Iconic but unwanted: German investor to sell two A380s for parts
A German investment company, Dr. Peters Group, revealed on June 5, 2018, it will sell two A380 superjumbo passenger jets for parts after the aircraft were returned to the lessors by Singapore Airlines (SIA1) (SINGY) (SIA) and efforts to negotiate new leases with several interested airlines failed. Now, the world's largest iconic jetliner may be heading to the scrap yard, just 10 years after it entered service with the very same SIA.
Dr. Peters Group, which owns four used A380s, said it had decided to sell the parts of the two aircraft (the other two A380s could face the same fate) after talks with airlines – British Airways, IranAir and HiFly – failed. The company did not specify how many jets were involved but said they were spread between two funds, The Business Insider reports.
“After extensive as well as intensive negotiations with various airlines such as British Airways, HiFly and IranAir, Dr. Peters Group has decided to sell the aircraft components and will recommend this approach to its investors,” the Dortmund-based company said in a statement for Reuters.
Why did the talks fail? According to Anselm Gehling, the CEO of Dr. Peters, the lack of commitment to the aircraft from Airbus complicated transactions. “Given the size of the investment, some airlines weren’t sure about the future plans for the aircraft,” he was quoted as saying by Bloomberg.
What a difference a decade makes
The decision by the Dr. Peters Group to sell the superjumbos for parts is a fresh blow to the European plane maker’s efforts to maintain market interest in the double-decker, demand for which has been slacking, threatening the plane’s very existence.
The key reason behind the falling demand for what is the industry’s largest four-engine 544-seat wide-body jetliner is simple – today, many airlines prefer smaller twin-engine jets that are more efficient and easier to fill.
“This is a very large aircraft with a very small second-hand market,” aerospace analyst Howard Wheeldon told Reuters. “It’s too big. There was a battle for airline fashions and it lost out,” he added.
With the A380, Airbus aimed at hub-and-spoke traffic, the kind that would boost the demand for large planes. However, the market has shifted towards point-to-point traffic, with more and more direct flights between cities becoming available across the world.
"The A-380 is at best, a niche aircraft that works for a number of specific routes. You don't need to carry that many people on most sectors," Shukor Yusof of Endau Analytics was quoted as saying by The Straits Times.
The Airbus A380 reveal in Toulouse, France, on January 19, 2005 (Image source: wikimedia)
Simply put, the superjumbo is only attractive if airlines can carry enough passengers to improve overall yields. But, although the A380 is certified to carry up to 868 passengers, no airline has put more than 540 seats on the jet. For instance, SIA's current fleet of A380s all have up to 441 seats (in a 4-class configuration).
It could be noted that Boeing, parent to the jumbo jet, B747, ‘one-upped’ rival Airbus. The U.S. plane maker put its bets on point-to-point traffic. Convinced that airlines actually want efficiency rather than giant planes, the company started developing smaller, lighter planes, with more fuel-efficient carbon fiber composites.
Hence, the Boeing 787 Dreamliner came into existence and the company won the bet. Four years later, Airbus responded with its new A350. And today, airlines are opting to buy medium-sized planes, such as the Dreamliner, the A320neo, and the A350.
“The A380 is a well-regarded aircraft by airlines which operate it and by customers flying on it,” an independent air transport consultant John Strickland told the Telegraph. “Generally, however, twin-engine aircraft such as the Airbus A350 and the Boeing 777 reduce the financial risks involved with filling capacity and operating costs.”
Hunting for parts
According to Bloomberg, the superjumbo jets had an original list price of about $250 million at the time of the purchase in 2007, when they first came into service. Today the list price is more than $445 million, making it by far the most expensive Airbus model. However, if the aircraft are to be broken up and sold for parts, their components could generate $80 million per aircraft in revenue.
So just to be clear, the superjumbos will not be scrapped entirely. The process will see the two jets – currently in storage at Tarbes Lourdes Pyrénées Airport (LDE) in France, one of Europe’s biggest repositories for unwanted aircraft – combed for valuable parts. The company responsible for dismantling the aircraft – U.S.-based VAS Aero Services – will extract and then sell the parts through its global network of spare parts.
According to Dr. Peters Group, the deal would yield a positive return for investors in funds used to finance the jets, Reuters reports. Gehling of Dr. Peters observes a scarcity of second-hand components for the A380, which means that parts like landing gears and engines are more valuable. He says, some airlines have already inquired about the components. Meanwhile, the engines have already been removed and leased back to manufacturer Rolls-Royce for use as spares.
Lifeline for the superjumbo
Airbus maintains that the A380 will eventually prove itself as increasing travel demand saturates airport capacity at major cities. “We remain confident in the secondary market for the A380 and the potential to extend the operator base,” an Airbus spokesman said in a statement.
The plane maker has been trying to stimulate a second-hand market for the A380 to encourage airlines to invest into the jet, “knowing the asset would be worth the right amount when they decide to sell it on,” Reuters reports.
But while Airbus looks for more business, the overall demand for the A380 is thinning, forcing the manufacturer to significantly slow down production. Some airlines have been ordering A380s, but in small quantities. For instance, British Airways has 12 of these jets in its fleet of 270 aircraft.
So let us take a look at Airbus order book. As of April 30, 2018, it shows that the A380 has a total of 331 orders, 226 deliveries, and 226 jets in operation. When compared to the orders and deliveries of other wide-bodies, the A380 is the least popular kid on the block.
For instance, the A330/A340/A350 have accumulated 2,911 total orders, with 1,946 deliveries and 1,808 of these aircraft in operation. The other jets that are also not doing so well, yet still ahead of the A380, are A300/A310, which brought in 816 orders, 816 deliveries, with 315 of the aircraft being in operation.
Overall, according to the data by the Telegraph, 13 airlines around the world currently own the superjumbo. By far the largest (and most loyal) A380 customer is Emirates with a total of 102 jets in service. Second in line – SIA with 21 of these jets. Third – Lufthansa (LHAB) (LHA) with 14 of them. The airlines operating the A380 include British Airways, Air France, Qantas, Etihad, Qatar Airways among others.
Emirates A380 taking off (Image source: wikimedia)
However, the two primary customers of the A380 – SIA and Emirates – have provided the loss-making program a lifeline for a decade. Yes, SIA returned the two superjumbo jets to Dr. Peters Group, following the airline’s decision not to keep them in service, after their 10-year lease expired. But the airline recently ordered some new A380s.
SIA’s fleet consists of both Airbus and Boeing aircraft. Of its Airbus fleet, the airline operates A330-300s, A350-900s, and A380-800s. Planespotters website indicates that as of June 3, 2018, the carrier has 18 A380-800s in service and two on order; the average age of these jets’ fleet is estimated at around 7 years.
Singapore Airlines A380 taking off (Image source: wikimedia)
And then there is Emirates. With a fleet of 102 superjumbos, as the Telegraph indicates, it is one of the few airlines able to draw the maximum value out of the four-engine double-decker. The superjumbo jet is associated with the airline’s global brand and is the core of Emirates long-haul fleet.
Emirates exclusively flies A380s and Boeing 777s. As of August 2017, it had 96 A380s in its fleet and 46 more on order. In February 2018, the airline ordered up to 36 more A380s. According to a different source, as of May 27, 2018, the airline has 103 A380s in its fleet and another 15 on order, according to Planespotters; the average age of the aircraft fleet is around 4.6 years.
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