horwood.

As well as the 4 for 2 price promise, Horwood announced today that in an attempt to become more flexible with its service solutions for Trent 500 engines as the A340 reaches a level of maturity that involves the aircraft being transitioned from first operator airlines to second and third tier operators, Rolls-Royce is committing to a variety of new approaches under TotalCare to provide more adaptable and flexible solutions for these sorts of operators. Rolls-Royce also announced that it is forming a partnership with Lufthansa Technik to work with them on how to put some of those services into place. As clarified later on by Horwood during the session, this will not involve Lufthansa Technik carrying out any overhaul services for Trent 500 engines – this will remain with Rolls-Royce and N3 the MRO shop, however Lufthansa Technik’s knowledge of working on more mature engine types combined with Rolls-Royce unique OEM expertise will enable it to ensure its new more flexible service solutions work for operators, with a particular early focus on the Trent 500.

Going into greater detail, Peter Johnston, Head of Customer Marketing, and James Barry, VP Customer Strategy & Marketing at Rolls-Royce, set out at a high level what these new options are. They include continuing with traditional TotalCare under a new agreement with the new operator, which RR’s recognises may not be the most suitable option for the secondary market, which is why the engine manufacturer is adapting its TotalCare portfolio. In addition Fixed Price overhauls and time and materials support will continue to be available through Rolls-Royce, its network partners such as N3 or other third parties acknowledging the latter may be less likely in the smaller Trent 500 market.

“We recognise that investors may be nervous of investing in the product and not being able to extract their money at the end of that investment,” said Barry. “We are working on being more flexible with TotalCare so we can flex things like time-on-wing. We can also provide leased engines and a spare engine service…We are starting to work on how we can squeeze costs out of the product, be it through alternative EMPs or the use of increased serviceable used material, or through asset exchange. We are extremely open minded and actively working on these things today.”

Parts of the audience were sceptical about the new developments however Rolls-Royce reiterated its determination and dedication to developing new services, recognising that if the product has no secondary market, they too stand to lose business.

One thing that must be observed is that unlike some manufacturers, Airbus along with the engine OEMs are taking a serious approach to assisting the market on the a340 family and ensuring that the aircraft type has a bright future as 747-400s leave the skies. As mentioned, if the economics were that poor Lufthansa along with Etihad and other would not be running the type on so many routes. Once again, we remind you that NAS and HiFly have made the A340 work for them – others can do the same if they look at the data, which Airbus is willing to provide to assist the A340 as it is remarketed.
Look the next issue of Airline Economics for a full report of this very important A340 briefing day that looks set to be part of a longer process in the future of this aircraft family.

Victoria
By Victoria December 4, 2013 17:26
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