ANA’s Big Decision
July 7th, 2008
All Nippon Airways (ANA) decision to evaluate both the Airbus A380 and Boeing 747-8 Intercontinental comes at a critical time for both manufacturers.
The last quarter of a century has seen a shift into twin aisle, twin engine long range airplanes. As the price oil reaches dizzy heights, the drive for increased efficiency has even seen Airbus succumb to Boeing’s long held vision that fragmentation is served better with smaller, longer ranged airplanes.
Long lead components for the first 747-8F are already in production, ahead of the planned August countdown to assembly at Boeing’s Everett plant. With flight tests of the first 777F ready to commence any day now and the 787 to join in, Boeing has a pretty full plate. The A380, however, has not been without setbacks either. Suffering delays due to wiring, launch customer Singapore Airlines (thus far) exclusively flies its fleet of 5 A380’s between Sydney, Tokyo and London.
Winning ANA’s order will be as critical as the much debated British Airways campaign was for both jet makers. For Airbus, it means securing its first Japanese customer for the A380, breaking into an eons old “Boeing backyard” dominated by 747’s, 767’s, 777’s and soon to arrive 787’s. After almost a decade on sale, the A380 orderbook is one that is as dismal as ILFC CEO, Mr. Udvar-Hazy stated the A380’s cargo capability is, currently just shy of 200 firm orders.
Image courtesy of Tim Dauber
”It’s probably the single biggest mistake in aviation history. Even if the development program weren’t technically botched, you still have the problem that it’s just the wrong plane,” says Teal Groups Richard Aboulafia.
For Boeing, the 747-8I still sports only Lufthansa among its current customer base (aside from VIP variants). Arik Air has also signed an letter of interest for the said model, though this deal is still pending. On the “plus” side, the 747-8I still has the support of the 747-8F, which, together count for over 100 firm orders for a combined program cost dwarfed by the massive overruns on the A380, with some estimates close to $25bn. Further, without the A380 having a freighter model in its line up, the big Airbus jet has its work cut out on a multitude of fronts.
Japan has traditionally set landing fees based on airplane weight. ANA will therefore need to address this issue first and foremost. Where Boeing created the special 747-400D for ANA and rival Japan Airlines, no such variant exists for the A380 and it is highly unlikely that it would ever be used for domestic operations without a raft of structural changes to allow for the high number of take-off and landing cycles. Equally, the 747-8I is not geared for such operation, but both ANA and Japan Airlines have been switching and replacing their 747 fleets with 777’s, and not just for domestic use.
Given the media reports of ANA potentially ordering just 5 A380’s, questions about why such a small sub-fleet would make any sense in the climate of increasing costs is one that will not go away. Introducing the A380 into its fleet is no problem per se, however, it would leave a substantial gap between the next largest airplane in its fleet, the 777-300ER.
Image courtesy of phinalanji
Opting for the 747-8I would possibly be more attractive, despite any overtures from Airbus to win the deal. With a 747 fleet in place already, adding the 747-8I would be easier than the A380. From training to airport commonality, to spares and repairs, the type would be familiar with the airline.
Crucially, delays to the 787 program has impacted on ANA’s fleet replacement. As launch customer for this revolutionary airplane, the carrier certainly possesses the trump card in any negotiations. Boeing may not yet be in a position to increase 767 or 777 production to offset/compensate customers experiencing capacity shortfalls as older jets are phased out, but ANA can certainly push for preferential treatment with regard to the 747.
The airline could take delivery of 747-8I’s much sooner than it could A380’s. Pricing too, will be critical. Neither plane maker will want to sell at a loss - the large airplane market is a contracting niche segment where a reversal of fortunes has seen airlines being able to almost dictate what they are prepared to pay against what the manufacturer wants to sell for.
Of course, there is always the possibility that ANA doesn’t bother ordering either model at all.
Whatever the outcome, the impact on both the A380 and 747 will be resounding. With so few orders between the two big jets so far this year, garnering unprofitable sales to improve the orderbooks will be something both will want to avoid. But that rests largely on what ANA decides to do.
