The fact that the Very Large Aircraft segment has slow demand is not in doubt. Sales have been at lower levels than either Airbus or Boeing predicted. Today, they are nowhere near the number that Airbus predicted, and even lower than the number Boeing predicted, which is about half of Airbus forecast.
Last week the future of the A380 was highlighted when Airbus’ CFO, Harald Wilhelm, stated that he thought Airbus might have to discontinue the A380 program in 2018. While his was one voice at the annual investor day, other voices were much more supportive of A380. Obviously John Leahy, Airbus COO Customers, does not share Mr. Wilhelm’s views. However the media jumped on his words because they were the most headline worthy. That was all it took for shares in Airbus to take a dive.
Mr. Harald’s words to delegates were that Airbus would break even on the A380 through 2018 “if we would do something on the product, or even if we would discontinue the product”. So his words were perhaps liberally misinterpreted. With a poor earnings forecast, Airbus stock price has taken a tumble, with the A380 comments contributing to the negative momentum. As we can see this afternoon, the share price continues to look soft.
The day after Mr. Wilhelm’s remark, Airbus CEO Fabrice Bregier tried to play down the negative interpretation: “We will one day launch a 380neo, we will one day launch a stretch. This is so obvious there is extra potential. We will get more customers.” There is little doubt Mr Bregier’s hand was forced. This situation is not too different from when Boeing realized they had all but lost the American Airlines order for single aisle planes, and overnight decided to offer the 737MAX. These things happen.
Even as Airbus tries to clear up the communications mess, the issue has highlighted the one crucial issue regarding the future of the A380. Airbus does not have full control of the program. While it might have the ability to curtail it, the costs would be too high in terms of other business, and it wouldn’t make sense until all orders are delivered. The largest A380 customer is Emirates and the airline’s CEO reacted with predictable agitation to the news of the possibility of the A380 program being discontinued.
Mr. Clark is quoted as saying: “The A380 is a passenger magnet. We operate five a day from Dubai to London Heathrow and they are 95% full. Airlines are too conservative and have not put the right interiors into their A380s. Some of the interiors are a disgrace and used 1970s thinking. We put all our premium seats on the upper deck and economy on the main deck, but others have mixed them which is inefficient. Our competitors laughed at us when we put showers and a lounge in the A380. But passengers love the showers and the lounge. The A380 is a great aircraft. If airlines don’t believe they can fill an A380 then their business model is wrong. Their marketing is all wrong.”
This is not a voice in the wilderness. Emirates operates 55 A380s now and has another 85 more on order. It would not be an over statement to say Emirates growth depends on the A380. Take a look at the company’s results – this is not a customer to trifle with.
Recall that earlier this year Emirates cancelled an order for 70 A350s. That order was announced on the Airbus Innovation Days, with industry media in attendance. It was a most unpleasant experience for Airbus. Emirates is about to reconsider the A350 in 2015. Airbus would in no way deliberately offend Emirates.
Mr. Bregier’s talk of the A380neo should not be seen purely as an overnight damage control exercise. Airbus has been working on the A380neo idea for some time. Note that in the linked story, Emirates states that it is ready to order 70 more A380s if a neo is available. Given the reaction from GE and P&W to the A380neo concept so far, it would seem its Rolls-Royce’s deal to lose. But the decision from the makers of the GP engine does not mean the A380 or the VLA segment is ready to be discontinued. GE is very busy with other programs, as is Pratt & Whitney, and their direct competition on the A320neo family makes them partners on the GP7200, but fierce competitors elsewhere.
Growth in traffic continues to back the need for a VLA. Airbus’ timing on offering the A380 was predictable according to game theory and driven by realities at the time of its development. The timing was not optimal, but Airbus really had no choice. The largest VLA customer continues to believe in the segment. It also continues to believe in the A380. But in reality, the A380 was likely ten years ahead of its time.
Boeing “bet the company” on its 747, and it took a while for the program’s sales to get going. The following chart shows the first fourteen years of the 747 and A380 program order volume. As we can see A380 orders track closely, but just below, what Boeing experienced with the 747 after introduction.
If we look at the orders placed since 2001, the A380 has a strong lead over the 747-400 and 747-8i. Some will say the chart “proves” the world no longer wants VLAs. It might be more accurate, perhaps, to say the world may need fewer VLAs. But currently, among airlines that want a VLA, the A380 is the clear choice over the 747.
New competition is coming to this segment from the two-engined 777-9, which is has about the same capacity as the 747-8. The 777-9 already has 243 orders, of which 47% are from Emirates. The dynamics of the market are changing, and Airbus needs to respond with an upgraded A380neo.
