ILFC boss Steven Udvar-Hazy’s stark admission that he has struggled to place even one A380 means that the clock to countdown to either a cancellation or switch to the A350XWB has probably passed the half-way mark already.
Whether this is as a result of the realisation that the A380 is operating in a contracting niche segment or the fact that no one wants this airplane, even on a lease deal means that the prospects for the VLA market overall will like become bleaker as the industry downturn continues to traverse the path of difficulty it seems to be stuck-fast upon.
“We are asking ourselves if we are really going to take delivery of the 10 [A380] planes” says Udvar-Hazy.
Image copyright/owned by FleetBuzz Editorial.com
What Udvar-Hazy should really be explaining is the failure of ILFC to place even a solitary frame in the hands of any of its existing customers.
ILFC has already delayed its A380 orders until 2013 and would be much better placed to walk away from the entire deal altogether given that it has A350XWB’s on order – particularly as it hasn’t any immediate need to up its order for the latter airplane just yet.
Airbus’ chief salesman John Leahy today admitted that Airbus has had “more customers” asking for financing points to its delicate, if not more precariously poised orderbook built upon a superfluity of airlines whose junk credit ratings have made the task of accessing credit harder than usual – meaning that Airbus has become “lender of last resort” for many carriers.
With just a week until the Paris Air Show kicks off, the timing of Udvar-Hazy’s admission that the A380 has proven to be a lemon in his fruit basket means that for all the demanding that Airbus and Boeing slash production by 35% or more, in effect to shore up values of his own portfolio, Udvar-Hazy may have finally come to realise that biggest isn’t always best – and a sharp reminder of that will emerge when a bidder comes in for ILFC on the cheap, despite how “big” ILFC actually is.
Not that AIG will mind…naturally.
49. Dougloid | June 10th, 2009 at 16:51 “Back during the last aerospace meltdown…well, maybe it was two meltdowns ago-one of the big heads at Boeing (Mullally? Condit?) said “Firm orders are all very well, but when your customer tells you he can’t pay you, all of a sudden firm orders don’t mean much.””
I agree.
It is difficult to manage the financial consequences of many firm orders that are suddenly deferred. A deferral is usually because there is not enough traffic (thus revenue) to justify even the payment of monthly lease rent.
Deferrals often means inventory for the manufacturer. Massive inventory is a disaster for any industry, commercial aircraft manufacturing is no exception.
This blog entry summarize the situation:
http://verovenia.wordpress.com/2008/12/19/pessimist-or-realist/
Many airlines lease their aircraft (Operating Lease or Financial Lease) so they do not need to have hard cash in their bank account. Starting in early 2000s very creative financiers created the so called “aircraft asset-back securities” that attracted many private investors. Those investors are very often middle class or rich class people like lawyers, dentists, plastic-surgeons. Those relatively rich people loved to invest in aircraft asset-back securities because many countries allow them to deduce the investment from their income tax. Thus the return of investment is artificially high.
With the bad experience of “toxic assets” in property market, many banks don’t want to back this type of security anymore. When there is no Credit Default Swap (or some kind of guarantee) anymore, you can’t build the case for an “aircraft asset-backed security”. The consequence is then there is less available aircraft financing. No financing means no aircraft sale.
This is my blog entry on the subject:
http://verovenia.wordpress.com/2009/05/13/toxic-dream/
In that blog entry, I provide some interesting links concerning asset-backed securities. Those financiers are really creative!
Jacobin777,
Glad to see you figured out the issue at hand is if the A380 is too much plane for TG or not. If their break-even numbers come in at 89% then of course they have no business getting it. Makes you wonder how high their break-even are on other models and routes but that too is a different issue.
If it comes to that TG cancels then of course it is time for Airbus to re-evaluate the A380 program if it is time to end the program. If the answer is yes then the next question is if they should close immediately and take the costs of canceling existing orders or it is better to deliver and then close. There are a few variations but that is the gist.
As to that you posted some quotes and links. You certainly did in the hope of “moving perception” in the direction you wanted to push. I’m not surprised you made two posts with the first slinging more mud and the second addressing the issue. I really think it is low to blame EU for not canceling a new tariff set to take effect Jan 1 for something that happened Dec. 25. Also think you need to consider what EU and the individual stated did to support Thailand after the Tsunami. That of course should be separate from tariffs and buying things as they are very different.