Sphere: Related ContentEntry Filed under: Aeroplane, Aerospace, Air Transport, Air Travel, Airbus, Airbus A380, Airbus Orders, Airlines, Airplane, Airplane Order, Airplanes, Airport, Airports, All Nippon Airways, Arik Air, Boeing, Boeing 747-400, Boeing 747-8, Boeing 747-8F, Boeing 747-8I, Boeing 767, Boeing 777, Boeing 777F, Boeing 787, Boeing Orders, Japan Airlines, Lufthansa, Richard Aboulafia, Travel
8 Comments Add your own
1. Aurora | July 7th, 2008 at 10:38 am
No matter the outcome, Airbus will have to fight mightily for this deal due to something they did not envision when they launched the beast: competition. Where Airbus’ planners thought they would have a monopoly, they now have to struggle. The A380 simply does not “sell itself”. How far will Airbus be willing to discount in order to be able to crow about a new customer?
2. Doug McVitie | July 7th, 2008 at 11:26 am
In response to Aurora’s question, “How far will Airbus be willing to discount in order to be able to crow about a new customer?”, the going rate would probably be about 60% discount — ie more than the market-distorting 55% off they gave out in 2007 to buy A350 market-share.
Spruce Goose or A380 for aviation’s single biggest misjudgement? A380 by a nose, plus $24bn so so…
Mr Aboulafia is right, I’d say.
Farcical.
3. Ed | July 7th, 2008 at 12:32 pm
Well, this looks like another Boeing deal to loose, if they don’t offer substantial discounts for the B-747-8I, because of delays it has on the NH B-787 orders. But, then again, Boeing can also offer NH a deal on B-747-8F, since they are also a big cargo airline. Boeing can bring up the case the B-747-8I/F have a common cockpit with the current NH B-747-400/D/F/BCF fleet and almost a common engine with the B-787 they have on order.
Airbus doesn’t have much to offer NH, other than hugh discounts on the A-380. But that is a program they are already loosing lots of money on. The question now becomes, how long will tax payers in the EU continue to support a failed program from an OEM that offers huge discount simply to move the EADS name across the world?
4. Chris Wallace | July 7th, 2008 at 1:14 pm
Airbus really, really, really wants to sell NH the A380. They want to sell it to them for the “prestige” effect of finally landing a Japanese carrier for their flagship model and a sale to NH would bolster their claims that the only future for passenger 747s is the deserts of the Southwestern United States.
As such, I expect them to cut right to the bone on this deal, which will put pressure on Boeing. Also, Rolls Royce has been willing to cut deep on Trent 900 prices to help land A380 orders while GE has been unwilling to discount the GEnx2B-67 on the 747-8 family to any great extent because they want to maximize the return on each sale as they expect the total market to be small. As such, should Boeing and Airbus match each other on the airframe price, Rolls can undercut GE by tens of millions which can shift the deal to the A380 (as evidently happened with the BA deal).
Only five A380s is a strange order for NH, but they may very well only have two cities that justify the service. NRT-LHR would be one, and I expect NRT-SFO could be the other if UA starts to down-gauge service to NRT. However, there are rumors that NH would also lease an additional five A380s from ILFC to bring the total to ten frames, which would also allow service to FRA, JFK, and maybe CDG.
5. Chris C | July 7th, 2008 at 5:48 pm
747-8I will win, period.
6. Jacobin777 | July 8th, 2008 at 1:38 am
I usually agree with Mr. Wallace on many things, but this one I’ll disagree with him on. While BA lost the Airbus order on a last minute shot, I do not think they are going to want Airbus getting a foot here. While GE didn’t go down for the BA order, I think they are going to realize soon enough that its better to get lower margins than not selling any engines on bit.
With the compensation Boeing is going to work out with NH, I think they will be able to give NH a package which they won’t refuse…IMHO of course.
7. Mark S | July 8th, 2008 at 6:32 pm
I’m inclined to believe that Boeing will start to win some 747-8 orders starting with ANA. Even though a fully loaded A3fatty has lower seat costs than a 747-8, the Boeing still has lower trip costs while only being marginally less efficient with a full passenger complement. I believe the trip cost issue in the world of $100+ oil will start to be a much more significant issue. The trip cost issue coupled with the fact that Boeing has better cargo / revenue carrying capability gives the big Boeing an interesting edge. The slowing global economy is going to make planning for the airlines more complicated and a lower trip cost jumbo with better cargo capability will undoubtedly be appreciated in the long run.
8. Chaz H | July 9th, 2008 at 6:47 pm
Is anyone else surprised that ANA is evaluating either of these planes? I guess that has to do in large part to traffic restrictions imposed in Japan, but in an increasingly twin-jet world I’m always surprised to hear about the quad jets getting any consideration.
Frankly, I’m surprised some of the existing A380 orders haven’t been canceled. With the current oil prices I think Airbus is extremely fortunate to have anywhere near the 190 or so orders it currently has.
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