The case for the A380neo

Victoria
By Victoria July 22, 2014 09:41

The case for the A380neo

Calls are growing for an A380neo from a number of airlines, with of course Emirates guaranteeing an order for 60 units if the aircraft is launched, and as these calls grow it is important to remember the logic behind any move to re-engine this type.

It can truly be said that Airbus needs to do something, the A380-800 has suffered poor sales since inception; Airbus and others would dispute this, but you cannot escape the fact that all involved had hoped for at least 700-1,000 orders for the type after a decade of sales instead of the 325 orders from 20 customers of which some 135 have been delivered to 11 customers. The A380-800 program is at this moment in time a failure from the point of view of the Airbus board, who are charged with trying to run all aircraft programs into a profit; and partially from the customer point of view, who at this time do not see the global order base that would have made the aircraft a success in the secondary market. That said, customers have seen huge benefits from running the aircraft, enjoying a boost in passenger numbers wherever the aircraft is deployed, the A380-800 does indeed seem to fill itself – BA reports 98% load factors on its A380-800s, which is in line with Emirates and SIA.

But we have to remember that a good aircraft does not make a winning aircraft. For an aircraft to be a winner it must reach 700-1,000 firm orders. Many argue that the A330ceo was a poor aircraft, thrown together at the same time as the A340 with the same wing design that was just too heavy for a twin engine, and yet this aircraft sold in droves. The A330neo is not so much about extending the life of the A330, but is instead all about covering for the A350-800 failure and assisting customers caught in that firm order trap that need to be able to compete with the 787 that they maybe should have ordered. The A380-800 is much the same as the A350-800 and the A330neo, in that the A380-800 has no direct competitor from Boeing. The whole decision is based around the need to re-ignite sales without burning customers of the present A380-800.

In all this it is once again Rolls Royce that is in the driving seat: the company is pushing for exclusivity on any new A380, and to be factual, Engine Alliance does not seem too keen to push the boat out on a new engine in any case. But in the case of the A380, everyone is missing the opportunity not to simply re-engine and throw “neo” behind the 800 designation, but instead also introduce a stretched A380-900neo version while they are at it, using the new more powerful engines to finally extend the aircraft and introduce a family of two types where engines can be transferable between the two in the future. The cost-per-trip economics would be impressive and the cost per passenger economics would be the best of any aircraft in service, but other than to Emirates, would aircraft with such huge $300m+ price tags sell? That is the big question that Airbus is pondering given that the answer at present is, for the most part, a no.

It could be argued that aircraft must have the support of the lessors in order to do well in the 21st Century, and the A380 is a big-ticket risk. If Airbus can meet the needs of the lessors in any A380 update/stretch, then the question of whether it will sell is answered. However, lessors that we have spoken to on the matter over the past year, which is just about all of them, all agree that they are not keen to see any A380 type on their books no matter how wonderful it may be, until it has one sole engine offering that has maximum commonality between other engines on the market. Rolls Royce say that they have just such a new engine that can be installed onto the wings of any A380neo offering. Airbus states that it has no intention of re-engining the A380, but both you and I know that is what they said about the A330 not 14 months ago.

So far 2014 has been a seriously mixed bag for Airbus, with 225 aircraft orders cancelled so far already, making this a record year for cancellations before we got to the halfway mark. Some would argue that these mundane run-of-the-mill cancellations and replacements transferring to other types, or straight cancellations or deferrals, are all part of the everyday course of business when you have a backlog of over 5,000 aircraft, but at the same time, it could be argued that this very same process of increased order cancellations is indeed an indication that airlines have over-ordered? The logical answer would be yes, and therefore the follow-on question would be to discuss how much of the current order book with all the airframers is not required? The answer to this question remains to be seen, but we can state that over the past five years the order cancellation rate has increased by close to 120%, while at the same time new orders have completely outstripped cancellations – less of a bubble bursting, more a slight correction. Full-year figures for 2014 will give us a far better picture on this matter.

Victoria
By Victoria July 22, 2014 09:41
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