Friday, January 3, 2014

Reposting Comment From The Guardian "The Case Of The A380"

Rarely does one come a cross a post that makes a salient point worthy of reposting. But I came across this comment on the Guardian today and felt it would be worthy of reposting about the case

Repost: by: Pat Logan  (Without his permission and worth the read, please say yes to reposting , and thank you.

Gaurdian Link

"I see most have rightly picked up on the lack of comparability of the two aircraft - I'd even go further and say that the A350-787 comparisons are wrong, as for most A350 variants the competition will be the B777X.

One other oddment to throw into the pot, though.
Which of the two firms got it right when deciding whether to invest in developing an "very large" aircraft?

Go back to the mid-late 1990s, and Airbus and Boeing reached opposite decisions about whether it was worth putting several billions into developing a 747 successor. Boeing opted for a relatively cheap rewinging and upgrade to produce the 747-8 and Airbus went for the 380. Boeing reckoned on a market of around 700 aircraft by 2030, Airbus reckoned 1700+. By 2006, market estimates by independent experts were in the 400-800 range.

Developing the A380 cost about €11Bn. It's at 259 orders, some 8 1/2 years after it's first flight. It's never yet hit the production rates that were forecast when the programme was launched, and by next year, it looks like Airbus will be having to build "white-tail" aircraft - i.e. built in advance of orders.

The original breakeven point (i.e. recovering development and production costs) was supposed to be 270 aircraft, but as development was delayed and the dollar:euro exchange rate fell, that rose and when anyone last made an announcement it was north of 400 units - that was in 2006.

Things have got worse since then. Sales and production have both been slower, there have been fixes needed to things like wing cracks, and production costs have risen. It's also probable that there's been much heavier discounting of aircraft than originally anticipated, as Airbus needs to fill production slots. there have been claims of discounts as high as 40% against list price.

Airbus is now only saying that the aircraft will break even on a unit basis (i.e the sales price will be higher than the production cost) in about 2015 (based on comments in 2010). Every aircraft delivered until then will have made a loss for Airbus. Note that it's only AFTER unit breakeven that any contribution is made to recover development and finance costs.

There have been 61 net orders over the last five years - a rate of 12/year. The delivery rate is about 20-25/year (and was originally supposed to be 30+)

They've been utterly quiet on when programme breakeven will happen for several years now. On a reasonable commercial guess, allowing for Airbus carrying the €11bn development cost on the books, plus delivering over 100 aircraft at a loss, plus the fact that Emirates has them by the balls and will be driving a VERY hard bargain for the aircraft they're taking, that breakeven point will have now to be well above the 400 forecast in 2006 - doing some crude numbers, and assuming the white-tails at best break even, I suspect north of 600 units.
Airbus probably needs to sell about 300 - 350 more aircraft to recover the original development costs, EVEN ASSUMING no losses on white tails, further development cost, etc. At that rate, it'd take another 25-30 years to hit breakeven. Bringing that forward either requires a sudden jump in demand or huge cuts in production cuts.

Oh, and of the aircraft currently on order, 30 are for an airline in receivership - "Kingfisher" of India.

Sooner or later, Airbus is going to have to take a huge write-down on the development cost of the A380. Which is going to mean that the French, German, UK and other governments will lose all of their launch-aid loans.

It's a hellish impressive pain - but it's looking like a commercial disaster." End Quote

Exactly my friend!