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May 24, 2024
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2014-07-29_9-36-41[UPDATE: Bloomberg News]

Today’s Skymark news about its cancelled order at first glance looks like very bad news for Airbus.  Clearly the cancellation is disruptive for Airbus, but they must have reached the end of their patience.  Skymark has made $255m in payments so far, but cannot secure the rest of the finance to pay for the aircraft on order.

So now what?  Actually the situation Airbus faces may not look as bad as it seems.  Firstly Airbus has known about the Skymark situation for some time.  Since Airbus terminated the deal, it would seem they have the upper hand. After all they say  “Airbus is reserving all its rights and remedies” and they have $255m banked.

Moreover, the Airbus sales team have no doubt already identified potential customers for two “bargain” A380s.  There are reports British Airways is extremely pleased with the aircraft and is seeing 98% load factors. They likely want to accelerate deliveries because the aircraft is a money maker (as Emirates has always said).  Conveniently the Skymark aircraft have Rolls-Royce engines.  Since the Skymark airplanes (there are two close to completion) do not have interiors yet, a switch to British Airways is plausible.

There is another potential customer in the wings – Turkish.  This airline is on a growth tear only eclipsed by the Gulf carriers.  It has been open about its interest in a VLA. Both Boeing and Airbus have courted the airline.  Would Turkish appreciate a “bargain”?  Not a tough question really, is it?  For Airbus it is a good thing the aircraft moves from a weak customer to a strong customer.  British Airways and Turkish are both better customers for their flagship.

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As unpleasant as the Skymark news is, these things happen. Customers change their minds (A350XWB at Emirates in 2014) and then may change them again (A350XWB at Emirates in 2015?).   The airline business is subject to shocks and an absence of finance is one of those shocks.  Skymark was a risky bet from the original order.  Indeed if banks won’t lend the money to Skymark it would seem the concern is with the airline, not the airplane.

The A380 program is not in some kind of new jeopardy.  As we noted in October 2013, Air France was having second thoughts about the last two A380s it had on order.  Here we are, nine months later, and Air France/KLM announced good second quarter profits.  Perhaps the airline now wants those A380s.  This is a business with big ups and downs.  Airlines historically have ordered airplanes when times are good, with deliveries often timed for the next down cycle.  With different economic cycles in Asia, Europe, and the Americas, and growth in the BRICs and emerging countries, the market has begun to change, and  aircraft deliveries must follow the new realities of the market.

8 thoughts on “A380 news

  1. The current market is still not conducive for mass A380 adoption and it shows with may airlines who can fill A380s reluctant to buy VLAs. They will all most likely stick with the 777-9 since you can still fill it up in a down cycle. The future of the A380 will be unlocked in another 10 years when the Chinese air carriers cement their international routes, especially to Europe and North America. Combined that with a A380 NEO that comes out in 2025 and the program might finally make a profit. Until then, it’s going to stutter along.

  2. AJ – you make an interesting point. We have come to the conclusion the A380 is ahead of its time. But, using game theory, Airbus was forced into this sooner because Boeing could disrupt the market with another 747 update. Even though the -600 wasn’t getting any attention, Boeing is a master at derivatives. To prevent Boeing continuing to gain super profits on the 747 program, Airbus had to play the hand it had. While the A380 sells much better than the 747-8, it struggles because many airlines fear its size. Yet Emirates swears by it, and has great results to show for it.

  3. If the airlines can fill it,it works. Too many variables, economy down turns, few routes being able to reassign to the A380 when one route drops load factors, many airports unable to accommodate it. I still fell the 748I will still sell a few more frames as Boeing seems to be pushing hard with sales campaigns and fine tuning with PIP’s.
    While other airlines apart from Emirates fly the A380, its only a fraction of what Emirates uses and it seems to work for their business model. Still no US carriers buying into it.

  4. I suspect B was playing the ‘slot availability’ card at Turkish as part of its 748 pitch. JL may have just negated any potential advantage B had. Well played, John. We’ll know for sure once Turkish announces their order and delivery dates.

  5. Excellent analysis Addison!

    IMJ, the A380-800 should be re-engined with the RR Advance engine and EIS in 2020/2021. Incidentally, that same engine could be put on a re-engined A350-900neo as well. In addition, Airbus could re-sculpture the fuselage frames between the main deck windows and floor in order to maintain passenger comfort at 11 abreast. IMJ, Airbus’ latest 11 abreast developments won’t be able to do that. Then, in 2030 the A388 could be replaced by a larger 80 m long A390-800, twin-engined derivative of the A380 having all new state-of-the-art wings with a wingspan of 95 m — including 2 x 7.5 folding wing tips — and 2 x 145,000 lbs of thrust engines, featuring contra rotating 140″ fans and a bypass ratio exceeding 12:1. Hence, IMO Airbus shouldn’t develop an A380-900 stretch, but wait for technologies that will make an A390X feasible.

  6. I really hope that Turkish airlines takes delivery of all 6 airframes as they are a really good airline to use them on their high density routes.

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