airliner designs

Sep 15, 2016

Values for used big jets are sick and not just for A380s

Inflicting pain on customers has become an accounting necessity for modern airlines

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Is the A380 waiting for Godot, or the market, to overtake it?
The A380 waiting for Godot, or the market, to overtake it?

Those who like flying in A380s, and the rapidly diminishing numbers of 747s, and older roomier 777s, may all have been having anxiety attacks in recent days.

But fear not, while our beloved jumbos are indeed rapidly disappearing, the same isn’t true, at least not for quite some time, for other wide bodies, including the somewhat tabloid headline hogging A380 which has been copping it from stories like this one on the BBC.

And the BBC story is actually quite good, since it appears the writer looked up the two or more year old press releases from Singapore Airlines saying they would indeed retire the first five of their A380s from next year, and replace them with five brand new ones.

Those with skin in the second hand airliner game know perhaps with some pain that the market for second hand wide bodies is stuffed. They also know how the game gets played as well, and some are even suggesting the A380 yarns are just smokescreens for the depressed outlooks for used 777s, A340s, and indeed used anything that might possibly be coming up for a horribly costly D-check.

These D-checks are unavoidable unless you are running some dodgy operation in the darker recesses of the third world. Having your elderly wide-body jet come inconveniently apart in the skies of the first and second world economies would be a really bad look.

D-checks involve the costly disassembly of an airliner and the replacement of sometimes quite significantly expensive pressure cycle sensitive components. Once you have pumped pressurised air in and out of a jet tens of thousands of times things like rivets or fasteners tend to loosen up a bit, as do the areas in and around where the main bogeys slam onto the tarmac with every landing.

It has been said that some older jets might cost more to be kept legally airworthy than their true value.

Indeed, some of these jets might also be on the books of some airlines at very naughty valuations that are unrealisable, although we hasten to add, this would not be true of Qantas after its $2.8 billion worth of write downs several years ago before it became insanely lucrative for the first time since the start of jet time.

Thus airlines like Singapore Airlines, and Qantas, and Emirates, make much these days of the youthfulness of their fleets. Younger planes cost less to fuel, and to maintain, since if possible, you are going to flog them off before the really costly stuff kicks in.

But they don’t necessarily cost what airlines want to pay, or more to the point, finance. The bigger the jet, the more risk it brings to the accounts. Listening to some of the timidity out there about fleet renewals, it is mildly surprising some airlines don’t just wet themselves and go out of business.

Airbus and Boeing show the pain of wide body buyer reluctance, even as demand continues to surge in some long haul markets, in their decisions to throttle back production of large jets, including brand new current model A380s, 777s and 747-8s.

The last named and final version of the 747 is clinically dead as a passenger offering, and pretty close to it as a brand new freighter too, notwithstanding its merits in either role. The A380 has gone without a substantive order for several years, but Emirates is more than happy to keep growing its fleet of them and new 777s, no doubt conscious that no-one who has flown 9 across in an A330 or a Boeing 787 or will do so in the threatened 10 across high density version of an A350 is going to seriously want to do that again. (If only Emirates would do something about its ten across 777s, but I digress.)

So far, what could have been new orders for large tranches of wide bodies may have been diverted instead into the cheaper option of reconfiguring existing middle aged jets with more seats than Airbus or Boeing ever thought likely.  It has certainly increased the ‘utility’ from an accounting point of view of the 787 Dreamliners, and to hell with what that does to kneecaps and backsides.

There are 777s in long haul service with more seats now than some A380 and many 747 configurations. There are some A330s in ‘service’ for want of a better word with more seats than Emirates for example puts in its tighter fit 777s.

The more the total operating costs of a jet can be divided by increased seats the better the ‘metrics’ look. In theory. Those extra seats have to be sold. Inflicting pain on customers has become an accounting necessity for modern airlines, and it involves some pain for the aircraft makers too, since the carriers have been able to kick the fleet renewal can further down the road. Certainly further down the road than the next two or three bonus related payments to current airline managements, in general terms of course.

Both jet makers expect that growth will be such that airlines will have no option but to order larger 777-X series jets, or an A380 with revised wing and engines and a longer double deck cabin. Which is what has been designed into its basic architecture since before it went into service in 2007.

