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March 3, 2024
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The Airbus A380 has been under a cloud for some time.  The aircraft has many detractors who took this to mean the end was nigh.   Indeed, it was only a few days ago that Airbus sales guru John Leahy remarked: “If we can’t work out a deal with Emirates, there is no choice but to shut down the programme”.  Hopes for a deal with China also seemed to be going nowhere.   The last A380 order came in 2015 with zero in 2016 and 2017 saw two cancelations.  There was evidence that the doomsayers had a point.

Then today, as if by magic, Emirates announced an order.  Watch this interesting video from Bloomberg for context.

A deal between Emirates and Airbus has been cooking in the background for some time.   Emirates’ earliest A380s are going to be retired and the airline’s  appetite for traffic requires an A380 to replace an A380.  Take a look at this Tweet from an EU-based aviation journalist with a picture today on the left and another from the recent Dubai air show on the right.

Airbus and Emirates were close enough at the Dubai air show that a deal was potentially coming.  There must have been sticking points that kept it from going forward.

There are few details on the deal, other than 20 firm plus 16 options, deliveries from 2020 and a list price of $16bn.  The 2020 timeframe gives an idea when the airline starts to retire older models and needs replacements.  The real price is probably closer to 60% less than $16Bn.  To be clear, the definition of what these aircraft are going to be is not set.  Seating, for example, may be quite different from what we see at the airline today.

Today’s order provides Airbus with a pipeline for production to remain in place.  Airbus is committed to keeping the A380 line going.  That works for Airbus because the hope is that by 2020 more airlines will turn to the A380 as a solution for airport congestion and slot constraints.  Airbus has been talking about this and megacities for a while.  Eventually, the scenario will come true because cities don’t want to or can’t grow their airports.  With each slot going up in value, we have to see fewer small jets at big airports and more VLAs.  That just seems inevitable.  Airbus bought some time, even if it comes at a steep price.

For Emirates, this gives them a solution to ensure their growth is supported.  This airline is, by an order of magnitude, the largest A380 operator.  It is more dependent on the A380 than Airbus is.  In the battle of wits between the airline and Airbus, it was a safe bet the airline would capitulate.  But we do not see this as a weak play by Emirates.  The details of the deal will emerge that will show just how much of a deal it managed to secure.  We would be surprised to see these new orders end up being the A380plus. The airline’s president, Sir Tim Clark, has been adamant that he wants an A380neo.  He offered (as the video reminds us) to buy 200 of these if he could get them.

Emirates needs to drive down fuel burn and operating costs on the A380 to ensure they can stay below the A350-1000 and 777-9 that their competitors will deploy while being able to carry over 550 passengers.  Four engines are going to burn more fuel than a twin.  But those four engines work less hard than the two engines on a twin.  Amedeo’s Mark Lapidus explained this before as a point that many miss.  The engine maintenance costs between a super twin and an A380 are similar.

Which brings us to the next phase of today’s deal.  No engine was selected.  That means Airbus and Emirates are going to pressure Rolls-Royce and Engine Alliance to ensure the A380plus is even better than it was projected to be when announced in Paris last year.  Engine Alliance told us they offered Emirates their engine at cost on the last go-round when Emirates came buying.  As the only user of its GP7200, Engine Alliance needs an order even more than Airbus.  But Emirates selected the Rolls-Royce engine for their last A380 order.  The deal offered by Rolls-Royce must have been below their cost.  Buying orders is nothing new in this industry.  The hope is to make up profits from spares.   In 2016 we reported on that deal with some questions about how it went down.

Both engine makers are now going to have to rework their current products to derive even more fuel savings than they envisaged at Paris.  And they have to do this within the next two years.  The GP7200 could see extensive use of GE’s additive manufacturing experience help improve fuel burn.   Rolls-Royce may have some IP from their Trent XWB to push into the Trent 900.  We think the pressure is now off Airbus and squarely on the engine OEMs.

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Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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