Shoot The Dog (Part Two)
May 5th, 2009
Further A380 Customer Deferrals Seen
A380 Production Cuts Hang In Balance
Goodrich CEO Casts Doubt On Airbus’ 2009 Target
Etihad Airways appears to have joined the growing list of operators that has decided to push back deliveries of its Airbus A380’s, less than twelve months after placing one of the biggest orders in history for fleet procurement. While the carrier will enjoy basking in the buzz its new First Class product will cause at this weeks Arabian Travel Market in Dubai, the continuing fall off of premium traffic means that Etihad’s move to introduce this product is certainly a brave and ambitious one.
By delaying delivery of its first A380-800 until 2012, this decision will almost certainly force Airbus into having to re-evaluate its production plans for the big quadjet in the wake of a slew of deferrals already announced this year by various other customers - the majority of whom haven’t even had a single A380 delivered yet.
“We decided to pause for a breather before we ramped up the deliveries again, which now looks like a good decision,” said Etihad Airways CEO James Hogan.
Image courtesy of Airbus
“The over-ambitious and under-achieving Etihad Airways is well on the way to becoming the Middle East’s equivalent to India’s beleaguered Kingfisher Airlines, with a management afflicted by the same rose-tinted outlook which seems to be affecting an increasing number of Airbus customers. Etihad simply got carried away back in 2004 when it first ordered four A380s (planned to be refitted test aircraft). These aircraft were due for delivery from, er, 2007. 2012’s not that far away, though, is it?
The A380 is still not costing Etihad a penny, however. That might never change as market reality should catch up with the Middle Eastern carrier soon enough — and that reality clearly is that there is no room for the A380 in the airline’s projected route network.
Etihad should have stuck to their cancellation guns when they had the chance. Toulouse might well be known as La Ville Rose, but rose-tinted specs aren’t the greatest fashion accessory for loss-making airlines,” says Arran Aerospace’s Doug McVitie.
Etihad’s move to defer will equally pose questions as to whether rival Emirates can continue to resist the current downturn and inevitably succumb to deferring its own A380 orders.
Just last week, it was reported that Emirates had arranged to defer deliveries of its Boeing 777’s, as it took delivery of its seventy-fifth 777. Emirates President Tim Clark had been busy arranging these deferrals for several months in the wake of the plummeting traffic, particularly high yield traffic that has seen a tectonic shift in traveller preference toward lower cost flights as well as opting for regional travel from the likes of Air Arabia and Jazeera Airways.
Emirates is slated to take seven A380’s between April 1, 2009 and March 31, 2010.
“One of the things that scares me about the A380 is what’s going on with Emirates, they’ve given Airbus a long Squawk list. Their first airplanes have gone into service and you just wonder whether that’s because of what’s going on in the Middle East because they’ve been affected too by this when they haven’t in the past.
I think that could be just a prelude to delaying some of those shipments. So, we don’t have any more information on that right now, but let’s put it this way, we’re not counting on [Airbus] exactly hitting their forecast [for 2009],” said Marshall Larsen, Chairman, President and CEO of Goodrich Corporation during the first quarter earnings call in late April 2009.
“Our inventory has been high because of the continued delays they’ve had in that program. Now, we’ve not heard of another delay at this point in time, but we’ve got more inventory than we need right now,” he added.
Emirates Chairman Sheikh Ahmed Bin Saeed Al-Maktoum said at the Arabian Travel Market exhibition that there’d be “no delays in 2009, 2010 and 2011 [deliveries]“, however, as IATA point out last week in releasing traffic figures, the downturn in global traffic continues with minimal signs of recovery.
Emirates may not defer airplanes out of choice, but if Airbus does - as expected - reschedule its planned A380 production, the airline is unlikely to be upset that it will not be getting as many A380’s as quickly as it once hoped while the big Arabian carrier combats its decline in high yield traffic.
_____
Update: May 6, 2009
Airbus Confirms A380 Production Cut. Click
Entry Filed under: Airbus, Airbus A380-800, Boeing, Boeing 787, Boeing 787 Dreamliner, Boeing 787-3, Boeing 787-8, Boeing 787-9, Boeing Commercial Airplanes
61 Comments Add your own
1. Aurora | May 5th, 2009 at 17:18
So the sheik is on record as saying there will be no delays, despite deteriorating market conditions everywhere and especially in the premium pax segment? How do they classify the 777 deferrals? If they take all the A380s, will they be for static display at DXB, or are they actually hiring the aircrew to operate these things?
Didn’t John Leahy say they expect customers to fullfill their committments for 2009? That may or may not apply to Emirates, which basically owns the A380 program, but will EADS slow production just to give al Maktoum a face saving exit?
2. Jacobin777 | May 5th, 2009 at 18:08
I think we are seeing a semi-long turn shift out of the premium classes to the lesser classes(at least one downguage…i.e.-F to J, J to Y+, Y+ to Y). I believe this will happen for longer than anticipated.
Also, the US industry led the way in terms of the way aviation travel occurs.
1-Regulation
2-Deregulation
3-LCC’s..
We’ve seen this in Europe (with the introduction of carriers such as Ryanair and EasyJet), to South Asia (such as Tiger and Silk Air), and now to the Middle East (with Jazeera Airways and Air Arabia, etc).
Regardless, its going to be a tough slogging for the next number of years as even though the global economy might somewhat recover, I do not expect to see pax (VFR and Business) to start upgrading right away.
Apropos, I mentioned this years ago..only to be shunned by many.
3. Dougloid | May 5th, 2009 at 19:14
Jacobin, I suspect that you were shunned because like some who predicted a downturn in southern California real estate, nobody likes a party pooper.
Just like when I said that oil would get down to around $40 a barrel when it was floating near $200. That didn’t earn me any friends, particularly from the Chicken Little “the sky is falling!” crowd over at a.net who succeeded in dispatching me to outer darkness-from whence I’m getting a lot more work done these days without all the damned distractions I can tell you.
We Cassandras have a difficult job talking people down off that ledge, don’t we?
Nevertheless with all due respect to chief bloviator maximo del grande Leahy, the fact that the asset that was funding extravagant aircraft purchases in the Gulf (as well as a lot of other splurging) has declined in value and reconnected with the cost of production means that the dollars just aren’t there in quite the quantity everyone thought they’d be, and the resupply of those dollars has slowed.
