ILFC chief Steven Udvar-Hazy pulled no punches on the future of the A380, entertaining a cancellation, expressing concern about the production plan, conversion costs and future cargo variants."We are asking ourselves if we are really going to take delivery of the 10 planes," said Udvar-Hazy at this years IATA general meeting in Kuala Lumpur to German business weekly Wirtschaftswoche.
Udvar-Hazy cited changing market dynamics and waning interest in the European superjumbo as the factors driving the lessors decision making.
ILFC says it can cancel its order without penalty between January and June 2009, with options of delivery deferral or conversion to another aircraft type also being considered. It would be the first cancellation for the passenger version of the A380.
Udvar-Hazy expressed concern about the aircraft's ability to operate on as many routes as previously expected, adding that "interest is weaker than expected in particular among the Chinese."
"In this recession, operating economics are critical," said Sir Richard Branson exclusively to FlightBlogger.
"Airlines need to ensure that they have the right number of seats during a period of lower demand otherwise their bills are going to be unmanageable. A380 operators will be questioning if they've got the right aircraft at the right time and whether they can make it a profitable aircraft type over the next two years," said Branson.
Virgin Atlantic Airways holds firm orders for 6 A380 aircraft.
The A380 is good for niche routes but "if Dubai - New York doesn't work, I'm not sure what does," said Richard Aboulafia, vice president of analysis for the Teal Group.
Emirates, the largest customer for the A380, downsized its Dubai - New York-JFK flight on June 1st from a daily A380 to 777-300ER after poor load factors on the route.
ILFC's order for ten A380s is valued at $3 billion and is the only lessor to have placed an order for the type.
Udvar-Hazy also sees the estimated $25 million cost of converting the airplane from one airline to another as prohibitively for lessors. Adding, that the development of the A380 freighter variant is "dead."
Udvar-Hazy sees the slowing A380 production rate as a threat to Airbus as well.
"If I were Airbus I would be very worried," said Udvar-Hazy. "At current production rhythms, it will be very hard to make money with this plane," he said.
Airbus announced a 2009 A380 production cut on May 6th from 18 to 14 aircraft, with "more than 20" planned for delivery in 2010.
Aboulafia sees "no hope" that Airbus will ever be able to pay back its non-recurring launch costs and that the A380 program will survive on cash flow enabled by accelerated production, though the economy leaves the company in a precarious situation as it looks to the future.
"What matters now is the A350. That's a seriously important plane," says Aboulafia.
Airbus holds orders for 200 A380s from 16 customers.
on June 8, 2009 1:12 PM | Reply
State of Airbus
"Break even point? I don't need no stinkn break even point"
We are going to borrow billions from the governments of Europe to build the A-350
Can't sell the A-380
Can't build the A-400
Boeing is the the problem because they are over weight and late.
and finally
Airbus is not in denial!
on June 8, 2009 1:24 PM | Reply
Check out there 124 comments following the editorial entitled " The Great Debate" on www.fleetbuzzeditorial.com
There seem to be no end to the various opinions, projections, scenarious and speculations concerning this subject.
on June 8, 2009 1:31 PM | Reply
I have said it before and I will say it again. Nothing beats a superjumbo for cost per available seat-mile. But when load factors drop, it will eat you alive, financially.
on June 8, 2009 2:38 PM | Reply
Back to Cost Accounting 101. Using current factors of inflation, unkown delays, sales, and pricing into the Break-even point analysis, airbus will have to produce 25 a year over the next 12 years to reach its first euro of profit. Time value of borrowings not factored in or other economic conditions, this seems to be such a high risk gamble making the A380 "the lost leader" of aircraft marketing. Break-even after 14 years into a production cycl (with extreme optimisim) is a lot of risk. Because, the market cannot sustain sales for aircraft of this size, rapidly technologies, and competition, Airbus will have risks realized and will sink thA 380 venture within five years. Only 14 aicraft have been produced since its original delivery target three years ago and fourteen this year. Concerning Udvar-Hazy comments, a very important customer, he has made a very important public statement about market stategy. Ouch! Boeing needs to sharpen its pencil when considering lessons learned.
on June 8, 2009 5:38 PM | Reply
Perhaps as a point of comparison it would be helpful to see a comparative break even point for the original 747 as well as what kind of initial entry delay it suffered. Remember when it first took to the skies there were a lot of people doubting that the 747 would survive.
on June 8, 2009 7:13 PM | Reply
A few more news storys like that Jon and you'll have upper Airbus management jumping out windows with some assitance.
on June 8, 2009 8:12 PM | Reply
For once I am not convinced on the neutrality of Udvar-Hazy's analysis.
I have the strong feeling that this is just an excuse to cancel an order that ILFC can no longer afford.
We will see in a few years how it turns out for the A380 and may be people will then remember how the early years of the 747 commercial life were difficult.
on June 8, 2009 9:20 PM | Reply
747 had size and range advantages. A380 only has size. There was no competitions in 747 early years. Now we have 777, 747, 787, A350. It is a different world.
on June 8, 2009 9:54 PM | Reply
I understand that it's always aerospace news when Hazy speaks, but he's been saying this for over a year now. As I recall, when he pointed out the center wingbox flaw at the JPMorgan conference a couple of years ago, he made the same point--that ILFC can cancel its order for some time without penalty, and it sounded very much like he was already planning to cancel it.