Douglouid is absolutely correct in that perception can break good things without warrant. A lot of people posting here, fleetbuzz and a.net are very good at throwing mud. You’re far from the worst but by linking to those articles, that by your own admission did not change anything, you sure did though stones this time.
Leelaw,
The doctrinaire Airbusiers’ are unfortunately matched by the Blind Befenders’. Looking at your posts I unfortunately think that with your obsession to blame Airbusiers’ for everything and inability to accept any kind of defense of anything Airbus or criticism of anything Boeing I think you have gone Blind Befender.
50. Chris Wallace | June 10th, 2009 at 18:12 “Leahy’s comments, Vero Venia, are in reference to proposals at the time to allow ETOPS diversions of greater then 180/207 minutes.”
Yes.
At that time, there were some efforts to slow down the new ETOPS rule making process (when the “T” still meant Twin). At the end, I think FAA agreed that there was no reason anymore to make any distinction between Twin, Tri or Quad. The final FAA’s ETOPS rules apply to any commercial aircraft operations over remote areas. The difference is mainly in the definition of the “area of operation”. If my memory serves me well, Twin’s ETOPS start beyond 60 minutes of diversion and 180 minutes for three or four engined aircraft. FAA redefined the ETOPS acronym as “ExTended OPerationS“. http://www.boeing.com/commercial/aeromagazine/articles/qtr_2_07/article_02_1.html
I am not an expert in ETOPS, so I may be wrong. Please be indulgent.
ETOPS is an acronym for Extended-range Twin-engine Operational Performance Standards.
The equivalent for tri-jets and quads is known as LROPS – Long Range Operational Performance Standards. However, this is technically an EASA specification and defines additional emergency oxygen and fire-suppression systems. The FAA apparently doesn’t require such systems for US-registered tri-jets and quads.
What I would expect to eventually happen is that the ICAO will combine the FAA’s “unlimited ETOPS” and EASA’s LROPS into a single, unified system that would cover all commercial airliners, regardless of the number of engines they have.
54. Chris Wallace | June 10th, 2009 at 19:19
No Chris.
FAA redefined ETOPS as “ExTended OPerationS”.
Please read the link I posted in my previous comment.
After diner I’ll give you more information.
See this link:
http://rgl.faa.gov/Regulatory_and_Guidance_Library/rgFinalRule.nsf/0/e38f186f9cc6717586257266005f3b91!OpenDocument
Quote:
I. Executive Summary
This rule is a result of the FAA’s desire to review the current body of rules and guidance for extended-range flight operations and to codify a uniform set of regulations for airplane and engine design in parts 21, 25, and 33, and airplane operations in parts 121 and 135.
Extended operations, or ETOPS, for long-range international travel provide many benefits related to savings in time, fuel, and operational efficiencies. However, there are unique safety concerns associated with these operations. When one travels great distances from airports, the safety of these operations depends on the risk of critical loss of engine thrust, additional system failures during a diversion for any cause, the distance from an adequate airport used in a diversion, and the conditions encountered upon arrival at the diversion airport. (emphasis added)
Quote:
The term ETOPS should be retained, but its definition should be changed to “extended operations” to highlight its application to all extended airplane operations. (emphasis added)
54. Chris Wallace | June 10th, 2009 at 19:19 What I would expect to eventually happen is that the ICAO will combine the FAA’s “unlimited ETOPS” and EASA’s LROPS into a single, unified system that would cover all commercial airliners, regardless of the number of engines they have.
The new ETOPS covers all commercial airliners that are operated under FAA rules, regardless the number of engines.
54. Chris Wallace | June 10th, 2009 at 19:19 ETOPS is an acronym for Extended-range Twin-engine Operational Performance Standards.
The equivalent for tri-jets and quads is known as LROPS – Long Range Operational Performance Standards.
Sorry to say this Chris, but Wikipedia entry on ETOPS is full of crap. Somebody has to correct it.