The larger question is what all this does to the payoff date when everyone can say that the A380’s a financial success. I mean, we’ve all been arguing back and forth about when the breakeven date is going to roll around if ever. I was always of the opinion that it was going to be somewhere around 400 frames before real money starts piling up in the coffers. That was the break even figure for the MD11 on about a $7 billion development budget.
4. Mike M | May 5th, 2009 at 19:22
>>>That was the break even figure for the MD11 on about a $7 billion development budget.
Considering the A380 is a $25bn calamity, its safe to say maybe even 1200 orders for the A380 may not cover the bill. Not that Sarkozy or Merkel give a damn.
5. Falcon | May 5th, 2009 at 21:23
Dougloid,
I do not have the exact order dates for all of Middle East A380 orders but isn’t today’s ~53 USD/bbl well above where it was then? The data I have is that between 2000 and July 2004 it was below 40 all the time, even below 20 a couple of times, and you need to go to 2006 for it to be consistently above today’s price.
Then of course Dubai for all practical purposes does not have any oil so I don’t think it matters either way with them, or….
Also, wasn’t the highest price near 150 USD/bbl making your near 200 USD/bbl more than 30% of? That’s a lot in my book.
6. Erik Bloodaxe | May 5th, 2009 at 21:33
It makes absolutely NO difference when the ME carriers ordered in relation to oil price at that time. It matters NOW because Emirates and Etihad have to pay for deliveries NOW with severe economic troubles wiping away trillions in wealth.
Airlines pay for their aircraft on delivery, not on order. And on A380 airlines don’t have to make the progress payments anymore due to the reparations Airbus had to make for being late.
7. Mike M | May 5th, 2009 at 21:39
Falcon makes an excellent point -
Between 2000 and 2004, there was no 747-8 freighter or pax plane - yet the A380 couldnt shore up the market when oil was at its lowest ebb.
And now that it fluctuates between $40-60~, the A380 has its work cut out, the VLA market is a fart.
The pressure was stoked up by Airbus’ marketing and salesmen and now that the fart has dropped/ripped/popped - the market is evaporating as quickly as it emerged.
How many A380’s have been delivered this year?
One?
8. joolzg | May 5th, 2009 at 22:53
How many 787 have been delivered, or how many have flown, or how many have run off engine power, or how many have taxied on their own power, or how many have been finished (not looking finished), how many …..
kick the big dog when its down, but at least they have built a plane that is carrying revenue paying passengers, and not a plane that has not even moved on its own.
joolzg
9. Aurora | May 5th, 2009 at 23:29
EY is well positioned to ride out the downturn; the UAE has one of the lowest production costs per bbl of oil anywhere. They are making money at $40/bbl if memory serves.
Dubai is different. Property values have plummeted over 40% this year alone. Falcon is correct that oil was not a big factor in the Dubai dream, but the days of easy credit are over.
However, as I said in my opening post, Dubai-al Maktoum-Emirates-whatever owns the A380 program. EADS will accommodate whatever they want in order to avoid any cancellations on this program or the A350XWB.
Frankly, I believe the UAE, Dubai, and Qatar have been using commercial airliner purchases as an extension of foreign policy–and it seems to have worked!
10. Dougloid | May 6th, 2009 at 01:42
Eric, you say “Airlines pay for their aircraft on delivery, not on order. And on A380 airlines don’t have to make the progress payments anymore due to the reparations Airbus had to make for being late.”
My experience suggests differently. At Douglas, a deposit was made before construction began and regular progress payments were made as the ship moved through the plant. Sometimes when money was short there was a “line move” to get some progress payments.
Fact is that line moves and progress payments is a well known reason why all the B1-B bombers leaked so much fuel. It was from being moved around with the lower wing planks held on with cleco fasteners all in the name pf progress payments.
Parenthetically, it means that the buyer is less likely to default on the contract of sale because if he does, he’s defaulting on money he’s already spent.
11. Mike M | May 6th, 2009 at 03:09
>>>kick the big dog when its down
What a fool you are - the A380 has always been on its knees and not just because of its weight.
Quite what the f*** the 787 has to do in an A380 discussion is beyond me. Is this the level of discourse that Airbusiers can only accustomize themselves to?
Whatever the 787’s woes - it’ll always be better than the fat French pig in every manner - a handle most EU folk will never get over.
12. Leelaw | May 6th, 2009 at 06:25
Dougloid:
Sadly, A.net is no longer worth the price of admission, unless you enjoy mind numbing colloquy with breathless cheerleaders and intellectual eunuchs, or constant sparring with despotic “moderators” who cater to the childish whims of hypersensitive fanboys.
I didn’t realize the development budget of the MD-11 was $7B with break-even deliveries of 400 units, that sounds awfully high for the development of a mostly derivative aircraft back in the late-eighties/early-nineties.
IIRC, the rule of thumb for break-even deliveries forthe first generation of widebodies (747, DC-10, L-1011, A300) was 200 units.
13. keesje | May 6th, 2009 at 10:19
I could be wrong, but isn’t Ethihad like many carriers deferring fleet deliveries, also A380s, for reasons we all know?
Why create a A380 bash festival out of it? It all seems a bit opportunistic & far fetched to me.
http://seattletimes.nwsource.com/html/boeingaerospace/2009078788_boeingpark180.html
14. Aurora | May 6th, 2009 at 11:19
How timely! AW&ST blog purports Airbus will cut A380 production to 14 this year and 20 next year….
http://www.aviationweek.com/aw/blogs/commercial_aviation/ThingsWithWings/index.jsp?plckController=Blog&plckBlogPage=BlogViewPost&newspaperUserId=7a78f54e-b3dd-4fa6-ae6e-dff2ffd7bdbb&plckPostId=Blog%3a7a78f54e-b3dd-4fa6-ae6e-dff2ffd7bdbbPost%3a11800852-3ad4-4236-a9f4-cbffc5e09c56&plckScript=blogScript&plckElementId=blogDest
15. Leelaw | May 6th, 2009 at 12:08
With a production tempo of only 14 - 20 aircraft per year now more than 100 months into the program, doesn’t just the cost of maintaining the almost entirely separate logistical infrastructure, not to mention the production infrastructure, begin to eat the program alive?