In the end, WingBender is right--the A380 looks good when you are looking solely at how many people you can pack into it, the associated seatmile costs, and the economy of scale. But when you do that you forget how cyclical the business is and how a fleet needs to be engineered as much for flexibility as anything else.
The A380 looks like a great plane by all accounts, but it seems like it's about a decade or more ahead of its time--it really does need that absolute congestion on the trunk lines.
Finally, just one last point about the 747 in its early years--not only was it the only plane of its size, but it was also the only one of its range...so if you wanted to fly long range, you had to buy a 747.
on June 8, 2009 10:09 PM | Reply
I don't dispute that the 747 had the range advantage when it was introduced. What I wonder is if an objective comparison of the time of entry economics and rhetoric was done if we wouldn't see that Boeing faced many of the same issues. I would check my Boeing books, but they are all packed for a move next week.
on June 8, 2009 11:45 PM | Reply
The A380/747 work if airlines can aggregate passengers via the hub-and-spoke model, which is currently toast mainly because of the 777/A330 birds that can serve smaller markets thus taking away the feeder routes. This model will vaporize when the 787/A350 come on line which will take away whatever routes remain(except those serviced by the Cessna Caravan ;-)). Also more international airports mean even less of a market for the 380/747. Until a few years ago, there were just 4 international airports in India; today there are a dozen and the story is the same elsewhere.
Unless airlines can figure out a way of stuffing 500+ passengers into a point-to-point model in this very fragmented market, I think the bell has already tolled for the 380.
The 747 story is very different from the 380. For one, the 747 has already made tons of money for Boeing by riding the hub-and-spoke wave; the -8 will make more money because a) it is being sold mainly as a freighter b) bears only incremental development costs c) there's no 380 freighter to take it on.
on June 9, 2009 12:32 AM | Reply
I forgot to add the 767 to the 777/A330 in my second sentence. Even the 757 is being pressed into service on international routes by Delta on their RDU/PIT->CDG routes.
on June 9, 2009 6:40 AM | Reply
Maker's preoccupation with size could be the root of the trouble. Think of making a good airplane that fits the marketplace, not one that brings you glory, beats the Americans, etc.
on June 9, 2009 7:14 AM | Reply
He is probably saber rattling. The recession and downturn in air travel started last year and he could have cancelled these orders without penalty since Jan. So why all the fuss now?
Since there are three weeks left in June, let's see whether he is bluffing or not
on June 9, 2009 8:31 AM | Reply
Making threats through the press is obviously a stategy. What will be said in private will be very different.
Bottom line is that in the wide-body market, there is enough business for both Boeing and Airbus.
As a passenger, I choose flights on the basis of a 4 engined jet first before I choose the carrier or the price. I fly from Cape Town to Europe often, above the storms that occur at the equator, so my peace of mind is paramount.
An A380 or A340 or even a B744 rates much higher than a twin in my book - so, if there is enough of passengers like me out there that need to fly, the A380 will always have a market.
on June 9, 2009 9:24 AM | Reply
The last twin-engine wide body crash involving fatalities prior to last week's Air France 447 incident was AA Flight 587 (Airbus A300-600) in Dec 2001 in NY. And there's very little difference in the ride between two and four engined wide-body behemoths even in rough weather (I've flown quite a bit on both for nearly 30 years). So, except for the psychological pillow that two extra engines provide, there's no evidence proving that four engines are better than two.
Maybe Udvar-Hazy has realized that the numbers just won't add up from the data available since the A380 entered service, so he's trying to haggle down the price in the press for them to make bottom-line sense.
on June 9, 2009 10:35 AM | Reply
Udvar-Hazy's assessment of the A380 "Super Dumbo" are following a trend in the airline industry. Many airlines are probably happier filling a smaller airplane to capacity and risk the problem of not having enough seats, Verses the wallet wrenching thought of watching the "Super Dumbo" fly away when the break even load factors haven’t been reached.
The A380 also just doesn’t have the flexibility to be moved off certain routes due to is mammoth size.
on June 9, 2009 2:23 PM | Reply
Jerry, I believe the piece you refer to is actually called "The Big Debate", here is the url to it:
http://www.fleetbuzzeditorial.com/2009/06/03/a380-747
on June 10, 2009 2:12 AM | Reply
T: Varadaraj, Layman,
I am reminded of the story about the engine manufacturer CEO who, when asked why he only flew on 4 engine aircraft, replied, "because there are none with 5".
Perhaps the events of the last 8 years would indicate that twins are as safe as multis but there are many who still believe in the safety factor of having those extra backups up there. Was there not a couple of incidents with 747s a few years ago, where they were down to 2 engines?
Mr. Udvar-Hazy is doing what he does best, being a businessman. His company is not exactly flush with cash right now and its credit rating (through little fault of his own, aside from selling it to AIG) is not exactly the powerful weapon that it was in the past. Why he feels the need to make such statements in public his business.
The A380 seems to be holding their own for most routes, even in this, what most people describe as, an exceptional downturn. Question is, will such downturns continue to haunt us in the next 20 years?
I would not be surprised if the A380 order is delayed for a year or 2. Or perhaps a switch to other model types to be delivered first and the A380s to come in 3 or 4 years, when the economy recovers. When would he receive these A380s anyway?
It would say more about ILFC's financial status, rather than the quality or utility of Airbus products, should he out and out cancel.