It’s a painful waiting game, for the jet makers, and the jet users.

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9 comments

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9 thoughts on “Values for used big jets are sick and not just for A380s

  1. Dan Dair

    I really wonder if Airbus have any kind of plan for what they’ll do with this (& presumably the other leased early A380’s) when the aircraft come back to Airbus at the end of their lease.?

    In the context of the airline, it’s make a lot of sense to say “We’ve had the best out of the airframe, so if Airbus will offer us the same deal again on a new one, why not take them up on it.?”
    For Airbus, having a used A380 on their hands doesn’t seem like such a good plan.?
    Can they sell or lease it on to a second-user & if so can they do it without losing money (perish the thought that they might actually make a profit on it).?
    Will they just park it up (in Australia.?) & cannibalise it for spares.?
    Or,
    Have they got a sneaky little plan to re-build it at a ‘D’-check to make a two-deck freighter out of it.? (Ben: “Airbus seem to do what they’ve never been talking about in public”)
    It would give a tremendous 2nd-life to the airframe, though obviously, unless they planned this from the outset, there would be an inordinate amount of work involved (which might be plausible to do during the D-check.?),
    if it’s even possible.?

    Airbus has built its ‘Beluga’, so they know about creating a removable nose-section & it has the military A400M, so they know about building-in rear-loading ramps.
    Such a freight-‘monster’ would surely finish-off the B747 in its tracks, giving Airbus a much longer-term market for the A380.

    Of course, if there isn’t anywhere in the airframe to hang one central deck on to, it’s not just speculation, it’s impossible.?
    Airframe engineers, put me in my place now.!!!!!

    1. Ben Sandilands

      Or, they might do what they did with surplus used and perhaps unwanted 777-200s, and internally sell the five A380s to Scoot, and fit them out with 800 economy seats, which would still be more comfortable seats width wise than those on their current fleet of 787-8s and -9s.

      Filling them is another matter, but on routes like Singapore to Sydney, Melbourne, Hong Kong or somewhere in Japan, such a concept might not actually be as unhinged as it seems at first glance. And nothing current or planned is going to be able to match the seat kilometre metrics of an 800 seat A380.

      1. Tango

        Ben: If you can fill it of course!

        1. Ben Sandilands

          Filling A380s doesn’t appear to be a problem in Australia, Singapore or Dubai. And the yield mix is superior to any other competing flight. The main problem is risk, and that seems to be true when it comes to larger jets world wide. If you can hurt your customers by jamming them in tighter, you can avoid investing in higher capacity fleet until it becomes someone else’s problem.

    2. Tango

      Dan:
      Airbus does not own the used A380s (though they do take aircraft back in exchange at times). In this case Doric (or whoever they turned into does)

      The problem is that Airbus sold the originals at something around 200 million and even less. That worked for Airlines, 777 prices for a much larger aircraft, yippee.

      However, the market did not develop and the prices to get it going became the prices both expected and needed to place the behemoth.

      BA is on record as saying they will take used (Maybe MA).

      However, SA are on a buy leas back (Dr. Peters the other) and those folks have to figure out what the heck to do with a non performing asset. Probably did not get their money back let alone an ROI (break out the violins)

      That in turn impact Airbus, they can’t sell the A380 at used prices, they can’t sell it new at something that makes money and in the end it winds down. Longer NEO A380 is going to have worse placement problems (maybe even with Emirate who seems to be desperately sending it to sub marginal destinations , see how long that works, they do can release originals though when they come up on lease)

      Boeing facing the same thing with the 747.

      Airbus thought, well if its such a great market for Boeing, it will be great for us.

      different times and days, things changed a lot, and what is a decent market for one, no one makes money on with 3 (777-300 and 777X in this mix)

      with both gone the 777 should do well. will see.

      1. Dan Dair

        Tango,
        I get your point, but I disagree with your conclusions.
        Airbus is very cash-rich. It’s making money ‘hand-over-fist’ on the A320/1’s that are currently significantly outselling the B737’s.
        Because of this. the discounts Airbus need to offer to generate those sales is perhaps much less than those Boeing need to offer to get sales for their slightly inferior (but more available) product.?
        The A330 has had a new lease-of-life & the A350 seems to be selling well too.