16. Vero Venia | May 6th, 2009 at 12:43
Emirates is not going to delay any delivery in 2009 and 2010.
http://www.latimes.com/business/nationworld/wire/sns-ap-ml-dubai-emirates-aircraft,0,1000713.story
17. Dougloid | May 6th, 2009 at 13:56
Leelaw sez “Sadly, A.net is no longer worth the price of admission, unless you enjoy mind numbing colloquy with breathless cheerleaders and intellectual eunuchs, or constant sparring with despotic “moderators” who cater to the childish whims of hypersensitive fanboys.”
They may have done me a favor to tell you the truth, old fellow. I’m getting a lot more work done around here including putting away all the stuff I moved here nearly a year ago.
But back to the subject of the A380 and the MD11 and the breakeven point.
That wisdom was communicated to the troops by top management at a meeting I attended. It was not some fictional “break even” point but a place at which the project would start returning some serious money to the company. The actual “break even” point might have been somewhere in the neighborhood of 250-275 although I do not have that information.
It’s probably in an old Douglas office in Anaheim where three accountants who were unaccountably overlooked in Boeing’s haste to implement “Douglas delenda est” are hiding out. I’m sure they’re still maintaining the cost projections, cashing their checks and studiously not answering the phone or filing reports.
As production moved forward, the cost of production became less as development wound down and work packages became rationalized, so the later ones cost less to build than the earlier ones. Of course that meant also that all the brown badge guys (temps and contract hires) disappeared as did a lot of the people working on product development who were direct employees.
Although the MD11 was derivative it did incorporate a lot of new elements and things that had already been certified had to be recertified. I know. I had to do the first article inspection and sell it to the feds on the cargo doors on the prototype 447, and that took me a month of solid effort. It also had the ‘glass’ cockpit and integrated flight management stuff plus different engines.
18. joolzg | May 6th, 2009 at 13:58
Mike M
It seems to me an outsider who lurks that most of you Boeing band are just wanting the A380 to fail, why?
You keep going on about the great 787, it does look good, but its not an plane till it flies, and after a 2 years its not even taxied.
Ok the A380 was delayed but its flying so why all the negativity? Or is this europe bashing because its not american?
On the 787, i would love to see it fly, but we all know thats when problems crop up and it seems that none of you think any will, and 10 months after first flight it will be taking revenue paying passengers.
Do you really think boeing are going to cakewalk the test without any hiccups?
joolz
19. Erik Bloodaxe | May 6th, 2009 at 14:03
Dougloid, we aren’t talking about Douglas here, or silly games played by US companies with the US government. We are talking about Airbus, and the A380. All customers are now in the box where they could walk away from A380 at any time with no penalties. Airbus has had to pay much in compensation, one of which included the elimination of progress payments, low cost/free A330s, and extremely generous terms on further A380 orders. Flat out, if you have concrete data to contradict this, please, by all means, bring it forth. Thanks.
20. Mike M | May 6th, 2009 at 14:33
>>>Emirates is not going to delay any delivery in 2009 and 2010.
Not now, because its already deferred what it wanted to.
>>>It seems to me an outsider who lurks that most of you Boeing band are just wanting the A380 to fail
The A380 is failing very well of its own accord and doesnt need Americans or anyone else to help that lost cause along.
Again, quite what the heck the 787 has to do with an A380 discussion is beyond me - lets just stick to this topic shall we?
If you cant understand from a business perspective why the A380 is a failure, then discussions with you are heading nowhere fast I’m afraid.
21. boeing investor | May 6th, 2009 at 14:37
Bloomberg has confirmed the cuts:
Airbus Cuts A380 Deliveries as Airlines Resist Taking Planes
By Andrea Rothman
May 6 (Bloomberg) — Airbus SAS, the largest commercial aircraft maker, cut its delivery schedule for the A380 superjumbo as airlines resist accepting large planes when demand for flights is depressed by the global recession.
Airbus plans to hand over 14 double-decker A380s this year, down from the 18 planes it had planned, the Toulouse, France- based manufacturer said today in a statement. Airbus intends to deliver 20 A380s next year. The reduction will have “no significant impact” on earnings before interest and taxes this year, the company said.
“Due to the current economic and aviation crisis and following specific requests for deferrals, Airbus is adapting its A380 aircraft delivery schedule,” the planemaker said. Airbus will take “mitigating actions” against the negative effects on cash flow, it said. Airbus is a unit of European Aeronautic, Defence & Space Co.
Global international air traffic fell 11.1 percent in March, deepening the pace of a decline that began in September, the International Air Transport Association said April 28. The global outbreak of swine flu, which began in late April, has worsened the forecast for airline traffic in the short term.
Airbus confirmed that for 2009 it still expects to deliver about the same number of planes as in 2008, when it handed over 483 aircraft. For future production, rates will depend on airline demand and availability of customer financing, the manufacturer added.
Late Production
Production of the A380, which has 525 seats in its most common configuration, or about 250 more than Boeing Co.’s newest model, the 787 Dreamliner, is running two years late because of wiring difficulties. EADS is also struggling with delays on the A400M military transport, and has taken 1.74 billion euros ($2.32 billion) in charges on that program.
The A380’s list price is $327 million, though the earliest customers for planes get substantial discounts. In a survey of A380 customers by Bloomberg News in April, airlines and one leasing firm said they expected to take only 15 of the planes this year.
Singapore Airlines Ltd. And Qantas Airways Ltd. said in April that they planned to take four A380s each this year, while Air France-KLM Group said it expected two. Emirates said then it planned to get seven A380s in the fiscal year ending March 31, 2010, equating to five deliveries in the calendar year.
Air France and Kingfisher Airlines Ltd. of India are among buyers that have deferred A380 deliveries. Airbus set a goal of 12 A380 handovers in 2008 and achieved it.
22. Mike M | May 6th, 2009 at 14:54
>>>Why create a A380 bash festival out of it?
Probably because its the only airplane in production today that will never make any money. Period.
That alone should be enough for you Europeans to celebrate this failure.
Well Done!
23. Leelaw | May 6th, 2009 at 15:52
” Airbus set a goal of 12 A380 handovers in 2008 and achieved it.”