The Bottom Line
Airbus had a public relations disaster last week, with conflicting messages to the investment community and customers regarding the A380. But the fallout is quite clear. Emirates reaction to the news from last week likely accelerated Airbus’ A380neo plans – they clearly want an enhanced and possibly stretched aircraft. Airbus needs to re-engine the A380 and stretch it to regain the lead in seat-mile economics, a key metric for operators, and will now expedite its A380neo plans.
This is good news for Rolls Royce, which has an engine ready to propose, but not as good news for Engine Alliance, which would need to dramatically enhance the GP7200.
Our estimates show that a re-engined A380neo would regain the lead in seat-mile costs over the anticipated economics of the 777-9 with a 10-12% improvement in fuel burn. A stretch of the aircraft to accommodate additional passengers would only enhance that lead.
We believe the A380 was a decade before its time, and that the update of engine technology to today’s standards will reinvigorate the program as congestion at major airports makes multiple wide-body frequencies more difficult. London Heathrow has the most A380 frequencies and operators today, and we expect that to continue as airport constraints restrict additional frequencies over the next decade.
With the right enhancements, the A380 could come into it’s own in the very large aircraft niche. The question now is how soon Airbus will pull the trigger and launch the A380-800neo and A380-900neo. We believe it needs to be available to compete with the 777-9X in the 2020 time frame.
As usual yours is among the most sensible comment on this aircraft, which will become a workhorse for part of the long haul market.
Thanks Iain
Boeing obviously made a mistake believing the 747-8 could fill a profitable niche between the 777-300ER and the A380. It’s investment in the 8 is effectively a write-off, though they will coninue to sell a trickle of freighters. However, there is one radical strategy that could revive the 747. If they re-winged it with a carbon fiber wing as a twin engine aircraft, it would revolutionize its economics and give it the sales potential the new 777 now has in a space above the 777. It might also be the final nail in the A380 coffin, as it would have unbeatable seat mile costs.
A new wing could be designed to carry the very large engine fans without changing the landing gear or substantially modifying the fuselage except for a possible further stretch. Probable partner GE would have to come up with an even larger engine in the 140,000 pound thrust range, but GE has done that before on the 777. This new design would be a very similar program to the current 777 re-winging project.
While re-winging again means a write-off of the recent 747-8 investment, the market is going to force that anyway. The only choice is between re-inventing the 747 as a strong selling twin or adding it to the list of former Boeing aircraft programs.
Wouldn’t this be too similar in size to the 777-9x?
Quads are only sold for aircraft so heavy there no twin option. If a 747-8 needs its 200k lbs thrust left if 1 engine takes a fat goose at V1. A 747-8 twin would also need 200k lbs after it takes a goose at V1.
Since January 2000, Boeing has taken 236 orders for the 747, including freighter models – that includes the -400, -400ER and -8 models. Boeing in this period delivered 262 frames.
Sure, 79 PAX sales in the period isn’t anywhere close to the number Airbus has secured for the A380 but in the greater scheme of things, 236 airframes in this size category is hardly a failure. Airbus has secured 318 total A380 orders. Nah, nobody is Chicago is loosing sleep over the 747 situation, there’s nobody Sleepless in Seattle either.
The future is already in the 777 size category, and specifically here the 777-300ER has already eclipsed the total for the 747-400 – it’s done so well that it has outsold the total combined for all four engine competitors since 1997 – Emirates alone operates more -300ER’s than there have been A340-600 orders. (Sure, by that same token, Emirates will operate more A380’s than there have been 747-8 orders so far. But the -300ER is just 250 frames away from 1,000 units.)
The biggest thing though, is the lack of participation of the world’s leading lease companies in both the A380 and 747-8 programs. Where is ILFC, GECAS and Udvar-Hazy’s new gig on these programs – or the A350 for that matter?
What is the most likely and realistic time frame for an A380 NEO?
josh – engine power has increased dramatically since the 747 was designed as a quad. The GE90 on the current 777 has about twice the power of the most powerful engine prior to the 777. The current 747 is about 1/3 heavier than the 777, so engine power would have to increase by a similar amount. Given past increases, that wouldn’t seem too much of a stretch.
Eric – I believe the current 747-8 is rated by Boeing for about 465 pax, whereas the new 777-9X is rated for about 405. Even without a further stretch, a 60 seat difference is typical for different models. Of course, they could easily extend either the upper deck or the whole airframe to add another 40 seats to put it into the 500 seat category. Without a stretch, it would have a truly impressive range at the current max takeoff weight. With a stretch, it would be in a class by itself for operating cost per seat.
The A380 is a bit old design by now, today it would have been an all carbon design. So going forward they need to cherrypick the redesigns. The wings are primary candidates, Airbus must decide if they want a London-Sydney non stop all year full payload aircraft or drop it and reduce weight and cost with the NEO. The tail section is one piece carbon and can be extended forward replacing one alu or glare module but that might threaten doing it on the same TC.