        The only aircraft currently on Airbus’s books which isn’t doing well is the A380,
        but,
        Airbus know that the B747 is a dead-duck waiting for the end of the line
        & they also know that the B777 can’t get very much bigger with the limitations of the current engine technology.
        (& Airbus have implied that they can build a 2-deck big-twin using the A380 fuselage at some stage in the future.?)

        Airbus have continued to provide market guidance that has recently said they’re making a ‘unit-profit’ on each aircraft currently being made.
        Which is essentially the same as saying they’re NOT recovering any of their development costs on these sales.
        However, that development money was spent a decade & more ago and Airbus is still in business & in profit.
        In the short to medium term, Airbus doesn’t ‘need’ that money back, because its cash-flow is so good.

        IMO Airbus will keep production of the A380 ticking-over as long as it can because they know the market will come to them in the fullness of time.
        B777 sales are strong but essentially ‘steady’. The demand for VLA’s isn’t there at the minute, but it will come. Most of the B747’s currently in service will need to be replaced in the next five to ten years & very few will be replaced with another B747.
        Most will be replaced with a more cramped service using a B777 or big A350.
        Some will be replaced with an A380 expanding their route & some will probably be replaced using B787’s, contracting to match demand or possibly to increase the frequency.

        As you say, some carriers are considering utilising pre-owned A380’s but IMO the fact that the big plane can’t have a second-life as a freighter is an intrinsic problem for the airframe which Airbus should probably address sooner rather than later.
        How many B747’s are currently flying around the world as ‘pure’ freighters…..? loads.! (pun intended.!)
        Again, they’d be dead-in-the-water if an A380 freighter was available, but it isn’t & it doesn’t look like it will be;
        So if British Airways take ten to twenty second-user A380’s to replace the swathe of B747’s it will retire over the next five years, how long will it retain them & what will happen to them when BA has ‘used-them up’.?

        You correctly identify the problem of depressed second-hand values in this plane, because it’s only good as a passenger aircraft.
        By the time it’s fifteen years old it’s scrap.
        It might have another ten years of life (or more.?) if there was a cost-effective freighter conversion available.?

  2. Pete

    Lets look at this though.
    Singapore don’t want to extend the size of their A380 fleet by retaining rather than retiring? Its not likely they would great a great price for it given the A380 second hand market? Surely given how great these planes are they could cheaply extend their fleet by retaining it?
    Oh they want to avoid costly D-checks. Fair enough – but that didn’t stop them retaining the 777s they have in their fleet (average age 10.3 years, or for the 777-200s 13.9 years).
    So they do retain the 777s but don’t retain the A380?
    This decision isn’t just about all planes – its specifically about the lack of desirability for growing the A380 fleet for what was the launch customer.

    1. Dan Dair

      Pete,
      Really.?
      Boeing offered SIA a ten year lease agreement & then SIA chose to retain their 10 year old aircraft & extend the lease.? ……. No.? Thought not.

      Boeing didn’t give any such undertakings, so SIA made a cost-benefit decision that justifies retaining their B777 through the next D-check instead of buying new.

      Nearly 10 years ago Airbus gave SIA the deal they wanted, which in-turn gave Airbus the prestigious lead customer they wanted.
      Ten years down the track, that lease deal is up.
      SIA aren’t stupid. They know that they can let-go of their original A380’s with no penalties.
      They also know that Airbus is very, very keen to keep their A380 production line ticking over.
      So, SIA drop their old A380’s & replace all of them with new ones.

      In a constrained market, with Emirates everywhere, plus the Chinese carriers & Air Asia & the like impinging onto SIA’s traditional ‘territory’, it’s no great surprise that they’re not looking to expand their fleet.
      It is the case that they are looking to maintain their fleet size & the fact that they’ll be doing it with all new aircraft is a marketing boost for them.

      What would be genuinely interesting to know is whether they’re actually buying these planes this time.?

  3. Grizzly

    This discussion makes me feel a bit sad. The only A380 I’ve flown on so far is 9V-SKB, the second one to enter SQ’s fleet. And a 747 I flew on in the 1980s has since spent many years on display in a museum in the Netherlands …

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