In reality yet another achievement of form over substance since Airbus had to lower the original forecast/goal by one unit to make the grade.
24. anon | May 6th, 2009 at 17:28
Mike M says “Probably because its the only airplane in production today that will never make any money. Period.”
A340-500/600
25. keesje | May 6th, 2009 at 17:37
I think the A380 meeting its performance targets from EIS is something others would give a leg for.
Then its big, powerfull, loved by passengers & airlines, makes a statement and is assembled in France.
http://www.youtube.com/watch?v=iGb6pGeMrxI
It showed technical excellence in an area others thought was theirs.
A sure formula for deeply hurt feelings in some united states and other places.
I think in 10 yrs the A380 will dominate the Polar routes. BA, LH, AF/KLM, SQ, MH, EK, QF, Korean, China Southern, ILFC, Thai and VS thought so to & voted with their wallets. ANA, CX and Delta are a question of time IMO.
26. Vero Venia | May 6th, 2009 at 18:05
keesje,
It is very heartening to hear someone who is defending the VLA market so fervently.
But the reality is that VLA market is a small one. It does exist, for sure, but the number of aircraft to sell in this market is relatively small.
In my very humble opinion, there will be less than 400 VLA deliveries by 2023.
In order to remove any ambiguity, I take the definition of VLA as 400+ seat aircraft (747-8i and A380).
27. Falcon | May 6th, 2009 at 18:21
Erik Bloodaxe
All customers are now in the box where they could walk away from A380 at any time with no penalties. Airbus has had to pay much in compensation, one of which included the elimination of progress payments, low cost/free A330s, and extremely generous terms on further A380 orders. Flat out, if you have concrete data to contradict this, please, by all means, bring it forth. Thanks.
I may be crazy, many people here would say I am, but I firmly believe the burden of proof is on the person making the claims and not on others to discredit. Can you back up your statements?
Mike M
Probably because its the only airplane in production today that will never make any money. Period.
That alone should be enough for you Europeans to celebrate this failure.
There is no doubt the A380 is a niche model and that the various delays it has experience has moved it to a position from where it will require miracles of biblical proportions for it to become program positive. I doubt there is any person left on this earth that doesn’t know that. BUT that is history., it is there, can’t be changed. Don’t understand why so many people feel the need to kick that dead horse over and over again.
What is interesting is what happens from now on. How much revenue will Airbus receive by continuing the program and how much will it cost to produce those planes. It seems a lot of people don’t understand that incurred costs don’t magically (beyond biblical proportions) disappear if they scrap the A380 program.
Is it possible for you to discuss productively about the now and the future or is bigot comments about the past all you have?
Anon,
If you think the A345/A346 hasn’t made money then what do you think about all the claims that the 748 program already has enough orders to be in black?
28. B380 | May 6th, 2009 at 18:36
1. “Etihad, young company in Abu Dhabi which has ordered more than one hundred aircraft, does not postpone deliveries, confirm to the “news” its director general.” — Les Echos 06/05/09
2. “Speaking at the Arabian Travel Market in Dubai, Emirates chairman Sheikh Ahmed bin Saeed Al Maktoum said the carrier would not be delaying deliveries of planes scheduled for 2009 to 2011.” — 7Days
http://www.7days.ae/storydetails.php?id=77606&title=No%20delay%20for%20new%20Emirates%20planes
29. Leelaw | May 6th, 2009 at 19:03
[i]It seems a lot of people don’t understand that incurred costs don’t magically (beyond biblical proportions) disappear if they scrap the A380 program.[/i]
At least half of the program development costs were expensed as they were incurred. Falling for the sunk cost fallacy/dilemma as a rationalization for continuing a high-cost moribund program would be a huge mistake.
30. Erik Bloodaxe | May 6th, 2009 at 19:42
Falcon, I invite you to use “the Google”. It’s your friend.
31. boeing investor | May 6th, 2009 at 20:15
“I think in 10 yrs the A380 will dominate the Polar routes. BA, LH, AF/KLM, SQ, MH, EK, QF, Korean, China Southern, ILFC, Thai and VS thought so to & voted with their wallets. ANA, CX and Delta are a question of time IMO.”
Funny stuff Keesje - 7 of those customers have deferred A380 deliveries because it doesnt make them any money will F class pax downgrade.
ANA will never buy the A380 while landing fees in japan are dictated by weight - and lets face it with the production cutbacks on the fat Whalejet, the chances of seeing the 5t overweight A380 losing that by 2012 are long gone.
CX will equally never buy the A380 while they phase out 747-400s with 777-300ER’s. It offers nothing for them. As for Delta well, thats just gutter talk.
The A380 has had over 10 years of being marketed and its still as crap now as it was back then.
“what do you think about all the claims that the 748 program already has enough orders to be in black?”
Whether it does or doesnt is besides the point - it cost a fraction of what the A380 did and as you keep bleating on, most costs have been absorbed. In the 747s case, it IS better to continue than stop because there are two markets for it and not a solitary one the A380 couldnt corner when it was the only one in the contracting VLA segment.
32. keesje | May 6th, 2009 at 21:10
boeing investor, many airlines defer many aircraft, Boeings too are towed into the desert. It has nothing to do with the A380 & you probably know.
ANA was very close to ordering the A380 & probably will as soon as the economy recovers.
Cathay ? Google their CEO on the A380..
On the longer term, I agree with the extensive market studies Boeing did on this topic. A need for about 1000 new VLA’s in the next 20 yrs.
http://www.boeing.com/commercial/cmo/images/2008/lg/lrg_demand_bysize.gif
Do you folks think Boeing (& GE and RR and Airbus) are talking non sense? What do you think will replace the 450 passenger 747-400’s still in service, What will cater the growth of 4-5% per yr? 80% of long haul traffic is hub-hub. Major hubs are slot restricted. Size brings down unit costs, fuel will go $100 in the not to far future, have no illusions. The major airlines I mentioned haven’t..
33. boeing investor | May 6th, 2009 at 21:39
“ANA was very close to ordering the A380 & probably will as soon as the economy recovers.”
Says who?
ANA certainly doesnt.
