As Airbus terminates production in 2021, IBA presents the professional appraiser’s view.
Lead author: Lewis Leslie, Aviation Analyst & Co-author: David Archer, Senior Analyst
The introduction of the Airbus A380-800 was a moment that changed the airline industry forever, not just from an engineering perspective, but for the passenger. The implementation of an airliner of this size, designed for long-range hub-to-hub route operation, has allowed for full-service carriers such as Emirates, Etihad and Singapore Airlines to develop and redefine the luxury on-board passenger experience. Unfortunately, the strategic marketing of this aircraft combined with its underlying economic abnormalities meant that the Airbus A380-800 faced complex challenges right from its inception. From an appraiser’s perspective, it is important to understand the implications of the decision to end production of the Airbus A380-800 on its value and what the future holds for airlines and investors.
The total active fleet of the Airbus A380-800 stands at 232 aircraft, with 218 active, 11 parked and 3 stored. From an operator perspective, Emirates operates the largest number of A380-800s, with 109 in its current fleet, of which 66 aircraft are owned and 43 are leased. Singapore Airlines is the next largest operator with 19 aircraft in its current fleet, of which 16 aircraft are owned and 3 are leased. In terms of operator distribution, Emirates has 47% of the global fleet. Notably, the majority of carriers that operate the Airbus A380-800 (excluding Hi Fly and the proposed “Project Amal”) are flag carriers, operating predominantly under the full-service business model.
In terms of the aircraft’s order book, the Airbus A380-800 has struggled to sustain a stable order stream over the past several years. This is due to a multitude of factors including; the fixed and variable costs associated with the aircraft, availability of more efficient twin-engined aircraft, airport infrastructure investment and over-capacity risk. As exemplified in the next graph, the jet fuel price has shown volatile characteristics since the aircraft’s entry into service. Couple this with increasing labour and maintenance costs and the cost-per-seat-mile makes it difficult to justify operating the Airbus A380 on many airline route networks. Consequently, there has been an appetite for smaller twin-engined widebody aircraft such as the Airbus A330neo, Airbus A350, Boeing 787 and Boeing 777 families.
Analysing the global fleet of Airbus A380-800 aircraft, 38% are leased to airlines. IBA’s online intelligence platform, IBA.iQ, shows that a significant number of leases are set to expire between 2023 and 2029. This presents questions for lessors and airlines alike on whether to extend the leases, redeliver and remarket the aircraft or a part-out scenario. An aspect to consider in a remarketing situation of this aircraft is the high cost of transition that would be necessary in order to place it into service with an alternate carrier. Considering even in a hypothetical situation, going from a full-service operator to another full-service that already operates the aircraft, the differentiation in product and BFE (Buyer Furnished Equipment) offered is vast. At this current point in time, remarketing the aircraft to an airline that utilises the low-cost carrier business model appears unlikely, as the transition scenario and cost alone present numerous obstacles.
Two engine options are available for the Airbus A380 platform capable of providing 70-80,000lb thrust, the GP7000 designed by the Engine Alliance joint venture between General Electric and Pratt & Whitney and the Trent 900 designed by Rolls-Royce. The GP7000 is made up of a scaled down GE90 core with Pratt & Whitney low pressure modules, whilst the Trent 900 maintains Rolls-Royce’s three spool design architecture. The GP7000 achieved initial market dominance which remains today with just over 55% of the engine market. However, in 2015 Emirates’ switch to the Trent 900 offered a much stronger future for the engine given the larger proportion of younger engines when production eventually ends. With Airbus now ending production and Emirates cancelling a substantial proportion of its order book, the future of these engines is now in question.
It is also important to consider the operational aspects of this aircraft. The wingspan of 80 metres and a maximum take-off weight of up to 575,000kg impact the airports that the Airbus A380-800 can service. There are also regulations the airports must adhere to in order to safely allow operation of such an aircraft, for example wider runways and taxiways or gate enhancement to mention three. The costs for these stipulations can be high, however a large number of international airports have addressed this since the A380’s entry into service and the consequences of the investment have been widely reported as positive.
The airlines with aircraft on lease also have to consider if they decide not to extend the lease of their Airbus A380800, the impact to their network, scheduling, slots and overall operation, as well as the appropriate replacement aircraft. Emirates has recently chosen to order 40 Airbus A330-900 neo and 30 Airbus A350-900 aircraft whilst simultaneously cancelling 39 of its 53 Airbus A380 orders, with intentions to still take delivery of the remaining 14 Airbus A380-800s. As well as Emirates, Qatar Airways has indicated their willingness to retire the Airbus A380800 fleet once the aircraft have reached ten years of age furthermore, the airline is looking to replace these aircraft with Boeing 777X aircraft. Conversely, CEO of International Airlines Group (IAG) Willie Walsh has commented on the aircraft and would consider taking more of the Airbus A380800 if the price was right. British Airways, an operating company within IAG, currently operates 12 Airbus A380800 aircraft (10 leased, 2 owned).
Ultimately, the events in recent days will have implications on the aircraft from a value standpoint. However, these ramifications will not be instantaneous and will be spread over the long-term operation of this aircraft. As the average age of the fleet (currently 5.9 years) increases gradually and the market supply/demand fluctuates, the aircraft value performance could be volatile, but this is unlikely to affect the value until at least after production finishes in 2021. It is uncertain what the future of the value and operation of the Airbus A380-800 will be in the long-term. Niche operations such as Hi Fly or “Project Amal” are likely to become more prevalent, as well as part-out operations to serve the remaining operating fleet. Crucial questions remain for the rest of the fleet, will a low-cost operator ever take hold of one? Will there be any aftermarket modifications made? What will the secondary market look like by 2030?
For now, IBA believes in the short-term, the current value performance of the Airbus A380-800 will continue to exhibit similar trends as seen in recent years. IBA also believes that a number of carriers that currently operate the aircraft are committed to the Airbus A380-800 for the foreseeable future and it is highly probable that they will extend those leases when they reach expiry point.
The long-term future of this aircraft remains uncertain and while the cancellation of the production program could produce further volatility in years to come, the value outlook of this aircraft will be largely dependent on the future fleet planning decisions of the current operators and external macroeconomic factors.
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