ANA’s Big Decision

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.

8 comments July 7th, 2008