On Cathay -
http://www.reuters.com/article/tnBasicIndustries-SP/idUSN3022007420071030?pageNumber=1
“A380 NOT AN OPTION”
“All our financial modeling shows that we are better off offering more frequency with a very efficient aircraft like the 777 than simply adding more capacity to an existing frequency, which is what we would be doing if we introduced the A380,” he said.
“Despite his caution over the A380, Tyler said that if Airbus stretched the plane to fit more passengers, or increased its take-off weight to extend its range, Cathay might buy.”
And we know how likely a stretched A380 is - as likely as a return as Concorde. “Might” buy is nothing affirmative.
“What do you think will replace the 450 passenger 747-400’s still in service”
Huh?
Have you not seen what has happened during the last decade? 777-300ER’s, 787’s, A350XWB’s.
“80% of long haul traffic is hub-hub.” No it isn’t. With greater use of smaller non hub airports, the explosion of twin jet use has negated using busy congested airports- perhaps you also missed the birth and growth of LCC’s and P2P flights?
IATA and ACI acknowledge that average seat count per airplane, even at HUBS have shown a decline.
Traffic is still in a tailspin - size does not lower cost when yield erosion kills airlines.
Just look at BA’s figures today:
http://www.bashares.com/phoenix.zhtml?c=69499&p=irol-newsArticle_Print&ID=1285093&highlight=
Traffic comprised a 17.7 per cent decrease in premium traffic and a 5.2 per cent rise in non-premium traffic.
Sorry Keesje, your blinkered vision is no longer worth debating.
34. Vero Venia | May 6th, 2009 at 21:45
Keesje said, “Do you folks think Boeing (& GE and RR and Airbus) are talking non sense?”
Crystal balls do make mistakes but VLA market is small.
35. Falcon | May 6th, 2009 at 21:53
Eric Bloodaxe,
I’m experienced enough to know that you can’t trust a lot of what you find with the help of Google. That includes reports of the moon landings being Hollywood stunts and a lot of the wild fables some people like to believe are true because they are repeated over and over. A very close example; I commented on an earlier blog by using made up numbers to demonstrate why it may be worth continuing a program that has no hope of becoming program profitable. I clearly stated the numbers were made up but still see them referenced as proving the A380 will be cash flow positive after 50 frames.
You also have Randy’s blog about how people who understand nothing make comments that become “truths”.
So unless you can provide something better than asking people to search google or claim you’re right unless someone proves you’re wrong I think you’re at the very best a fool but probably way worse.
Leelaw,
It really doesn’t matter if the money spent was expensed or borrowed as far as it relates to if the program should continue or not. It does matter as to future companywide profitability and cash flow but that is separate from the continuation of the program.
It really is a simple as if future costs for producing a frame is less than the revenue received then it is better to continue. What complicate it is the uncertainties about what the direct costs will be and the likelihood existing orders will be taken up at agreed prices and future sales will happen at levels required. That is why it made sense to continue the 777 program (jurassic models) even though they spent around twice as much as the original budget.
36. Dougloid | May 6th, 2009 at 22:01
Thanks Falcon.
Eric, what you do not seem to be able to internalize is that all large projects (like airplanes) are built and paid for in the manner I described. I don’t think I need to justify myself, because the process by which aircraft were built and paid for at Douglas, and how they were built and sold by Rockwell to the federal government was exactly the same. You forget. I was there, I saw a lot, I heard a lot, and I kept my eyes and ears open and my mouth shut.
Let me reiterate. On any large capital project a deposit is paid down, long lead items are ordered and contracted for, and as the aircraft starts to take form there are certain milestones that must be met. Miss a milestone? Pay the airline a penalty. But make your milestone? You get a progress payment.
Some long lead items on the A380 are ordered three or four years in advance of the build. Remember I worked for an A380 subcontractor, too-Goodrich. Airbus isn’t going to rewrite the book.
Those milestones are positions on the production line. That’s why there was pressure for line moves.
Now. Maybe there’s so much penalty money flying back and forth to make it a zero sum game-as you appear to suggest. I dunno. But if the airlines didn’t have serious money invested, and if they were not making progress payments as the various subassemblies were contracted for, received, and incorporated into the structure, nobody’d ever take delivery, for heaven’s sake.
See, that’d be the definition of an illusory contract, if the buyer could take delivery or not as he felt like with no consideration on his part.
No banker would ever loan money under those facts, and Airbus or Boeing or Lockheed or Rockwell or anyone else isn’t going to try and underwrite the entire project on their own dollar or euro.
It’s simply too high a risk to take.
37. Dougloid | May 6th, 2009 at 22:09
Parenthetically, some folks around here seem to subscribe to the notion that “research” is the same thing as typing “something” in the Google search window.
To which I politely say “bollocks”.
Folks, it’s like I tell my students. Google’s in the business to make money. How do you get on the first three pages, which is the average user’s maximum drilldown? Why, you pay Google. So what the average user sees is what Google and the payor want you to see.
Don’t get me wrong. Google’s a good way to start your research, but it’s no substitute for critical thinking and basic fact checking.
38. Vero Venia | May 6th, 2009 at 22:14
33. boeing investor | May 6th, 2009 at 21:39 said, “Have you not seen what has happened during the last decade? 777-300ER’s, 787’s, A350XWB’s.”
Agreed.
Many airlines bought the 747-400 for its range not for its capacity. The 777-300ER, the 787 and the A350XWB can do 747-400’s range with much better CASM. It’s not surprising the 777-300ER has got so many orders (more than 400 orders since its launch in 2000).
http://active.boeing.com/commercial/orders/index.cfm?content=displaystandardreport.cfm&pageid=m25066&optReportType=UnfAnnModel&RequestTimeout=20000
http://www.marketwatch.com/news/story/boeing-gets-order-5-777/story.aspx?guid={50506FF9-FE6A-444C-9DEC-FE9CA6EF90B2}&dist=msr_5
In the comment below I said, “Concerning the 777-300ER, I would call the situation as an “anomaly” in recent aviation history. It is indeed surprising that this aircraft does not have any strong contender since its entry into service in 2004.”
http://verovenia.wordpress.com/2009/03/26/super-massive-black-hole/#comment-17
39. keesje | May 6th, 2009 at 22:22
Boeing investor the article you quoted is from 2007 and say they won’t order for the next 2 yrs.