Falcon,
I certainly didn’t make any attempts at “mud-slinging”…I simply attempted to answer Skeptic’s question of:
“Then why on earth did they order this thing in the first place?””
From what I remembered, the “shrimp/prawn” situation was part of the deal.
So they did what I said they’d so – combine ETOPS and LROPS and then redefine ETOPS’ acronym to encompassing all commercial airliners, regardless of the number of engines.
Damn I’m good. *grin*
Falcon:
You must not read this blog on regular basis or you have poor reading comprehension skills. Your conclusion that because I’m often critical of Airbus necessarily makes me a Boeing Booster, which btw isn’t at all consistent with my musings here, leads me to believe you’re more of a nattering parrot rather than a bird of prey. A true bird of prey would learn to profit from the foibles of these pampered multi-nationals rather than wasting its time offering meaningless apologias on their behalf.
Leelaw,
That is not what I said. (make your own reading comprehension joke)
I did not label you a Blind Befender because you’re critical of Airbus. I said it was because you label everyone who isn’t always critical of Airbus and Airbusier.
B.t.w. when will we get your explanation as to what equitable slot distribution means to you and why that would be negative for VLA class aircrafts?
60. Chris Wallace | June 10th, 2009 at 22:30
Yes Chris. They did it in 2004.
“I did not label you a Blind Befender because you’re critical of Airbus. I said it was because you label everyone who isn’t always critical of Airbus and Airbusier.”
I find this to be nonsensical, but why belabor the point since nobody else is interested.
“what equitable slot distribution means to you and why that would be negative for VLA class aircrafts?”
Specifically, legal trading of take-off and landing slots at congested European Union airports, with such trading being unrestricted and made transparent in order to prevent anti-competitive behaviour by airlines. Many believe, that in the mid-term at least, this would allow for a considerable increase in the number of passengers transported without the necessity of having to “super-size” the equipment to accomplish that end.
Boeing has revised its forecast for the VLA segment, from 980 to 740 over the next 20 years, with freighters accounting for most of the decrease.
http://www.flightglobal.com/articles/2009/06/11/327746/boeing-slashes-forecast-for-large-aircraft-by-25.html
Falcon:
If it comes to that TG cancels then of course it is time for Airbus to re-evaluate the A380 program if it is time to end the program. If the answer is yes then the next question is if they should close immediately and take the costs of canceling existing orders or it is better to deliver and then close. There are a few variations but that is the gist.
I surely hope you are being sarcastic. Should a marginal carrier such at Thai cancle their order it’s hardly the end of the program. They are, what, 6 aircraft? Hardly worth being chicken little.
The A380 would survive a Thai cancelation. In the end, they are likely to just convert that order to something else that might actually be useful to them, like A330s or A320s. The same is true of ILFC. Kingfisher… well that’s anther barrel of beer. That order is just going to go away, probably VS as well, but hey.
Erik Bloodaxe,
No sarcasm. All programs should be evaluated in the same way; The likelihood of continuing generating better result than terminating. If the project is at loss or profit up to this point doesn’t matter, only the future using today as a starting point.
With the A380 having so few orders , slowing production rate and orders looking more uncertain a cancelation certainly should trigger a review.
That Thai is what you call a marginal carrier probably works against the A380 program as they typically can be expected to have a higher contracted price than tier 1 carriers.
Since I don’t have Airbus numbers I can’t say if loosing just the Thai order would be the nail in the coffin or not but with so few orders and things slowing down it could be.
IF the result is that the program is at a point where termination is the better option then there is a second important decision, terminate immediately or after delivering existing orders.
IF it turns out the better option is to deliver remaining orders you kind of delay the original termination decision to when it is time to order the long lead-time items for the last order and any event between now and then will trigger a new review.
This is how all programs should be evaluated. The 787 program is very safe because it has a lot of orders so it will take a lot of change for termination to become the better option. The 767 program is much more uncertain as there are few orders left and essentially it is the potential of the tanker program that decides its fate. Using the 767 as an example should make it easy for most people to understand that past profits should have no influence on the continuation of the program, only the future matters.
If Thai convert to another model(s) is good for Airbus and the program(s) they convert to but for the A380 it makes no difference.