Cathay’s Tony Tyler on the A380:
Despite his caution over the A380, Tyler said that if Airbus stretched the plane to fit more passengers, or increased its take-off weight to extend its range, Cathay might buy.
“We want to see that aircraft (the A380) in operation for a bit first,” said Tyler. “It’s no fun being an early customer.”
“Either of those options would make it more economic and more competitive from our point of view,” said Tyler, who wants a bigger plane which can carry more cargo and is more suited to very long trans-Pacific routes.
http://www.reuters.com/article/tnBasicIndustries-SP/idUSN3022007420071030?pageNumber=2
Boeing investor, what do you think of Boeings official 2008-2027 outlook on the VLA market. Do they have it all wrong?
http://www.boeing.com/commercial/cmo/index.html
40. Leelaw | May 6th, 2009 at 23:03
Falcon:
Based on what you’ve written so far you seem to have no meaningful understanding of finanical accounting, cost/managerial accounting, and/or financial analysis… consequently there’s no need for further colloquy on the topic.
41. Taniwha | May 6th, 2009 at 23:26
“What do you think will replace the 450 passenger 747-400’s still in service”
keesje, as a matter of interest. How many 747-400s out there are configured for 450 pax? (aside from Japanese Domestics whom would be a massive longshot for replacement by 3fatties, pun intended)
42. Falcon | May 7th, 2009 at 02:58
boeing investor,
Missed your comments about the A345/6 vs 748 in the red or black comment before, sorry.
Sadly you replaced the A345/6 with A380 and much worse you ignored the issue which was how can the A345/6 be at loss but the 748 is already guaranteed profit that has been claimed by so many. The 748 cost seems to be in the neighborhood of the A345/6 and actual deliveries vs. units sold are not much different either.
I do agree it makes perfect sense to continue the 748 program although it is not because it has two markets.
IATA and ACI acknowledge that average seat count per airplane, even at HUBS have shown a decline.
So what? That doesn’t mean there isn’t a place for larger planes. If it only was about reducing seat counts we would only see the smallest of each model selling but amazingly most models start small and grow. What it does mean is that as total the larger planes have smaller share than they used to have and until you start including passenger statistics for the segments you can’t use it for the kind of conclusions you tried to make.
43. boeing investor | May 7th, 2009 at 04:09
Keesje - Tyler is unhappy with the current A380 - read what he says - “carry MORE cargo” etc. The A380 is a dog and cant carry a decent payload when stuffed with pax/baggage. As for Boeings Current Market Outlook, well, its a prediction isnt - hardly “fact” and is susceptible to CHANGE.
Falcon: “I do agree it makes perfect sense to continue the 748 program although it is not because it has two markets.”
Well actually yes, it IS based on its market appeal - or did you forget why the 777, 787 and A350 have been such good sellers? Its because of the markets theyre built for. The A380 is stuck in one hole with little or no future where as Boeing doesnt have all its 747 eggs in one basket. Yes the freight segment is in the toilet, but there hasnt been a single 747-8F cancelation or deferal AFAIK.
“So what? That doesn’t mean there isn’t a place for larger planes.”
Are really that silly?
Where did I state there wasnt a place for them? Go ahead and re-read what I wrote and get off your soapbox.
44. Vero Venia | May 7th, 2009 at 08:13
Watch this place!
http://787milestones.tpninteractive.com/
45. keesje | May 7th, 2009 at 09:02
The Boeing from Chicago says 1000 new VLA’s will be needed in the next 20 yrs, so I expect you all to sharpen your knifes & rip their market outlook apart and have a good laugh about it.
Taniwha, I was talking about the # aircraft in service, not seatcount
http://boeingblogs.com/randy/images/747-replacement_ip.jpg
About the A380 I think around 2020 the A380 will dominate long haul travel with unmatched efficiencies and comfort levels.
A large fleet of mostly converted dedicated 747-400 freighters will take care of the cargo streams in an efficient way, further seperating passenger and cargo streams.
Sea-Air will most likely become much more important when fuel gets expensive again..
46. Falcon | May 7th, 2009 at 09:26
Leelaw,
I could say the same about you with the difference that I would be right. It is so easy to just say the other person is wrong but not offer anything in support of your statement. All you have said so far is that you don’t agree with what you call the sunk cost fallacy/dilemm.
Seems you’re the kind of person who would spend a year to get the 1,000 gold coins required to drink from the fountain of wisdom but realizing you dropped all coins on your walk there and then not even pick up the coins you find on your way back because it’s not enough to pay for the sip.
Boeing Investor,
Now when you change your wording to market appeal, instead of two markets, I agree with you. The question when you start a new program is always if you can sell enough to not only cover your costs but also make reasonable profit. If the answer is yes then go ahead independent of it is one, two or whatever number of market segments.
If it later on turns out you were wrong then pick up as much gold as you can before you go to the next place.
I re-read your statement and again see you use it to say airlines should buy small planes. My comment stands.
47. Leelaw | May 7th, 2009 at 09:44
Fair enough Falcon, please define in detail what you meant by the term “cash flow positive” in post #35?
48. Leelaw | May 7th, 2009 at 12:13
Interesting tidbit in today’s WSJ:
“…Airbus initially said the program would break even when it sold 270 superjumbos. In late 2006 it raised that figure to 420 planes, and has since stopped communicating a break-even figure. Extrapolating from currently announced production rates, Airbus will deliver roughly 155 superjumbos by the end of 2013, according to AeroTransport Data Bank, a French company that tracks airplanes…”
That means that production/deliveries will have to be ramped-up from 20 in 2010 to an average of 36 per year in 2011-13. We’ll see whether the backlog will hold up and new orders materialize to justify the ramp-up. Oh for the heady days in 2006 when Dr. Philip Lawrence forecast Airbus would deliver 380 WhaleBus[t]s by 2013. Looks like the “Great Satan” Aboulafia, cursed and reviled by “Airbusiers” all over the world, was a far better prognosticator.
49. Aurora | May 7th, 2009 at 13:14
Leelaw:
It wasn’t just Aboulafia, there was Professor Aaron Gellman way back when who cast doubt on this program. He, Aboulafia, and a couple of others teamed up recently to do a follow up podcast. Of course, it now appears that most of their criticism was spot on, viz, a big aircraft built as a jobs program and for national pride that lacked a solid business case.
All were roundly scorned and despised by Airbus nation.
50. Dougloid | May 7th, 2009 at 14:00
Boeing investor said “The A380 is a dog and cant carry a decent payload when stuffed with pax/baggage.”
Hmmmmm…..I did all those projections based on the published data from Airbus, and I think I was being rather generous and erring on the side of optimism-for which I was lambasted unmercifully as Leelaw can tell you. I reached the same conclusions, BI. Of course, at the time, the conventional wisdom from the Airbusiers was “snif snif. We’ll carry the high end electronics and truffles and such, and y’all can carry the anvils and scrap metal with your tramp steamer 747s.” Turns out they couldn’t do any of it.
Being a Cassandra IS a thankless task. BTW, the Great Satan Aboulafia seems to be in remarkably good spirits as his April newsletter points out.
51. boeing investor | May 7th, 2009 at 15:03
“I re-read your statement and again see you use it to say airlines should buy small planes. My comment stands.”
Either you are blind, stupid or both.
I said nothing of the sort.
Your comment is worthless - please show us ALL where I state that airlines “should buy small planes”. I can get more sense out of Keesje than with you. Do us a favor and quit putting words in peoples mouths - I might actually like what you have to say.
52. Falcon | May 7th, 2009 at 15:49
Leelaw,
Let’s imagine that you have a project where you currently have 100 orders each selling at 100. The manufacturing cost for the first 20 items is 150 but after that it is 50, I.e. you will lose 20 x 100 = 2,000 on the first 20 and then make 80 x 50 = 4,000 on the remaining 80. Do you continue?
Let’s now say that you already spent 4,000 in R&D and tooling for the product. Would that change your decision about producing the 100 units?
In my book the later situation gives me two options a) I can lose 4,000 but ending production now or b) I can produce the 100 items and “only” lose 2,000.
I see a 2,000 positive forward cash flow in option b over a so that is what I would do.
53. Falcon | May 7th, 2009 at 16:03
By Boeing investor:
I said nothing of the sort.
By Boeing investor in post 33:
ATA and ACI acknowledge that average seat count per airplane, even at HUBS have shown a decline. (I highlighted it in my reply to you.)
Add the comments you made around it and the only way I can read it is that you don’t think there is a market for VLA’s, i.e. don’t buy them. Why don’t you clarify how it should be understood?
54. Leelaw | May 7th, 2009 at 16:14
Aurora:
IIRC, in 2007 Aboulafia and Gellman held a briefing at some industry event updating their original “Shadow CPA” where they concluded the 748 was a dog with fleas as well. There was a audio recording of this briefing but unfortunately the web link to it is no longer active.
55. boeing investor | May 7th, 2009 at 16:39
“ATA and ACI acknowledge that average seat count per airplane, even at HUBS have shown a decline.”
Where does that say I said airlines “should buy smaller airplanes”????
All it says is that SEAT COUNT per AIRPLANE has gone down. It has nothing to do with the size(s) of the airplane itself. Nor did I advocate, as you lied about, that airlines should buy smaller jets.
” the only way I can read it is that you don’t think there is a market for VLA’s, i.e. don’t buy them. Why don’t you clarify how it should be understood?”
So, by failing to prove or back up your lies, you try to turn the tables on me? Pathetic. Either dont make claims you cant back up or just admit you’re a dunce pretending to be something you’re not (i.e “smart”).
Read what I wrote in post 43:
“The A380 is stuck in one hole with little or no future where as Boeing doesnt have all its 747 eggs in one basket. ”
Again, no mention of me claiming/stating/opining that I “dont think there is a market for VLA’s”.
You have again put words in my mouth that I never uttered. If you cant understand what I wrote then at least have the decency to admit it rather than attribute false statements.
And if you cant do that then you can shove your “devils advocate soapbox” where the sun doesn’t shine.
56. Vero Venia | May 7th, 2009 at 16:55
45. keesje | May 7th, 2009 at 09:02 said, “About the A380 I think around 2020 the A380 will dominate long haul travel with unmatched efficiencies and comfort levels.”
No. The A350-1000XWB can do those routes much more efficiently with the same comfort level.
57. MPTA-098 | May 7th, 2009 at 21:15
“No. The A350-1000XWB can do those routes much more efficiently with the same comfort level”
Actually, the A380 is the ONLY aircraft that could conceivably carry stacked sleeper seats (economically) for today’s economy-class passengers.
Why?
First take a look at the first picture in this link:
http://www.flightglobal.com/blogs/runway-girl/2008/12/in-search-of-sleep—james-par.html
In a conventional single-deck widebody configuration (including the 747), you obviously can’t stack sleeper seats at the window seats due to the curvature of the fuselage. However, on the A380 with it’s “straight” walls, thanks to the outward curved fuselage on the main deck, you can indeed stack the window seats.
However, for such a concept realistically to be certified, ALL stacked sleeper seats would have to have direct access to an aisle. Fortunately for the A380, it seems to fit perfectly these requirements.
The interior width of the main-deck at the seat level is 248 inches, while on the upper deck, the interior width is 208 inches at the seat level.
Therefore, the interior configuration of the A380 outfitted with stacked sleeper seats would have four 20-inch wide aisles and 16 seats per row on the main deck (8 on each level), while on the upper deck you would have three aisles and 12 seats per row (8 on the lower level and 4 on the upper level).
The following is the proposed configuration:
Main Deck A380: [21"(*)--20"(**)--42"(***)--20"--42"--20"--42"--20"--21"]x2
Upper deck A380: 42″–20″–2X[42"]–20″–2X[42"]–20″–42″
* 21 inch wide seat stacked sleeper seat (including armrests) which is the current standard in Y on the A380.
** 20 inch wide aisle
***42 inch wide double stacked sleeper seat arrangement (including armrests).
Conclusion: The main deck of the A380 accomodates 16 seats per row, while the upper deck can “only” accomodate 12 such seats per row. (i.e) Today the 777 can carry 10 seats per row in Y and can therefore compete with the A380. However, it looks like the 777 (and the A330/A350/787 as well) can ONLY carry the same number of stacked sleeper seats as the upper deck of the A380 (albeit with slightly wider seats) in order to fulfil the requirements of direct aisle access for all these seats. In other words: No current or planned aircraft can possibly compete with the A380 carrying stacked sleeper seats in economy class, with all seats having direct aisle access, and configured with four aisles on the main deck, and/or three aisles on the upper deck; infact, only a BWB configuration with straight interior walls would better an A380.
The seat pitch for the stacked sleeper seats would be a whopping 2,5 times the current industry standard for seats in economy class. How can an airline flying with “regular” economy seats possibly compete with something like that?
Notably, the airframe needs to be stretched to around 85m if it is to carry the same number of passengers as in (i.e) SQ’s current three-class configuration (premium classes unchanged, and having the same number of seats).
The forthcoming structural improvements and the addition of Trent-XWB engines in the 2015+ timeframe, and with a MTOW of around 610 tonnes would deliver similar range capability to the original A380-800’s R/P curve, but with at least 20 percent more payload capability while still keeping the fuel burn increase down to around 6-8 percent over the original A388. With the same number of passenger as the A388, this stretched aircraft would also have significantly increased lower deck space and a significant maximised freight revenue potential.
If this new economy class seat should be realised, it looks like we just might see a paradigm shift in the industry, and in such a way that no carrier could survive without an A380 on the main routes between Europe and Asia/Australasia and Between North-America and Asia/Australasia.
And remember; the MTOW of the A380 can theoretically grow to 750 metric tonnes, (and over 100 meters in length). Interestingly, the length of the aborted Boeing 2707 was over 93m, so stretching the A380 over 80m is really not much of an issue if you’re dealing with something that would change “the game”.
.. or perhaps a LAPCAT - A2
http://www.reactionengines.co.uk/images/lapcat/library/hires/A380_compared_1280.jpg
http://www.reactionengines.co.uk/lapcat.html
The initial A388 model doesn’t need to sell any additional frames. The last of the initial 200 frames sold, will likely be delivered in late 2014, or early 2015. At that point the improved second generation A380 could be ready. And who knows, maybe you’ll see several stretch versions with the largest one approaching 100m in length. However, with the initial A388, Airbus forced the major airports around the world to accomodate the 80m wingspan of the vehicle, which BTW is a far more important metric than an aircraft’s length.
58. Falcon | May 7th, 2009 at 22:23
Boeing Investor,
I did not turn it on you. I asked for clarification on the part you said I got wrong so I can get it right and then decide what my action will be.
I’m probably misunderstand what you’re saying now too because to me it reads that if you’re not advocating smaller planes as I first understood then your advocating they reduce seat count on current planes and that somehow this means the A380 is stuck in a hole. Again, I’m probably misunderstanding so am asking for clarification.
Is it too much to ask for your comments on the A345/6 vs 748 as it relates to that many people saying the A345/6 is at loss but the 748 has enough orders to be guaranteed profit.
59. Vero Venia | May 7th, 2009 at 22:24
57. MPTA-098 | May 7th, 2009 at 21:15 said, Actually, the A380 is the ONLY aircraft that could conceivably carry stacked sleeper seats (economically) for today’s economy-class passengers.
Why don’t you put economy class passengers in stacked coffins?
60. MPTA-098 | May 8th, 2009 at 09:59
“Why don’t you put economy class passengers in stacked coffins?”
Nonsense. The concept would utilize the available volume in the airframe, which of course is different than todays seating arrangements that can only utilize the available floor area. Actually, I’m sure you were too lazy to look at the link to runway-girl’s blog, because one must be pretty thick to believe that those seats are “stacked coffins”. In regard to an emergency evacuation, please have a look at this link:
http://www.flightglobal.com/blogs/runway-girl/Air%20Sleeper%20comparison%20table.JPG
For the JPA stacked sleeper:
Far passengers don’t have immediate aisle access. If aisle seat in flat position NO access to far seat. Upper tier cannot even jum over as the stairs are covered
As I said, to be certified, ALL seats must have access to an aisle. Simple as that. Because of this requirement, an economy seat using the design principle for the JPA Stacked Sleeper seats — and not the MMILLENNIUM AirSleeper seat which I would agree would be more “coffin-like” — would essentially become a “narrow” business class (bare bones) seat. Therefore, a satisfactory economy passenger density will NOT be very difficult to achieve given the available extra space available for the steps.
On the 777-300ER, Singapore Airlines’ economy class area covers a length of approximately 21m, which would be enough to accomodate 120 JPA (-type) stacked sleeper seats in a (2-2×2-2×2-2)-configuration with three aisles, and a seat pitch of 210 cm which is a whopping 2,5 times the current industry standard The economy class in the present configuration holds 228 seats.
On the A380-800, Emirates is using the entire main deck for economy class. Likewise, SQ could do the same for a stacked sleeper seat configuration, and could thus accomodate about 250 such seats on the main deck with a seat pirch of 210 cm. The first class seats that are currently on the 77W would be put on the forward upper deck (like-for-like configuration). Do note that I’m using SQ as a case since they are using the same seats in C and Y on their 77W and A388.
So, this means that on the 777-300, using these stacked seats in Y, you would have nearly a 50 percent reduction in capacity whereas on the A380-800, you would have a little less than a 40 percent reduction in capacity. And the SQ 77W would only have a 170 passenger capacity in three classes which is obvoiously NOT economical.
However, as I said in the example above, a stacked sleeper seat configuration would become significantly more advantageous for the A380 as the frame is stretched since you could both use additional upper deck space for these seats — in addition to the increased seating on the main deck, as well as having an option in utilizing lower-deck floor space for lavatories and galleys.
Finally, it looks like I made a mistake in the post above regarding the stacked seat confirguration on the upper deck of the A380.
There’s only space for 11 seats per row — and not 12 — on the upper deck:
42″–20″–2X[42"]–20″–2X[42"]–20″–20″
Two window seats on one side and only one window seat on the other side (with decreased witdth to 20 inches instead of 21 on that seat). On the 777, there’s enough space available to accomodate 12 seats per row.
61. Pete | May 9th, 2009 at 05:11
Guys,
We all love watching this industry and have our points of view, and “our team”, but lets keep the comments respectful please.
It will make this already interesting dialogue even more readable.
Leave a Comment
Some HTML allowed:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
Trackback this post | Subscribe to the comments via RSS Feed